REVENUE MANAGEMENT

Submitted by-Arushi chadha

Msc 1st year

AGENDA The Concept of Revenue Management

Hotel Industry Applications Benefits of the techniques Areas where this concept is applied How the concept is applied

Measuring Yield Yield statistic Potential Revenue Potential Average Single Rate Potential Average Double Rate Multiple Occupancy Percentage Rate Spread Potential Average Rate Room Rate Achievement Factor Identical Yields Equivalent Occupancy

Benefits of Revenue Management

CONCEPT OF REVENUE MANAGEMENT

“Selling the right product to the right customer at the right time for the right price.”

-Robert G. Cross Aeronomics

Revenue Management is the art and science of enhancing firm’s revenues while selling essentially the same amount of products

or Revenue Management is a technique to optimize the revenue earned from a fixed, perishable resource.

HISTORY

Before its emergence BOAC (now British Airways) experimented with differentiated fare products.

The concept was pioneered by Robert Crandall CEO of American Airlines in the year 1985.

First major users were American Airlines and Delta Airlines.

In 1990 it spread to other travel and transport companies, specially at national Car Rental.

By the early 1990s the concept also began to influence television ad sales.

The concept was first started in hotel by Bill Marriott, Jr, CEO of Marriott International in the 90s.

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Fixed amount of resources available for sale.

The resources sold are perishable.

Different customers are willing to pay a different price for using the same amount of resources.

3 ESSENTIAL CONDITIONS FOR REVENUE MANAGEMENT TO BE APPLICABLE

AREAS OF APPLICATION

Hotels .

Aviation.

Media/ telecom.

Car Rentals.

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Cruise Liners.

Financial services.

Apartments.

Medical services.

REVENUE MANAGEMENT TEAM WITH HIERARCHYOF AN INDIAN 5 HOTEL

Regional Sales & Marketing Manager

Business Development Manager

Asst. Business Development Manager

Sales Coordinator

Reservation & Revenue Executive

Reservation & Revenue Associate

Yield Management is based on Demand and Supply.

The Hotel Industry’s Focus is shifting from High Volume Booking to High Profit Booking.

THE CONCEPT OF YIELD MANAGEMENT

The Commodity that the Hotel sells is Time in a Given Space, and if it is Unsold, Revenue is lost forever.

Yield Management is composed of a set of Demand Forecasting Techniques used to determine whether Room Rates should be raised or lowered, and whether a Reservation should be accepted or rejected in order to maximize Revenue.

In order to maximize Revenue, the Front Office Manager needs to forecast Information concerning Capacity Management, Discount Allocation, and Duration Control.

HOTEL INDUSTRY APPLICATIONS

It tries to solve the following Problems:

Controlling and limiting Room Supply

Balancing the Risk of Overselling Guest Rooms with the Potential Loss of Rooms arising from Room Spoilage

Determining how many Walk-ins to accept during the Day of Arrival, given projected cancellations, no-show and early departures.

CAPACITY MANAGEMENT

Involves restricting the Time Period and Product Mix Available at reduced or discounted Rates, and limiting Discounts by Room Type through encouraging Upselling

DISCOUNT ALLOCATION

DURATION CONTROL

Places time constraints on accepting reservations in order to protect sufficient space for multi-day requests.

MEASURING YIELD

Yield Statistic is the Ratio of the Actual Revenue (Generated by the Number of Rooms Sold) to Potential Revenue (The Amount of Money that would be received from the Sales of Rooms in the Hotel at a Rack Rate)

YIELD STATISTIC

YIELD STATISTIC FORMULASFormula 1

Actual Rooms RevenuePotential Rooms Revenue

OR

Room Nights Sold × Actual Average Room RateRoom Nights Available Potential Average Rate

OROccupancy Percentage Room Rate Achievement

Factor

POTENTIAL REVENUE

It is the maximum revenue that could

have been generated by a hotel in one

day.

POTENTIAL AVERAGE SINGLE RATE

Formula 2:

Single Room Revenues at Rack RateNumber of Rooms Sold as Singles

Formula 3:

POTENTIAL AVERAGE DOUBLE RATE

Double Room Revenues at Rack RateNumber of Rooms Sold as Doubles

Formula 4:

Number of Rooms Occupied by more than 1

Person

Total Number of Rooms Sold

MULTIPLE OCCUPANCY PERCENTAGE

Formula 5:

RATE SPREAD

Potential Average Double Rate Potential Average Single Rate

Formula 6:

POTENTIAL AVERAGE RATE

(Multiple Occupancy % Rate Spread) Potential Average Single Rate

24

ROOM RATE ACHIEVEMENT FACTOR

Actual Average RatePotential Average Rate

Formula 7:

IDENTICAL YIELDS

Formula 8:

Identical Yield Occupancy Percentage =

Current Occupancy Percentage

Current Average RateProposed Average

Rate

Formula 9:

Equivalent Occupancy = Current Occupancy

Percentage ×

−Marginal cost

Equivalent Occupancy = Current Occupancy Percentage × Contribution Margin New Contribution Margin

Rack Rate – Marginal CostRack Rate × (1- Discount Percentage)

EQUIVALENT OCCUPANCY

BENEFITS OF REVENUE

MANAGEMENT Improved forecasting Improved seasonal

pricing and inventory decisions

Identification of new market segments

Identification of market segment demands

Enhanced coordination between the front office and sales divisions

Determination of discounting activity Improved development of short-term and

long-term business plans Establishment of a value-based rate

structure Increased business and profits Savings in labor costs and other operating

expenses Initiation of consistent guest-contact

scripting

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