Yield Management

Revenue ManagementRevenue ManagementYIELD MANAGEMENT YIELD MANAGEMENT

ANAND BANDA ANAND BANDA

OBJECTIVESOBJECTIVES

Review occupancy percentage and its Review occupancy percentage and its effectivenesseffectiveness

Review average daily rate and its effectivenessReview average daily rate and its effectiveness Review RevPAR and its effectivenessReview RevPAR and its effectiveness Discuss history of revenue managementDiscuss history of revenue management Discuss use of revenue managementDiscuss use of revenue management Outline components of revenue managementOutline components of revenue management

YIELD MANAGEMENT YIELD MANAGEMENT ANAND BANDAANAND BANDA

History of Yield ManagementHistory of Yield Management Airline industry’s use of yield ManagementAirline industry’s use of yield Management

Deregulation of airlines in late 1970s “Take It or Deregulation of airlines in late 1970s “Take It or Leave It”Leave It”

Certain periods, certain seats, certain flights…Certain periods, certain seats, certain flights… similarities of the airline industry and hotel similarities of the airline industry and hotel

industryindustry• Volatile productVolatile product• Demand periods which places the producers in a Demand periods which places the producers in a

favorable positionfavorable position Indicate differences of the airline industry and Indicate differences of the airline industry and

hotel industry in using yield managementhotel industry in using yield management• Hotel groups can spend large amounts of money Hotel groups can spend large amounts of money

on-site for food and beverage on-site for food and beverage

Yield managementYield management: Yield management is : Yield management is a process to achieve maximum room rates a process to achieve maximum room rates and most profitable guest (profit from and most profitable guest (profit from guest spending on hotels food & beverage guest spending on hotels food & beverage outlets, health club, gift shop etc). It is a outlets, health club, gift shop etc). It is a part of successful administration of part of successful administration of reservations system, which helps reservations system, which helps managers to produce a favorable income managers to produce a favorable income statement.statement.

Use of Yield ManagementUse of Yield Management

Goals of yield managementGoals of yield management Maximize profit for guest room salesMaximize profit for guest room sales Maximize profit for hotel services Maximize profit for hotel services

(food, beverage, and convention services)(food, beverage, and convention services)

maxim Revenue Management Solutions maxim Revenue Management Solutions (MaximRMS)(MaximRMS)

Definition of Occupancy PercentageDefinition of Occupancy Percentage

Occupancy Percentage - Occupancy Percentage - reveals the success of a reveals the success of a hotel’s staff in attracting guests to a particular propertyhotel’s staff in attracting guests to a particular property

____Number of Rooms SoldNumber of Rooms Sold x 100 x 100 Number of rooms availableNumber of rooms available

Double Occupancy Percentage – Double Occupancy Percentage – measure of a hotel measure of a hotel staff’s ability to attract more than one guest to a room; staff’s ability to attract more than one guest to a room; thus a higher room rate and additional incomethus a higher room rate and additional income

Number of Guests – Number of Rooms SoldNumber of Guests – Number of Rooms Sold x 100 x 100 Number of Rooms SoldNumber of Rooms Sold

YIELD MANAGEMENT ANAND BANDAYIELD MANAGEMENT ANAND BANDA

Definition of Average Daily Rate Definition of Average Daily Rate ADRADR

Average Daily Rate (ADR) - Average Daily Rate (ADR) - A measure of A measure of the hotel’s staff efforts in selling available room ratesthe hotel’s staff efforts in selling available room rates

Total Room SalesTotal Room SalesNumber of Rooms SoldNumber of Rooms Sold

YIELD MANAGEMENT ANAND YIELD MANAGEMENT ANAND BANDABANDA

Definition of RevPARDefinition of RevPAR

RevPARRevPAR – ability of a hotel to produce income and – ability of a hotel to produce income and how many dollars each room is producing.how many dollars each room is producing.

Room RevenueRoom RevenueNumber of Available RoomsNumber of Available Rooms

ororHotel occupancy % x ADRHotel occupancy % x ADR

YIELD MANAGEMENT ANAND BANDAYIELD MANAGEMENT ANAND BANDA

Discussion QuestionDiscussion Question

Utility of Occupancy percentage, ADR, and Utility of Occupancy percentage, ADR, and RevPAR?RevPAR?

• Used to project room revenuesUsed to project room revenues

• Demonstrate how room revenue is Demonstrate how room revenue is calculatedcalculated

• Leads into Revenue ManagementLeads into Revenue Management

Components of Revenue ManagementComponents of Revenue Management

Yield – the percentage of income that could be secured if 100% of Yield – the percentage of income that could be secured if 100% of available rooms are sold at their full rack rate (highest room rate posted for available rooms are sold at their full rack rate (highest room rate posted for a room in a hotel)a room in a hotel)

Revenue RealizedRevenue Realized Number of Rooms Sold x Actual RateNumber of Rooms Sold x Actual Rate Revenue Potential Revenue Potential Number of Rooms Available for Sale x Rack RateNumber of Rooms Available for Sale x Rack Rate Yield = Yield = Revenue Realized (# Rooms Sold x ADR)Revenue Realized (# Rooms Sold x ADR) Revenue Potential (# Rooms Available x Rack Revenue Potential (# Rooms Available x Rack

Rate)Rate)

Yield =Yield = Revenue Realized (# Rooms Sold x ADR)Revenue Realized (# Rooms Sold x ADR) Revenue Potential (# Rooms Available x Rack Revenue Potential (# Rooms Available x Rack

Rate)Rate)

Compare and contrast the concepts of yield Compare and contrast the concepts of yield and occupancy percentageand occupancy percentage

Components of Revenue Management (cont’d.)Components of Revenue Management (cont’d.)

Optimal Occupancy and Optimal Occupancy and Optimal Rate Optimal Rate

Optimal occupancy-Optimal occupancy- Achieving 100% Achieving 100% occupancy with room sales which will yield occupancy with room sales which will yield the highest room rate.the highest room rate.

Optimal RateOptimal Rate - A room rate which - A room rate which approaches the rack rate.approaches the rack rate.

StrategiesStrategiescomponents and strategies to employ when using components and strategies to employ when using

yield Managementyield Management High demand for rooms = Maximize room High demand for rooms = Maximize room

ratesrates LowLow demand for rooms = Maximize room sales demand for rooms = Maximize room sales

establish target numbers sales, manipulation of rates in establish target numbers sales, manipulation of rates in the electronic distribution channels as well as revenue the electronic distribution channels as well as revenue drivers within the organization (central reservations, drivers within the organization (central reservations, property-level reservations, and sales department, and property-level reservations, and sales department, and web site)web site)

ForecastingForecasting Importance of daily accuracy in forecasting.Importance of daily accuracy in forecasting. Room availability forecast formulae:Room availability forecast formulae: Once the relevant occupancy statistics have been Once the relevant occupancy statistics have been

gathered the number of rooms available for sale on any gathered the number of rooms available for sale on any given date can be determined by the following formulaegiven date can be determined by the following formulae

Total no of roomsTotal no of rooms - no of ooo rooms- no of ooo rooms - no of stay overs- no of stay overs - no of reservations- no of reservations - no of reservations x % of no show- no of reservations x % of no show + no of under stays+ no of under stays - no of over stays- no of over stays = ROOMS AVAILABLE FOR SALE= ROOMS AVAILABLE FOR SALE

Block-Out PeriodsBlock-Out Periods

Block-out periods - Tagging certain dates Block-out periods - Tagging certain dates in a time period when rooms have to be in a time period when rooms have to be sold at a certain rate and/or certain sold at a certain rate and/or certain number of minimum room rental nights.number of minimum room rental nights.

It is also called as Blanket reservationIt is also called as Blanket reservation

Management Challenges In Using Management Challenges In Using Revenue ManagementRevenue Management

Alienation of CustomersAlienation of Customers Minimum stay requirementsMinimum stay requirements Price gougePrice gouge

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