Hilton Woodland Hills Tour Paper

Yield Management aka Revenue Management

Chapter 10 page 235

METHOD OF CONTROLLING & MANAGING CAPACITY PROFITABLY A SET OF MAXIMIZATION STRATEGIES & TECHNIQUES THAT MAY IMPROVE THE PROFITABILITY OF A LODGING BUSINESS AS IT OPERATES IN A FIXED CAPACITY ENVIRONMENT

Originated in 1970’s with the deregulation of the airline industry

Factors that influence(d)

• Since 9/11

• The wars in Iraq & Afghanistan

• Terroristic threats

• Increase in gas $$

• Sluggish economy

• Negative effects on the traveling public

• GM’s w/no RM focus or experience

• Not meeting forecasted numbers

• Share holders unwilling to concede losses

• RM a necessary survival skill

YM is the combination of processes, analyses & techniques a hotel or lodging business applies to the

rooms to get the guest to pay as much as possible

Computer models now available

Real-time monitoring of sold inventory

Constant updating

How it works:

Inelastic Demand

• The person who needs a room in a particular city and will pay whatever it costs within reason. (Wall street, Sunday – Thursday business travel, etc)

• A certain percentage will come to your hotel no matter what

• Therefore the operator has no reason to discount inelastic demand

Elastic Demand

• A guest who can be influenced to stay at our hotel if the price is right or other circumstances

• Wants as many as they can using whatever discount it can

• Alternative is empty beds

• If too much discounts it “dilutes yield”

MORE BUSINESS MAY NOT BE GOOD BUSINESS

Expedia, Travelocity, Priceline, Sports groups w/quad occupancy, travel commissions, etc.

A room night is conducive to a YM system because:

(the ultimate benefit is increased revenue)

It is perishable It typically has a fixed capacity It carries high fixed costs & low variable costs The operator can require advance reservations It has variable time demand The operator has the ability to design an appropriate cost & pricing structure It is sold to markets that can be segmented

Key Information Needed

 Day, week, quarter and year

 Historical

 Actual and forecast knowledge

 Anomaly

 Holiday – date/month they fall in i.e. Easter, Mother’s Day, etc.

 Market segmentation

 Competitive pricing methods

 Integrated information

Pricing

i. Hotels use competitive pricing surveys

ii. Call arounds to determine comp set rates during a specific time frame

iii. The market leader sets the pace for all of its competitors with a chain reaction (similar to the airline industry)

iv. May price themselves out of the market causing lost guests and dissatisfaction to the loyal guests

v. Compression in the area

Integrated Information

• A print out of the hotels occupancy/groups are generated each week & given to each department weekly

• Critical to the operation teams for scheduling efficiently of all areas, valet, housekeeping, F&B, FD, etc.

• This responsibility can vary by hotel if no YM:

• 1. General Manager

• 2. Room Division Manager/FD/Reservationist

• 3. Sales/Marketing

• 4. Assistant GM

Rooms Revenue / # of rooms sold = ADR

ex: $30,000 / 50 = $600

ADR x Occupancy % = REVPAR $120 x75% = $90 = REVPAR

Achieving Yield Management 3 Approaches to Achieving YM that does not deviate

1) Controlling Rates a) Booking curve = trigger points ie. Days of the week, holidays,

special events which occupancy & rate is achieved b) Bid price = mathematical approach to open/close rate

classes. # of class is limited / when rooms fill up in the discount rate only the higher rates become available

2) Allocating Rooms a) minimum & maximum length of stay b) strict controls can restrict demand c) lenient controls w/result in lost revenue due to low

rates d) Super Bowl demand set high on length of stay before

and after ensuring higher occupancy & higher rated bus.

Achieving Yield Management

3 Approaches to Achieving YM that does not deviate

3) Establishing Availability Controls a) Common in the airline industry/set limits on

seats in each rate category same for hotels b) Rooms priced by type w/determined amount

then sell out by type. Less expensive or undesirable rooms i.e. by the elevator, farthest from the elevators, near egress doors sell out

c) This method attempts to maximize revenue on room capacity and demand