Contract Law & Typical Revenue Management Strategies

Adapted from:

Ingold, A, McMahon-Beattie U, Yoeman I. (2000) Yield Management Strategies for the

Service Industries (2 Ed) Continuum.

Boella, M, Pannett, A. (1999) Principles of Hospitality Law (2 Ed) Cassell.

_______________________________________________________________________
__

Yield Practices

• Setting Rack and Discount Prices

• Timing of Offers

• Timing of Acceptance

• Overbooking Statistics and Practices

• Which Customer to Book Out (walk/bump)

Decision Drivers

• Low Occupancy

• Excess Demand

• Consumer Behaviour Patterns

The Overbooking Conundrum

'When a business sets out to maximise yield, a number of issues arise which can have
legal consequences for the enterprise and the customer and perhaps intermediaries as
well, such as travel agencies and tour operators'. (Boella, 2000)

1. A CONTRACT =

OFFER → AGREEMENT→ACCEPTANCE→COMPLETION

Contract LAW - Effect and Purpose:

1. Advertisement -
an 'invitation to treat'

2. Brochure -
an 'invitation'/and or a 'contract'

3. An offer made by the offeror (guest letter for accommodation request) to the offeree
(hotel)

a 'contract'
eg guest requests accommodation over the telephone, fax, e-mail, Internet

2. 7 Important Aspects of a CONTRACT:

 Offer

 Acceptance

 Consideration

 Capacity

 Intention to create legal relations

 Legality of purpose

 Possibility of performance
 Contract Law

3. Essentials of a valid contract -

Offer, Consideration and Acceptance

Yield Management = Supplier Flexibility

How can a hotel or travel company remain flexible within a contract?

Clauses, non specifics, request for time restriction/payment condition (arrhes, depot)

4. CONTRACT Flexibility by:

• Frustration - where a circumstance outside the control of the buyer/seller prevents the
contract being performed.

Think of how a hotelier can 'use' this tactic to walk clients….!

• Unfair Contract Terms

Terms have to be determined in advance by the supplier and communicated to the buyer -
re small print. Contract modification can only be performed by mutual agreement.

How can a hotelier remodify a contract with a buyer during a 'walking' situation?

5. Ending a Contract

1. Performance -

as stated on the contract, cancellations, variations

(Completion☺or Anticipatory Breach☺or Actual Breach?)

2. Frustration

'external event causes the contract to be impossible'

3. Breach

Breach of terms of either conditions or warranty?

'Level of performance (eg standards promised 'v' actual) can result in a buyer not having
to pay, receiving a discount or even compensation.' (Boella, 2000)

6. Overbooking

'when conducted properly (overbooking), based on sound knowledge and business

patterns, it should not result in dissatisfied customers'………

However in a case of 'Walking' the hotel must protect against

• Loss of Customer Goodwill

• Risk of Legal Action
- Breach of Contract (damages)
- Fraud
When alternative accommodation is found for a buyer (of equal or better quality) the
contract has been performed, so does the client have grounds for legal action?

You must try to 'buy-off' the customer (eg compensated like the Airlines do)

But does the client still have grounds for legal action?
Who can we 'walk'?

Dependant on long-term goodwill and legal issues:

Guarantee Time Restrictions

Specifics No of Pax.

Damages?

For disappointment and distress = 'class actions' (USA)

Cases - 'so now we'll pay you not to stay with us'
'show me the money'
'why innkeepers go to court'
Other Articles to read

Schoemaker, Paul J. Russo, Edward J. (1993) A pyramid of Decision Approaches.

California Management Review; Berkelely

McDonald, Gael, Pak, Patrick C. (1996) It's all fair in love, war and business: Cognitive
philosophies in ethical decision making. Journal of Business Ethics.

Payne, Dinah, Dimanche, Frederic (1996) Towards a code of conduct for the tourism
industry: An ethics model. Journal of Business Ethics.