Rooms Revenue Management

Workshop
Bucharest, October 2017
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Horatiu Tudori, Senior Lecturer
horatiu.tudori@ehl.ch
BSc, MSc in Mechanical Engineering, University of Brasov
(Romania)
MBA93, University of Lausanne
Revenue management course for Bachelor and EMBA
programs (since 2001)
Regularly invited to present in different RM conferences
and to facilitate professional seminars, continuing
education programs & workshops
Research & consulting:
impact of revenue management decisions on hotel free cash flow,
buying behavior and the pricing of sustainable hospitality services,
application of revenue management for other hotel services, e.g.
service space, spa, golf.
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Workshop hooks
The foundations of Revenue management
Guest segmentation & Key performance indicators
Optimization: simulation game the LEGO hotel
Take-away and quick-wins
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 The foundations of Revenue
Management
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Revenue Management defined
Revenue Management is the application of disciplined
tactics that predict customer behavior at micro-market level
and optimize product availability and price to maximize
revenue growth. Cross (1997)
Revenue Management refers to the strategy and tactics
used by a number of industries notably the passenger
airlines to manage the allocation of their capacity to
different fare classes over time in order to maximize
revenue. Phillips (2005)
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Yield Management
The YM core concept is to provide
1. The right product/service
2. At the right time
3. For the right price
4. To the right customer
5. through the right distribution channel
Adapted from Kimes (1989) H. Tudori 2017
1. The right service
The definition/dimensions of the service
Service request
Reservation/walk-in?
How?
What?
When?
Service delivery / consumption
How?
What?
When?
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How to define then
2. the right TIME?
3. the right PRICE?
4. the right CUSTOMER?
5. the right DISTRIBUTION CHANNEL?
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Top Mistakes in Pricing
1 5 Selling rooms on a first-
Selling out too
come first-serve basis
soon
2 6 Linking your different
Not changing rates
price points together
3 7 Shutting down price
Pricing by gut feel
points at the end of the
day (5pm)
4 Reacting to sudden price
changes by the
competition
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Customer acquisition costs
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 Guest segmentation.
Key Performance Indicators.
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The Revenue Management cycle
http://decisioncraft.com/dmdirect/revenue_management.htm
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RM-oriented segmentation
Corporate
Associations/Conventions
Government
Non Social
Military
Yieldable Groups Educational
Religious
Tour Group/ Fraternal
Wholesalers
Wholesale
Customer
Mix
Semi- Negotiated
Yieldable Qualified
Transients
Retail
Fully
Unqualified
Yieldable Discount
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Multiplier effect
14'000
12'000
10'000
Other
8'000 A/V
6'000 F&B
Room Revenue
4'000
2'000
0
40 Rooms (Group) 40 Rooms (Transient)
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Hotel key performance indicators (KPIs)
RevPAR
RevPOR, TRevPAR
NetRevPAR (NRevPAR)
GOPPAR
Occupancy Index (Market Penetration Index, MPI)
Revenue Index (Average Rate Index, ARI)
RevPAR Index (Revenue Generation Index, RGI)
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Per Occupied Room, US market 2016
Chain- Variance
Hotel Market Independent Total U.S.
affiliated 2016 vs 2015
Rooms $163.64 $204.25 $166.21 2.7%
Food $33.96 $64.14 $35.86 1.8%
Revenues Beverage $9.64 $26.21 $10.72 0.7%
POR Other F&B $11.49 $14.03 $11.65 2.1%
Other Opd. Dept. $7.92 $24.13 $8.95 3.9%
Miscell. income $5.58 $11.63 $5.97 8.4%
Total RevPOR $232.23 $344.39 $239.36 2.6%
Ancillary 29.5% 40.7% 30.6%
Source: STR Analytics, HOST Almanac 2017 H. Tudori 2017
NetRevPAR
= Net room Revenue per Available Room
Net Room Revenue
NetRevPAR =
Available Rooms
NetRev = Rooms Revenue (Distribution Cost, Transaction Fee & Travel
Agency Commissions)
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Hotel key performance indicators (KPIs)
RevPAR
RevPOR, TRevPAR
NetRevPAR (NRevPAR)
GOPPAR
Occupancy Index (Market Penetration Index)
Revenue Index (Average Rate Index)
RevPAR Index (Revenue Generation Index)
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Monitoring RevPAR Index Over Time
Comp-set MyHotel
Year N-1 Year N Year N-1 Year N
ADR $86.21 $85.94 $85.00 $88.00
Occupancy 74.3% 70.9% 78.0% 73.0%
RevPAR $64.05 $60.93 $66.30 $64.24
RevPAR Index - - 104 105
If you were the GM of MyHotel how would you analyze this
performance?
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Whom would you pay a bonus?
Revenue RevPAR Index
Scenario
% Change % Change
+ +
- +
+ -
- -
vs Self vs Competition
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 Simulation Game
-The LEGO Hotel
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Game Organization & Rules
Teams of 3 members
Organization of tasks:
1x Observer: take notes on the process: decisions,
success & errors
2x Managers: analyze, make decisions, optimize
Take a snapshot of your solution at the end of
each stage and dont remove the blocks
between the steps in the game
The teams are in direct competition!
but remember its just a game
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Booking Requests
Your hotel: 5 rooms, open 7/7 (Mon-Sun)
Length of stay: 1, 2 or 3 nights.
The color code denotes the Day of arrival:
Green = arrival on Monday
Red = arrival on Tuesday
Blue = arrival on Wednesday
= arrival on Thursday
Yellow = arrival on Friday
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step1. No Restrictions: First-Come-First-Serve
Draw randomly requests (i.e. bricks) Green = arrival on Monday
until you empty the bag. Red = arrival on Tuesday
As long as you can accept a request Blue = arrival on Wednesday
you have to do it. If you cannot, put
the request on the table. = arrival on Thursday
You can move the requests accepted Yellow = arrival on Friday
so to optimize room occupancy.
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step1. No Restrictions: First-Come-First-Serve
Calculate & report the occupancy rate
Write a brief (bullet-point) analysis of
your decisions and results
Lets discuss your findings!
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step2. Applying Availability Controls
Put all the bricks back into the bag
Draw again requests randomly until
you empty the bag
Apply rigorously your restrictions:
Minimum 2 nights, arrival on Friday
Maximum 1 night, arrival on Thursday
You can move the requests accepted
so to optimize room occupancy.
Green = arrival on Monday
Red = arrival on Tuesday
Blue = arrival on Wednesday
= arrival on Thursday
Yellow = arrival on Friday
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step2. Applying Availability Controls
Put all the bricks back into the bag Green = arrival on Monday
Draw again requests randomly until Red = arrival on Tuesday
you empty the bag Blue = arrival on Wednesday
Apply rigorously your restrictions: = arrival on Thursday
Minimum 2 nights, arrival on Friday
Maximum 1 night, arrival on Thursday Yellow = arrival on Friday
Maximum 2 nights, arrival on
Wednesday
You can move the requests accepted
so to optimize room occupancy.
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step3. Revenue Game
Consider your result for the
Availability Controls and calculate
the Rooms Revenue
The hotel applies two rates:
89 per night-stay on Monday and
Friday,
129 per night-stay on Tuesday,
Wednesday & .
Green = arrival on Monday
Red = arrival on Tuesday
Blue = arrival on Wednesday
= arrival on Thursday
Yellow = arrival on Friday
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step3. Revenue Game
Count & report:
the volume of cheap roomnights (89),
respectively the expensive ones (129)
the occupancy rate, the ADR, and the RevPAR.
Keep the bricks as they are for the next step!
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step4. Bottom-Line Game
Consider your result for the Revenue Game
and calculate the Rooms Contribution
The variable (incremental) costs are as follows:
8% per booking (commission, reservation, etc.)
4.50 per check-in / 4.50 per check-out
9.50 per room-night for a new guest
6.00 per room-night overstay
Calculate & report: the total volume of variable
costs thanks to the cheat-sheet
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 Cheat-sheet for calculations
Variable Costs Total
Arrival Rate LOS Per booking Check-in/out Per roomnight Var Costs
1 7.12 9.00 9.50 25.62
Monday
89.00 2 7.12 9.00 15.50 31.62
Friday
3 7.12 9.00 21.50 37.62
Tuesday 1 10.32 9.00 9.50 28.82
Wednesday 129.00 2 10.32 9.00 15.50 34.82
Thursday 3 10.32 9.00 21.50 40.82
Incremental variable costs:
Per booking 8%
Check-in & out 9.00
Per roomnight
new guest 9.50
overnight 6.00 H. Tudori 2017
Wrap-up discussion
How to define the right level of granularity for
your data?
How to conceive effective restrictions?
How to handle demand to maximize occupancy?
How to set-up the rules to apply so to maximize
revenue?
How to avoid the revenue trap and eventually
maximize the bottom-line performance?
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 Take aways &
Quick-wins
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Question marks
We are a (very) small hotel. Is it for us?
We are in the F&B sector. Whats the takeaway?
How to train and incentivize my employees?
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Day to day Revenue Management
Monitor booking pace and occupancy growth, update
forecast and decide where changes need to be made
Monitor compset for pricing changes
Monitor local demand levels
Adjust strategy using all tools, not just pricing
Record all changes
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