Chapter Eight

8 INCREASING HOTEL OCCUPANCY

8.1 Introduction

Hotel Occupancy

Hotel occupancy means the total number of rooms occupied by the guest in a given period of
time. According to Pannell Kerr Forster in 1986, the average worldwide hotel occupancy was
70%. Hotels are generally considered profitable if they can operate with an annual average
occupancy of 65% or above. Pannell also gave the breakdown of revenue dollars and expenses
for international hotels as:

Revenue
Rooms 52.2%

Food and other income 26.2%

Beverages 11.35

Telephone 4.3%

Other 5.8%

Expenses
Operating expenses 36.9%

Salaries and benefits 29.0%

Cost of sales 14.1%

Insurance, rentals, interest 13.0%

And depreciation

Energy 4.4%

Taxes 2.2%

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8.2 Different Types of Occupancy and Their Calculations

I. Occupancy Percentage (Single Occupancy)

Occupancy rate’ is a common sales indicator which tells how well the hotel has fully utilized the
room resources to maximize profit. It is always the objective of hotels to achieve full-house, i.e.
100% occupancy, when all the rooms are sold out for the night. In Hong Kong, the hotels’
occupancy rates remain at around 80% to 87% (Year 2006 - 2010).

Occupancy percentage historically revealed the success of a hotel’s staff in attracting guests to a
particular property. This traditional view of measuring the effectiveness of the general manager,
marketing staff, and front office staff was used to answer questions like these: How many rooms
were sold due to the director of sales’ efforts in creating attractive and enticing direct mail, radio
and television ads, billboard displays, or newspaper and magazine display ads? How effective
were reservation agents in meeting the room and amenity needs of the guests? Did travel agents
book a reservation? How competent were front office staff members in making the sale?

Today’s questions include: Did the director of sales choose the right website to advertise the
hotel’s excess room inventory? Did the revenue manager price the rooms at the correct rate for
the correct period?

The formula of occupancy rate is shown as below:

Number of Rooms Sold *100 = Single Occupancy (percentage)

Number of Rooms Available

To see how this formula works, consider a hotel that sold 75 rooms with a room inventory of 100
rooms; this would yield a 75 percent occupancy percentage:

75 *100 = 75%

100
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Investors also use occupancy percentage to determine the potential gross income of a lodging
establishment. For example, a 100-room property with a daily average 65 percent occupancy and
an $89 average daily rate generates about $2.1 million in sales annually: 100 rooms × 0.65
occupancy = 65 rooms occupied daily; 65 × $89 room rate = $5,785 revenue per day; $5,785 ×
365 days in a year = $2,111,525 gross income from room sales annually.

II. Double Occupancy

Double occupancy is a measure of a hotel staff’s ability to attract more than one guest to a room.
Usually a room with more than one guest requires a higher room rate and thus brings additional
income to the hotel. This method is also traditional in determining the success of building a
profitable bottom line. The method to determine double occupancy percentage is as follows:

Number of Guests - Number of Rooms Sold *100 = Double Occupancy

Number – of Rooms Sold

If a hotel sold 100 rooms to 150 guests, then the double occupancy percentage is 50 percent,

Computed as follows:

150 -100 = 50%

100

III. Average Daily Rate

While occupancy rate tells the ‘quantity’ of businesses, top management are also interested to
know about the ‘quality’, i.e. how much they charge for a hotel room. The ‘average daily room
rate’ is calculated which gives a general estimate of the average room charge received by a hotel,
regardless of the differences in room types and rates.

The formula of average daily room rate is shown as below:

Total Room Sales

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 Number of Rooms Sold

If a hotel has daily room sales of $4,800 with 60 rooms sold, the ADR is $80, computed as
follows:

$4,800= $80

60

The ADR is used in projecting room revenues for a hotel, as previously described in the
discussion of occupancy percentage. Occupancy percentage and ADR computations are essential
parts of revenue management because they challenge hoteliers to maximize occupancy and room
rates.

IV. RevPAR

‘Revenue per available room’ (REVPAR) is similar to the ‘Average daily room rate’ (ADR) in
indicating the hotel’s performance. The only difference between REVPAR and ADR is the
denominator. Instead of just considering the actual number of rooms sold, hotels tend to use all
rooms available in calculating the REVPAR, i.e. to include all vacant rooms, out-of-order rooms
and rooms for ‘house use’ in calculation. The value is always smaller than the ADR which serves
as a good means to check the ability of management in utilizing all room resources to maximize
the hotel revenue. The formula of REVPAR is shown as below:

Room Revenue

Number of Available Rooms

Or

Hotel Occupancy × Average Daily Rate

8.3 How to Increase Occupancy

Owning and operating a hotel is often rewarding and fulfilling, but it's not easy. In the hotel
business, occupancy is essential, as the rate of a hotel’s occupancy determines the success of the

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business. Increasing occupancy starts with implementing a creative marketing plan that attracts
new and repeat guests. Hoteliers can use various ideas to create a successful marketing
campaign:

Group Events

Increase your occupancy rate by inviting groups gathered for weddings, retreats business
seminars and reunions to stay in your hotel. In the hotel industry, group events are lucrative
because you are booking many rooms at one time. Many group events occur annually, and that
can mean repeat business for your hotel. Additionally, satisfied guests often return to enjoy the
facilities for personal reasons throughout the year, creating additional business. Market your
group event services by connecting with local business owners who might be looking for venues.

Package Deals

Create various package deals to attract guests to your hotel and increase your occupancy.
Package deals are ideal for a "girl’s weekend," a holiday or an entertainment weekend. For
example, a girl’s weekend package would include complimentary wine, chocolates, a massage at
the hotel or with a partnering practitioner and a gift basket with spa-themed toiletries. Hoteliers
can price these packages slightly higher than normal rates, as the complimentary items add value
to the overall experience.

Discounts and Specials

Use discounts and last-minute specials to encourage guests to visit your hotel. Discounts are
ideal for making a guest feel as if he is getting a great deal. Use the discount to bring the guest to
the hotel and use excellent service to encourage repeat business. Last-minute specials are ideal
for filling vacant rooms. Offer last-minute specials to extend the stay of a guest or add a page to
your website showing all last-minute specials for more spontaneous guests.

Customer Satisfaction

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A satisfied customer, be it foreign or local, may lead to favorable words of mouth which have
been proven as the best advertisement money can buy. They may influence their friends and
families to choose the same hotel. However, dissatisfied customers would spread their
dissatisfaction and the result could be damaging to the hotel in point. The number of repeat
customers would be reduced and new customers would find the hotel unattractive.

 Use the website and social network to offer better information for the guests. Provide links to

nearby attractions, restaurants and spas as well as tips to enhance visits to those site.

 Have a responsive website: - ensure the hotel website and booking engine are usable on

mobile phones and tablets as well as desktop computer because the guests are using every

form of available medium to make reservations.

 Using advertising mediums like T.V., Internet, newspaper, trade magazines, radio etc.

 Making effective Public relations with previous guests by posting brochures and direct mails.

 Entertaining business from travel agents and tour operators.

 Negotiating special rates with Airlines.

 Organizing conferences and meeting more frequently.

 Spreading awareness among community members like;

Nearby college and research centers

Caterers

Secretaries of the local executives, offices, businesses etc.

Sales managers from real estate business

Clergymen and religious heads.

Officers from women clubs and men clubs.

Above all by providing quality service with personal touch, guests will patronize the hotel.

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