ELEMENTS OF REVENUE MANAGEMENT

~
I o llo w ir 1~ c lt·ment s, b ased o n informa tion collecte d, may be include d w hile pfannln g
, uc c.c -,c:, f I ii yie ld strateg y :

J . Grou p ro om sales:

a . Groups already booked : The manage r should be able t o .J~'J~-S ~ svc h t suq•
1 1 1 it •...,•11~ o r t he w ash facto r .
 ra te at wh ich th e gr ou p busin es s ,s b k d .
th e oo e ,~
b. Group booking pace : ag re em en t be t .
II d group book'ing pace . The rate at which initial Wee?n t 11f> gr ou p
ca e on th
.
d th e ho te l tak es pla ce over a period of tim e- a m , qu ar te,. 1y, half
orga niser s an. .
fo r planning bookings.
yea rly, et c. 1s im po rta nt

contacted th e ho tel yet

group which has no t even
c. Groups not vet booked: e basis th at th e grou p co mes
th is bu sines s on th
t sure of
bu t th e manager is al m os oups ' .
re gu lar ly af te r a pa rti cu la r period. - e.g. ' series gr
to the hote l

ing
e is th e tim e in te rv al between th e da te of book
tim
d. Booking lead time: lead rta nt in
riv al. Th e lea d tim e + pace of booking, is impo
and expected date of ar
h ad dit ion al gr ou p bu siness should be accepted.
de te rm ining ho w muc

ok ing pace is lo w ---a lo we r rate may be offered

* If th e cu rre nt bo
nts
ou p bo ok ing pa ce is ahead of th e trends, dis cou
• If de m an d is st ro ng and gr

should no t be of fe re d.

dis pla ce m en t oc curs wh en a ho tel

t business:
e. Displacement of transien or FITs ..
s at th e expense of tu rn in g away tra ns ie nt guest
accepts gr ou p busines

tent ial aver age rate of $1 00, an actu al

hotel has a po
Assume th at a 400-room arginal co st of $15 pe r·
oup rate of $6 0, an d a m
tual gr
transient rate of $8 0, an ac
 2. Trans ient Room Sales:

❖ Trans ient busin ess is book ed close r to the date

of arriva l than group b usine '>'>

❖ Book trans ient busin ess in city hotel s 1-3 week s befor
e arriva l ;

In resorts 1-2 years in advance.

❖ Hotels may classify rooms by their location, desirability, or

size and charge m ore fo r
bette r rooms.

❖ More desirable rooms may be classified as delux e

and have highe r rat es.

❖ Hotels may offer delux e room s at stand ard rates to attra ct

guests, espe ci ally whe r
dema nd is lowe r than expe cted. Then, when dema nd impr
oves , the rem ainde r ol
the bette r room s can be sold at their full rack rates.

•!• Discounting for certain sources of business- corp., etc.

•!• Ve ry Imp to cont rol discounts for optim al yield.

l Food and Beverage Activity:

, l(j
 / 20.C..it er\ng for functions , reception , etc., generates revenue independently.
I
I
I

4. Loca l and Area- Wide Conventions:

l ven if the hotel is not in the immediate vicinity of the convention, transient guests and
~ mai ler groups displaced by the convention may book at the hotel due to room
JVGi labil1ty.

5. Special events:

21.exarnp le concerts, festivals and sporting events

22.Take advantage of this by controlling discounts or requiring a minimum length of

stay- say during Christmas, etc.

6. Fair Market Share Forecasting:

• Compare a hotel' s occupancy performance in relation to other hotels within a

predetermined competitive set.

• Market share analysis reveals how a hotel performed based on how it' should
have done' and reveals how much business a hotel' took' from competitors.

• Various reports made available by various professional companies, e.g. Smith

Travel Accommodation Report (STAR report) is historical in nature. TravelCLI CK
Reports including Hotelligence, Internet Hotelligence, and Rate VIEW/ Phaser (i n the
US) us e various GOS and Internet booking engines, thus, they look to the future and
use actua l reservation data.
 • These include the occupancy percentage, ARR, and RevPAR Index, th at t ell how th e
hotel did vis-a-vis the competitive set.

USING YIELD MANAGEMENT

Check

Revenue meeting

YIELD MANAGEMENT TEAM

Consists of the Rooms Division Manager, the Sales Manager and the Res erva tions
Manager.

The role of YM team is four-fold:

• To predict demand.
• To assign rooms to transient reservation.
• To open or close rates as seen fit.
• To conduct feedback sessions.

THE YIELD MANAGEMENT SOFTWARE SYSTEM

an YM system:

✓ Monitors and manages risk automatically

✓ Identifies dates that have low demand and/or revenue

✓ Provides optimal length of stay control

r
✓ Manages risk of overbooking
1 r
rI Automatically highlights abnormal market behaviour
-t-0\~
 t u1t-. to be entered before they occur

✓ (
tll il !:'x 1blc reports for marketing prngmmrn c evaJ wtt1on

/ \f ' ·11 n, t "' data that must be ~ •,~ec.J

1 ,.:rmJ1 cs total transient and group demand d•~placed by a pot:cnt1al avoup 11.rm ol
./ >

✓ I It Ip-. tk l~:rrmne group nvailab1l 1ty and rares

lf(J \\ IJC>t:S THE YIELD REVENUE MANAGEMF:!\T SYSTE\1 \.\ORK?

I. HHH• ( \ 4-, I ING Demand

• fJl 11 td11 d patterns

• \ pl·t 1al events database
• houk'> in fo rmation and the
<) fl
• l<l '>t il h or any user demand changes.

I lil' '>C I 1.1 ih 1l'1 1t forecasts are then fed into the opportuni ty cost oplmw,at 1un aspect ot tht
"~-. tc m

II . ANt\LYM .~ The system looks for:

• H1iol-. 111g lead times.
• Ik 111J11d patterns su.ch as average length of stay, no-shows, day of the \,eek nml
1it·.1 -,un,d I ly.
• Spcc,.tl L'vents where for any set of dates there is significan t!} diff<-rent:
• CJt Lupancy patterns
• i\ l:111-.t·Lsegment patterns and
• llucik1 11g lead-time patterns.

• 1111,: I h, ' 1iking patterns, where bookings arc sorted mlo suitable foru ..htm~· gf\1up,
( \ l,11 J.. L·I -.cgmcnts and mtes are translated into rate CJ tl!goric1i, as wuh mtc fen'- tng l

l.\'l1 cre cumpuk r*based YM has been applied, the following results have be{)n ac.h,~\'Cd

• Con tinLJal monitoring: a computeri sed YM system can trat k and anatys\'
hu, 11P conditions 24 hours a day, seven days a week
J

yt
 ec if ic
are ca n be pr og ram med to re spo nd to sp
softw ilt
• Consistency: co rp or at e or loca l management rules bu
tplace, according to
changes in the marke
into the software. alysi ng
m pu te r- base d syst em is capable of an
a co e
• Pe rf or m an ce tra
cking:
w ith in th e bu sin ess period to determin
nsactions occurring
sales and revenue tra
eld m an ag em en t goals were achieved .
how well yi

tes any nu m be r of special reports:

The YM system genera

hi ch
in fo rm at io n re ga rding customer mix w
provid es
report:
• M ar ke t segment e fo re casting by m ar ke t se
gment.
fo r ef fe ct iv
is im po rt an t in fo rm at
io n
-n ig ht de m an ds an d vo lu m e of
ok in g graph: presents ro om
• C al en da r/ bo
ily basis . ta fo r ea ch day of
th e
reservat ions on a da fu rn is he s de m an d da
tes status report: sc ov er y of occu panc
y t rend s
• Future arrival da re en ab le s th e di
io n co nt ai ne d he ve r fu tu re pe rio ds
w ee k. The in fo rm at d it can be de si gn ed to co
co m pa ra tiv e an al ysis o f weekdays an
by
as w el l. th e ho te l' s bo ok in g pa tte rn t re nd s
indicates
• Si ng le arri va l da te hi st ory:
in g gr ap h by do cu m en tin g how a
e bo ok
se rv at io ns . Th is re po rt relates to th
in re h.
ns tr uc te d on th e gr ap r of
om s and th e nu mbe
spec ifi c da y w as co
e se ll ra te s fo r ro
rt: co nt ai ns th
• W ee kl y re ca p re po
pr og ra m s w ith sp ecial o r di sc ou nt ed
ke tin g
s au th or is ed an d so ld in m ar
ro om
s
ra te s.
w s, gu ar an te ed no -sh ow s, w al k- m
m st at is ti cs tr ac ki ng sheet: tr ac ks no -s ho
• R oo g.
l th is w ill he lp in ac cu ra te fo re ca st in
and tu rn -a w ay s - al

*****************
 1/4. YIELD MANAGEMENT {REVENUE MANAGEMENT)

,p
ss used for maximising yield in hotels)
a,ns the concep t of yield/revenue mana geme nt and the proce
11

Objecti ves r1/ thrs lesson :

After comple t,on of this lesson the learner will be

able to:

nt
• Def me the histor y associ ated with revenue mana geme
s and the various stages there of
• Explain the cycle of revenue mana geme nt proces

s- guests
e maximum room rates and most profitable guest
Yield mana gement is a process of planning to achiev
age outlets, gift shops, etc. It encourages front
office
.vho will spend money at the hotel' s food and bever
department to target sales period and develop sales
mJnagers, gene, al managers and marketing and sales
programs that wil l maximize profit for the hotel.

It ,s now, comm on ly known as "REVENUE MANAGEME

NT" (a term wh ich we will use in this chapter) .

geme nt
and yield management= Whereas Revenue Mana
(Actu al differ ence between revenue management
for
markets, forecasting demand, and optim izing prices
involves predi cting consumer behavior by segmenting
tory
refers specifically to maxim izing revenue throu gh inven
se veral differe nt ty pes of products, Yield Management
control . )

alone ,
e measure of perfo rman ce than ARR or occup ancy
Yield/ Revenue mana gement (YM/ RM) is a more precis
. It is al so
tic- the yield statistic. It is used to maxim ize reven ue
because it comb ines both of these into a single statis
ue against poten tial revenue.
an evaluative to ol fo r the FOM to compare actual reven

CON CEPT OF YI ELD MANAGEMENT & HISTORY

ed ou t
to use YM in the late 1970s -early 80s. They block
A,ri mes (sp eci fi ca lly, American Airlines) were the first
t he
n levels; the poten tial custo m er eithe r book ed
ce, ta in ti me pello ds when seats on flights were priced at certai
but mana ged
trans porta tion. Th is policy faced som e prob lems
fl1ch1 at the p, ices quoted or found other means of
now popu lar with car renta l fi rms, cruise lines
to r> , tabl1 sh th e eco nomic structure of airfares. This is
 Hot els share similar operational features with alrlmes . Each has a fixed number
hi h if of produc ts- hotel roorn d
w c not sold on a certain day or flight, cannot be resold. Airlines and hotels
have various rak~ fo ,an •"' 0 1
gu ., ,
choose from . Each Industry has demand periods (holidays, weekdays and 1 1
weekends) that place t~,e , ..,J J n
0 1
favourable position . Reserva tions are the key operational concep t that
allows managers to use fP ff _t,, ·'
usi ng computers to t rack a database of products and to process reserva I BI
tions, each has the abtl1ty t, lom r1t . ~al
horizo n of 45-90 days and set price and reservation policies that will allow
managers to predict prof tdbi ,ty

The key to successful Implem entatio n of revenue management is based

on:

23. The ability to monito r demand and to develop reliable forecasts

24. The ability to sell the right product (guestroom, banquet) to the
right customer (busine... s It 1surc
convention, etc.) on the right day (weekday, weekend) for the right price
(rack rate, corporate rate , tc )

One of the major differences, however, is how YM/RM is used in airlines

and hotels. At the hotel th e gue ,t w,1
also spend money within the hotel for various products and services - the
airline passenger does not have the c,a rnc
scope. Due to this difference, hotels have to consider the revenue potenti
al of one prospective guest O\ , r thr
other when determining reservation policies. For example, one group
who is requesting to block a group of 500
rooms with a $50,000 value may also want to book banquets, and other
food service events wh ich total $2 S,OOO
while anothe r group may want to book a block of 600 rooms with a value
of only $60,000.

In the hotel industr y, revenue management is used to determine selling

rates for rooms, occupancy level etc
through demand-forecasting techniques. It is based on supply and deman
d. The hotel industry' s focu s 1s sr !t1rp
from high-volume bookings to high;>rofit bookings to improve profitab
ility. By increasing bookings o 101,
deman d days and by selling rooms at higher rates on high-demand days,
the industr y can improv e its profit al 1lity

2. THE YM/REVENUE MANAGEMENT PROCESS

The YM/revenue management cycle is as follows:

As can be seen from the cycle, RM usually involve s the followi ng steps:

• Forecasting demand
• Strateg ies and tactics -to optimise demand
• Systems and procedures- to control demand
• Feedback- to monitor demand

'- t9RECASTING BOOKINGS- for forecasting demand

 .
g away of attractive b k' , the less payin
If a hotel wa nts to take effective action in avoiding turnin oo ings ,or g
Experience suggests that the best approach is
t must be able to forecast the final level of bookings.
1
on,,~
this down into different market segments
to p, l' d ct th ~ total number of guests expected and then break
1

must be done on a regular basis, a minimum of once

ke epi ng mind the previous experience . Forecasting
111
and it must
il W('rk during normal occupancy perio
ds and possibly daily during high demand periods
er,t ompas~ more than 30- or 60-day projections.

Thr 111 torm Jtion required are historical data- recen

t and past years - on the number of bookings, the type,
tays
group, transient, airline, corporate, etc; Inform
ation regarding cancellations, no-shows, walk-ins, overs
will give details on lead times, wash down factors,
and undet -stays ; and all this day-wise. This information
will formulate the rates to be offered.
h1eh Jnd low demand periods, etc. from which the RM team

to smooth out the inevitable random fluctuations by

Time sen es analysis or moving average forecast tries 4
equivalent nights in the past- about the past 3-
as) wmm~ demand to be equal to the average of the
ye ,1 ~ Th e equation is:

F(y+ 1) = D(y) + D(y-1) + D(y-2) + D ( y-3)

W'r;,• e y ,s the current year

F is the forecast demand

year indicated.
D is then actual demand for the equivalent night in the

the
nd is not only seasonal but varies from one day of
The prob lem most hotels face is that because dema
same night the year before or year before that. Each
we ek to another; the only real basis for analysis is the
that period.
nigt, t is thus 12 months apart and a lot can happen in

Fluctu ations ca n occur thus:

s or slumps;
• Chang es in the economic environment such as boom
• Fluctu ations in exchange rates;
• Securi ty threats, real or imagined;
• Ma1or exhib itions or sports programmes;
aigns or special promotions;
• Th f' hot el' s marketing activities such as advertising camp
r hotel in the city or nea rby .
• A c' i;rngc
111
th e competitive position, such as the opening of a majo
 es manag er and trr
r ser , J' or
office manager, the sal
th e revenue management team - the front ~
So often new factors list ed abo
hn iques and modify th is in the light of the
ical tec
manager-look at statist

geme nt Or t< n su 'fl'

st·
is an im po rta nt fea ture of revenue ma na
forecasting room sales e In deve loping a str alP
fi h r
As mentioned ea rlier, son al decision -making schem
nsien t bu ne a tr
her tha n a sea
orientation rat
using a daily-decision for 95% of ava ilab le rooms, seeking tra
ations
group business reserv ss 1s ·cv. r he r ~l.cl
example, if a hotel has pe rio d fol low ing the group bus ine
If the
would be inadvisable. motional pa ckdt/ , a,rr
ced '' t
pro mo tional packages sal es to develop special pro
rke tin g and
t allow for ma
advance knowledge wil
t.
trans ien t or local marke

ach . Usually front ~ff

ct
to be ove rco me when using this appro
In add it ion , there are
psychological problems nagem ent appro ac '
may
in me asu re to suc cess. The revenue ma
full house ' as the ir ma wh en d !al ing
staff tends to see a ' e rooms ava ilab le.·
ph ras e " I' m sorry, we don ' t hav
on clerk to use the o t akes co urvge to
require the reservati tha t the re are roo ms still available. It als
knows
mer even when she . Managemen t ne Eds
tu
with a low - rate custo t hig he r yield bookings wil l tur n up
n tha
ss in the expectatio staff needs to be told
that th e
turn away good busine and fee dback sessions . The
r rev iew
conduct reg ula ho w turning som e
carefully train staff and uld kn ow ho w yield is calculated and
sho
occupancy per se. They
objective ls yield, not
tually raise it.
bookings away can ac

mand
CTICS - to optimise de
2. STRATEGIES AND TA

ue management is:
when demand is hig h,
to im ple me nt rev en
loping strategies whe n de man d I\ hig
h
A simple policy for deve ize roo m sales (Orkin). He says
demand is low , ma xim ol
nimu rn len Jth
maximize rates; when packages to transien
ts (guests), require mi
eg ories and r
"re str ict availability of
low-ra te cat mand is lo w, prov1d
wil ling to pa y hig her rates . When de
ms only to group s fro rn
stays and commit roo licit gro up bus iness
mo tio na l rat es to off er transients, so
wit h special pro pro mo te lim ite d-a vai
lab1l1tv low
reservation agents lly rate sensitive and
t are ch ara cte ris tica
ments tha
organizations and seg
market."
cost packages to local
de ta il
are discussed lat er in
ho tel ma na ge me nt for maximizing yield
ployed by
Note: * The tactics em

nd
URES- to control dema
3. SYSTEMS AND PROCED

rl
ns, t r 1 k ci1 mJ1• I ,1
sys tem tha t wil l process reserva tio
gr 1,~ t1 ,l' d v ,'u J ~
ate d
should use an autom
A front office manager riods . Ma nu all y, th is wo uld be a hu
t im e pe
bility du ring certain m na , , \~ r ,
block out room availa ff to un de rst an d and use
rev er
Tra ini ng of sta
Impossible, especially
for a large hotel. be ad ap tJ'J' t,) d1 a··
, ,
the fro nt off ice mang er sho uld
rta nt. Mo st im po rta
ntl y,
regulc1r gt , , '> , • )r
~
systems is als o im po ate gie s to ac co mm od ate
in the RM str
te fle xib ilit y -
demand and inc orp ora \)
 C:
JI
/I E
Q)
~
0
0. ,.,, E
+J
(I.I
E >V, -0 Poodw ill for long t
m i! ri 1a 1· 1 require an ongo• ..,
• erm guest s. Establishing block out periods will also
0 ensure sales •rn projected low-d eman d penod s.
m l • l ff ort by the hotel t

4. FE EDBA CK- t o monitor demand

Is vital to assess t he viabili ty of yieid mana geme nt

A r co, d of the date and amou nt of turn•away business
quent mont h and year' s histor ical data It g,ws
anu t J upd<1 te all strategies rn use. It also forms the subse
· s reservat ion system to the S1rategles and a!so
an nd1c;it 1on of the responsiveness of the organ isation
nd. Guest feedback or staff repor ts of chance
effrct rvenes s of the strategies in response to marke t dema
help. Feedback also serves as a mechanism for
guest comm ents as to why the stay was curtai led, etc. may
mance.
pra,sl' and assessing individual and depar tment al perfor

hotel mana geme nt (the front office ) to ensur e optim um

In conclus1Pn, yi eld management is the process used by
to develop appro priate strate gies for enhancing yield
yield by employ ing accurate forecast ing metho ds in order
r
are and trainin g of FO staff and maint a ining regula
while cont·olling demand with the aid of revenue softw
s
gies such as turnaw ays, cance llatio ns,etc and of guest
feedback of elements that impac t the forecasts and strate

gement', where we will discuss the uses

(RM cont,n ,es in the next topic 2/4 'Applications of YM/Revenue Mana
gers can maxim ise revenue/ yield by using
and benefi' s of yield/ revenue management and how front office mana
discount allocation and durat ion control}
Jo, ecast m;ormat,on in developing strategies of capacity management,

Quest ions on 1/4 Yield/Revenue Management:

nt on your own and write .

✓ Explo re thr histor y of yield mana geme nt/rev enue mana geme
geme nt and reven ue mana geme nt ?
✓ Define YM What could be the difference between yield mana
✓ Wl ,y ca n RM be successfully used by hotels and airlines?
.
✓ Dr. w I h"" RM cycle. Briefly explain each stage of this cycle

••••••