Revenue Management in Hospitality Industry | My Assignment Tutor

Revenue Management in HospitalityIndustryRevenue (Yield) ManagementAirline & Hotel Yield measurementImportance and the role ofyield & revenue managementGroup Activity (1)Please explain the main points of last week’ssession to each other– Which are the areas you feel confident about?– Which of the areas do you feel you need toreview?Group Activity (2)Please discuss the following and prepare to sharewith the class:– What is yield management?– Which type of industries are suitable for theapplication of yield management?– What are the characteristics of these industries?Objectives for today● Describe the application of yield measurement to airlinefares and hotel room rates● Calculate room occupancy percentage and seat load factorand yield calculations● Explain the Importance and the role of yield and revenuemanagementYield management“Yield management can be defined as sellinga product or service to the right customer, atthe right time, and at the right price.”Industry examplesBusiness Characteristics● Has a fixed number of products to sell. Examples includehotel rooms, airline or bus seats, or rental cars.● The product’s value is time-constrained, meaning thatafter a certain date or amount of time, the product losesvalue.● Different customers are willing to pay different prices forthe same product or number of products.Yield management in hotels● Your facility has a finite number of rooms.● Once all the rooms are rented for the night (whether the hotel isfull or not), you have hit the revenue ceiling for that night. Yourfacility could be further limited by season, such as a summerbeach, or winter ski destination.● Customers who book far in advance generally expect to pay alower price than those who book on impulse, close to theirdesired check-in date.The objective of yield management strategies foryour small or independent hotel is not to simplyincrease room rates, or only to increase rate ofoccupancy. It is to maximize the averagerevenue per available room, per night.Calculating revenue per available roomRevenue per available room= average room rate X occupancy rate100 room hotel60% occupancy£50 average room rateWhat is the revenue per available room?Forecasting demandWhat kinds of things will you take into account toforecast daily demand for (1) a hotel (2) anairline? Please discuss them and write a list inyour groups.Consider:Historical data– Room type– Rate range– Length of stay– How far in advance the average customer books a stay– Days when demand outstripped supply, and by howmuch (and why)Setting limitsApplication to airlinesAn airline has 2 prices – discount and full priceThe flight has 200 seats for an early morning flight onFebruary 16th (Monday).What are the potential problems the airline has toconsider in order to maximise its yield on this flight?Consider:The flight can easily sell off all seats at a discountedprice,BUT an increasing number of customers will pay fullprice as February 16th gets closer.Leisure demand occurs before business demand?Consider also:How many seats the airline should sell at leisure fareand how many seats should it protect for people whowould pay full price?If the airline protects too many seats, it could fly partempty. If too few seats are protected, the airlinemight lose extra revenue from the business fliers.Solution:Airline introduces barriers:E.g. phase in full fare seats as the flying date getscloser and phase out the discounted seats.Holiday fliers with advance itineraries make the mostof the discounted fares. Business trips, decided withina week or two from the date of travel, allows theairline to collect full fares from business fliers.Calculating airline load factor:Load factor represents the proportion ofairline output that is actually consumed.Load factor for a single flight can becalculated by dividing the number ofpassengers by the number of seats.Importance & role of yield and revenue management● Helps companies combine:○ fixed capacity○ with perishable inventory● Helps manage impact of fixed cost structures● Provides focus● Creates metricsUsing revenue management, companies can:• Better understanding what customers want need & expect• Shape the product and its presentation• Create a competitive pricing strategy to draw in customers and gain anedge over competitors• Continue competing effectively• See the full extent of its market segment and introduce the company tonew market segments• Expand their focus to continue growing in the industry• Make adjustments to what they offer• Change their structure to better meet business needsExploring writing skillsFor your participation today!Do you have any questions?