5.Reservations & Revenue Management 2023.2.pptx

5. Reservations and Revenue Reservations and Revenue Management Overview • Forecasting Room Availability • Understanding Availability • Rates: Establishing rates • Introduction to Revenue Management • Revenue Management Formulas • Implementing Revenue Strategies 2 Forecasting Room Availabilit...

5. Reservations and Revenue Reservations and Revenue Management Overview • Forecasting Room Availability • Understanding Availability • Rates: Establishing rates • Introduction to Revenue Management • Revenue Management Formulas • Implementing Revenue Strategies 2 Forecasting Room Availability 3 Reservations Management Forecasting Room Availability • Long Term • Operating budget • Short Term • Controlling variable costs 4 Reservations Management Forecasting Room Availability Good forecasting allows: • Cost centers react to changes in budgeted occupancy. • Cost centers control variable costs (wages, supplies). • Cash flow analysis and planning of purchases. • Planning vacations, holidays, renovations and projects. 5 Reservations Management Forecasting Room Availability Helpful information in room availability forecasting: • Hotel knowledge and its surrounding areas. • Occupancy data (past several months, same period of the previous year). • Reservation trends, history of reservation lead times. • Special events scheduled in the surrounding area. • Business and profiles (groups booked for the forecast dates). 6 Reservations Management Forecasting Room Availability Helpful information in room availability forecasting: • GTD and NON GTD reservations, estimated NO SHOWS. • Cut-off dates for group reservations blocks being held for forecasted dates. • Room availability for competing hotels for forecast dates. • Hotel remodeling or renovations. • Construction or renovating plans for competitive hotels in the area. 7 Reservations Management Forecasting Room Availability It᾿s impossible to forecast, …and it᾿s impossible not to forecast! 8 Reservations Management Forecasting Room Availability 9 Reservations Management Forecasting Data History – Current – Future The process of forecasting room availability generally relies on historical occupancy data as well as business already committed. Expected room arrivals Expected walk-ins Expected overstays Expected no-shows Expected room understays Expected stayovers 10 Reservations Management Forecasting Rooms Revenue How would you forecast the rooms revenue? Forecasted Rooms Revenue Rooms Available Occupanc y% Forecasted ADR* What would be your forecasted rooms revenue for next year in a 300 rooms hotel that is 80% occupied and with an ADR of €150? * ADR.- Average Daily Rate is the average revenue that a hotel receives for each occupied guest room per day (room revenue/number of sold rooms) 11 Understanding Availability 12 Reservations Management Understanding Availability Length of Stay How long each customer stays at the hotel • Best to look by market segment. • How long on average does that particular market segment stay. • Used for setting Rate Controls. 13 Reservations Management Understanding Availability Day of week Which day of the week does each market segment usually stay? • Important for forecasting • Used for setting rate controls 14 Reservations Management Understanding Availability No Show Guests book and do not show up at the hotel. • Which weekday has the most No Shows? • Which market segments No Shows? • Are they all GTD reservations? 15 Reservations Management Understanding Availability Cancellations Guests book and inform about not coming to the hotel. • Which weekday has the most cancellations? • Which market segments cancel? • What are the cancellation reasons? 16 Reservations Management Understanding Availability Regrets A waitlisted reservation that cannot be taken. • How many regrets do we have? • What rate? • What reason? 17 Reservations Management Understanding Availability Lead Time • The time in advance that bookings are made. • Important to look at the market segmentation for forecasting & rate controls. Booking Pace How quickly reservations are coming into the hotel? • Booking pace is unusually fast, there might be an event happening in the destination. • Best results to look at booking pace by market 18 Reservations Management Understanding Availability Overbooking • Room type overbooking • House overbooking • Why a Reservation Manager would decide to overbook the hotel? • What is riskier the Room Type overbooking or the House overbooking? • What factors would the Reservation Manager need to consider before doing it? 19 Reservations Management Understanding Availability Overbooking • Time of the year / season • Day of the week • Cancellations • No Shows • Market segment statistics • Your competitors Occupancy % 20 Reservations Management Understanding Availability Overbooking Exercise The King’s Hotel consists of 100 Rooms. Mr. John Green has been newly hired for the position of a Reservation Assistant manager. One of John’s responsibilities is to calculate how many rooms above 100 (i.e. the Maximum Number of Rooms in the Hotel) does management need to overbook for the night of December 25th. Mr. Green was given the following data, at hand, both updated and concerning the night of December 25th: Number of due-out rooms: 45 Rooms Number of rooms reserved: 50 Rooms Number of rooms occupied by stay-overs: 35 Rooms Forecasted no-shows percentage: 10% Forecasted under-stays percentage: 20% Forecasted overstays percentage: 10% Forecasted cancellation percentage: 20% 21 Reservations Management Understanding Availability Overbooking Exercise – Potential Solution Total number of rooms expected to be occupied for the night of Dec 25th = Adjustment due to no-shows % = Adjustment due to understays % = Adjustment due to overstays % = Adjustment due to cancellation % = Total adjustment = Total number of rooms expected to be occupied for the night of Dec 25th (i.e. after adjustment) = Additional number of rooms to be reserved for the night of Dec 25th = Total number of rooms expected to be reserved and occupied for the night of Dec 25th = Expected occupancy percentage with adjustments = Overbooking factor = 22 Reservations Management Understanding Availability Overbooking Exercise – Potential Solution Total number of rooms expected to be occupied for the night of Dec 25th = 50 reserved rooms + 35 stayover rooms = 85 Rooms Adjustment due to no-shows % = 10%*50 = 5 Rooms Adjustment due to understays % = 20%*35 = 7 Rooms Adjustment due to overstays % = 10%*45 = 4.5 Rooms Adjustment due to cancellation % = 20%*50 = 10 Rooms Total adjustment = 5 (NS) + 7 (US) + 10 (CXL) - 4.5 (OS) = 17,5 Rooms Total number of rooms expected to be occupied for the night of Dec 25th (i.e. after adjustment) = 85 –17,5 = 67,5 Rooms Additional number of rooms to be reserved for the night of Dec 25th = 100–67,5= 32.5 Rooms Total number of rooms expected to be reserved and occupied for the night of Dec 25th = 85+32,5 = 117.5 Rooms Expected occupancy for the night of Dec 25th = 117,5 /100x100=117,5% Overbooking factor = 117.5% - 100% = 17,5% 23 Establishing rates 24 Reservations Management Establishing rates • Reservations Manager will almost always have more than one room rate category for each of its guestrooms. • Room rate categories correspond to room types (suites, two beds, one bed) size, location, views, furnishings. 25 Reservations Management Establishing rates Types of rates • Rack rate • Touroperator rate • Group rate • Corporate rate • Special/ Promotional rate • Package rate • Internet rate, web rate • Complimentary rate Reservations and FO sell rooms at Rack Rate unless guest qualifies for a discounted. Special rates must be controlled!!! 26 Reservations Management Establishing rates Rate Controls • Controls set per rate (rate code). • Controls set per rate code by room type. • Controls set on the whole house. • Reservations dept requests denied. records number of reservation 27 Reservations Management Establishing rates Different Rate Controls • Open • Length of Stay • Closed • Closed to Arrival • Overbooking (Room type / House) • These controls are set in the PMS. 28 Reservations Management Establishing rates Determining Rates • What is our position in the market? • What is our breakeven point? • What are the rates of competitors? • What are our fixed costs? • How much does it cost to clean a room? • What is our market target? 29 Reservations Management Establishing rates Determining Rates Room rates ensure hotel’s profitability considering: • Operating costs • Guest demand • Market conditions • Inflationary factors • Competition 30 Reservations Management Establishing rates Determining Rates Pricing rooms? 1. Market Condition Approach 2. Rule-of-Thumb Approach 3. Hubbart Formula Approach 31 Reservations Management Establishing rates Market Condition Approach • Common Sense Approach • Comparable hotels in the geographical market. • Setting rates according to similar products (competitive set). • Based on location, property ratings, property type, and brand identification. 32 Reservations Management Establishing rates Market Condition Approach Hotel charge only what the market will accept. Competitive analysis focuses on: • How rates compare to competitors? • Are the rates much lower or higher than the competition? • How are the rates affecting revenue and business share? • What is our occupancy percentage? • What is the occupancy percentage of the competitive set? • What are the trends during the past six months? https://www.strglobal.com 33 Reservations Management Establishing rates Rule-of-Thumb Approach This approach sets the rate of a room a $1 for each $1,000 of construction and furnishings cost per room, assuming a 70% occupancy. • Assume the average construction cost of a hotel room is $80,000. • $1 per $1,000 approach results in an average selling price of $80 per room. 34 Reservations Management Establishing rates Hubbart Formula Approach This approach considers: • Operating costs • Desired profits • Expected number of rooms sold In other words, this approach starts with: • Desired profits. • Adds income taxes. • Adds fixed charges and management fees. • Adds operating overhead expenses and direct operating expenses. 35 Revenue Management 36 Revenue Management Overview • Introduction to Revenue Management • Revenue Management Formulas • Implementing Revenue Strategies • The Revenue Manager 37 Revenue Management Introduction Firms employing revenue management techniques have seen revenues increase between 3% and 7% without significant capital expenditures. Revenue Management is the application of disciplined tactics that predict consumer behaviour at the micromarket level and optimize product availability and price to maximize revenue growth. (Robert G. Cross, 2011) In other words….. 38 Revenue Management Introduction Revenue Management ensures that companies will sell the - right product to the - right customer at the - right time for the - right price. 39 Revenue KPIs 40 Revenue Management Revenue KPIs Revenue Management is designed to measure revenue achievement. Basic calculations are: Occupancy % ADR REVPAR TREVPAR 41 Revenue Management Revenue KPIs Occupancy Percentage Occupancy percentage measures room sales in terms of the Hotel’s capacity to generate rooms sold. Occ % x 100 42 Revenue Management Revenue KPIs Average Daily Rate - ADR Average Daily Rate is the average revenue that a hotel receives for each occupied guest room per day. ADR 43 Revenue Management Revenue KPIs Average Room Rate – ARR Average Room Revenue shows the average revenue that a hotel receives for each occupied guest room in a given period of time. ARR 44 Revenue Management Revenue KPIs RevPAR Revenue per Available Room relates to the revenue generated per available room to be sold in the hotel. RevPAR 45 Revenue Management Revenue KPIs TrevPAR Total Revenue per Available Room is the sum total of net revenues from all the revenue centres plus rentals and other income per available room for the period divided by the total available rooms during the period. TrevPAR 46 Revenue KPIs Exercises 47 Revenue Management Revenue KPIs Exercise 1 - Calculate Occ.%, ADR and RevPAR. Rooms revenue: €228000 Number of rooms in the hotel: 900 rooms Number of rooms available for sale (available + occupied): 825 rooms Number of rooms sold to guests: 792 rooms Occupancy %=(792/825)*100= 96% ADR= 228000/792= €287.88 RevPAR: 228000/825= €276.36 or RevPAR=(ADR x Occ%)= 287,88 x 0,96 (96%)= €276,36 48 Revenue Management Revenue KPIs Exercise 2 - Calculate Occ.%, ADR, RevPAR and TRevPAR Number of rooms: 300 rooms Rooms occupied today: 255 rooms Revenue today: Rooms: €34,425 Bar: €3,000 Restaurant: €21,700 Spa: €2,700 Telephone: €187.50 Minibar: €2,150 Banquets: €16,000 OCC% = 255 / 300 x 100= 85% ADR = 34425 / 255= €135 RevPAR = 34425 / 300= €114.75 Total Revenue= €80162,50 (34425+3000+21700+ 2700+187,50+2150+16000) TrevPAR= 80162,5 / 300 = €267,20 49 Revenue Management Revenue KPIs Exercise 3 - Calculate Occ.%, ADR, RevPAR and TRevPAR • Rooms revenue: €300,500 • Breakfast: €6,375 • Lunch: €14,000 • Dinner: €10,500 • Spa revenue: €5,500 OCC% = 425 / (500 – 10) x 100= 86.73% ADR = 300500 / 425= €707,05 RevPAR = 300500 / (500–10)= €613,26 • Total number of rooms: 500 rooms Total Revenue= €336875 • 10 rooms are not available because (300500+6375+14000+10500+5500) the AC is not working • Number of rooms sold: 425 TrevPAR= 336875 / 490= €687,50 50 Revenue Management Revenue KPIs Revenue Management is designed to measure revenue achievement. One main task involved in revenue management is the hotel’s yield statistic. Yield statistic = ratio of actual room revenue (rooms sold) / potential room revenue (if all rooms sold at their rack rates). 51 Revenue Management Revenue KPIs PASR PASR RS MOcc% ADR PAR RP% Occ% YS 52 Revenue Management Revenue KPIs The potential room revenue can be calculated based on single or double occupancy. Potential Average Single Rate Potential Average Double Rate Single Room Revenue at Rack Rate Double Room Revenue at Rack Rate ____________________________ Number of Rooms Capable to be Sold as Singles ____________________________ Number of Rooms Capable to be Sold as Doubles 53 Revenue Management Revenue KPIs What are the Potential Average Single Rate and Double Rate? Rooms Category Rate (1 person) Rate (2 persons) 10 Standard €130.00 €150.00 10 Executive €150.00 €200.00 10 Superior €200.00 €250.00 6 Junior Suite €300.00 €400.00 4 Suite €500.00 €600.00 54 Revenue Management Revenue KPIs What are the Potential Average Single Rate and Double Rate? PASR= Single Room Revenue at Rack Rate/Number of Rooms Capable to be Sold as Singles Single Room Revenue at Rack Rate=(130x10+150x10+200x10+300x6+500x4) = €8600 PASR= 8,600/40 = €215 PADR= Double Room Revenue at Rack Rate/Number of Rooms Capable to be Sold as Doubles Double Room Revenue at Rack Rate=(150x10+200x10+250x10+400x6+600x4)= €10800 PADR= 10800/40 = €270 55 Revenue Management Revenue KPIs Rate Spread Room rate spread among various room types is essential to use in yield decisions in targeting a hotel’s specific market. Rate Spread= Potential Average Double Rate – Potential Average Single Rate PASR= 8,600/40 = €215 PADR= 10800/40 = €270 Rate Spread= 270 – 215 = €55 56 Revenue Management Revenue KPIs Multiple Occupancy Percentage An important element in determining a hotel’s yield statistic is the proportion of the hotel’s rooms that are occupied by more than one person. It indicates sales mix and helps balance rooms rates with future occupancy demand. 57 Revenue Management Revenue KPIs Multiple Occupancy Percentage Number of rooms occupied by more than one person x100 Number of Rooms Occupied What is the Multiple Occ% if the 40-room hotel is 70% occupied and 7 rooms are occupied by more than 1 person? 40 x 0,7 = 28 rooms (occupied at 70% occupancy) Number of rooms occupied by more than one person: 7/28 rooms occupied= 0,25x100= 58 Revenue Management Revenue KPIs Potential Average Rate A collective statistic that combines the potential average rate, multiple occupancy percentage, and rate spread. Potential Average Rate= (Multiple Occ% x Rate Spread) + Potential Average Single Rate PAR = (25% x 55) + 215= €228,75 59 Revenue Management Revenue KPIs Room Rate Achievement Factor or Rate Potential% The % of the rack rate that the hotel actually receives. Rate Potential %= Actual Average Rate / Potential Average Rate x 100 What would the room rate achievement factor be if the ADR is €200? 200/228,75= 0,8743 (200/228,75)x100=0,8743x100= 87,43% 60 Revenue Management Revenue KPIs Yield Statistic Yield Statistic (Room efficiency percentage) is the ratio of actual rooms revenue to the potential room revenue. YS = Actual Rooms Revenue / Potential Rooms Revenue or YS = Occupancy% x Achievement Factor/100 YS= 70% x 87,43%=6120,1/100= 61,2% 61 Revenue Management Revenue KPIs Other Key Performance Indicators KPI REVPAG: Total Revenue per each guest staying in the hotel. GOPPAR: Gross Operating Profit per available room GOPPAR: Total Revenue – Total Expenses / Number of Available Rooms 62 Revenue Management Revenue KPIs Review Exercise LRM Hotel – 600 rooms Category Single Occupancy Double Occupancy (300) One-bed room €80 €120 (300) Two-bed room €100 €140 • Rooms occupied today: 420 rooms • Rooms occupied by more than 1 person: 336 rooms • ADR: €95 Provide the Potential Average Rate, the Rate Potential % and the Yield Statistic. 63 Revenue Management Revenue KPIs Potential Average Rate= (Multiple Occ%xRate Spread)+Potential Single Average Rate (80%x40)+90= €122 Mocc%= # Rooms occupied by more than one person/# Rooms Occupied x 100 Mocc%= 336/420 x100= 80% Rate Spread= PADR – PASR Rate Spread= 130 – 90= €40 PASR= Single Room Revenue at Rack Rate / Number of Rooms Capable to be Sold as Singles PASR= (300x80 + 300x100) / 600= €90 PADR= Double Room Revenue at Rack Rate / Number of Rooms Capable to be Sold as Doubles PADR= (300x120 + 300x140) / 600= €130 64 Revenue Management Revenue KPIs Rate Potential%= Actual Average Rate (ADR)/Potential Average Rate x 100 95/122 x 100= 0,7786 x 100= 77,86% Yield Statistic= Occupancy % x Rate Potential % 70% x 77.86%= 54% Occ%= # rooms occupied/Total # rooms x100= 420/600 x 100=70% 65 Implementing Revenue Strategies 66 Revenue Management Revenue Strategies Capacity management Discount allocation Duration control 67 Revenue Management Revenue Strategies Capacity management Balances risks of overbooking against potential loss of revenue (cancellations, under-stays, no-shows). Discount allocation Restricts time period and product (rooms) available at reduced or discounted rates. Duration control Places time constraints on accepting reservations in order to protect rooms for multiday reservations. 68 Revenue Management Revenue Strategies Discount allocation - Hurdle Rates • The minimum rate FO Mgr or Revenue Manager is willing to sell for that day. • FO Mgr or Reservations Mgr must set a minimum rate for each day. • Rates that fall below this minimum will not be offered. • Hurdle rates can fluctuate from day to day, depending on the hotels desired Yield 69 Reservations & Revenue Management References • Cross, R.G. (2011) Revenue Management. Hard-Core Tactics for Market Domination. New York: Broadway Books • Kasavana M., Brooks R. (2017) Managing Front Office Operations. (10th ed). Lansing (Michigan): American Hotel & Lodging Educational Institute 70 Ladies & Gentlemen Thank you!!