Revenue Management

for Hoteliers
Asst. Prof. Berlyn M. Teano 2023
Accountancy, CEBA

1
 Essential terms
• Average daily rate (ADR): The average (mean) selling price of guest rooms
during a specifi c time period, such as a day, week, month, or year. The
formula for ADR is:
Total room revenue ÷ Total rooms sold = ADR
• Occupancy percentage: The number of rooms sold during a specific time
period; expressed as a percentage of all rooms available to sell during that
same period. Formula is:
Total rooms sold ÷ Total rooms available for sale = Occupancy percentage

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Revenue Management for Hoteliers
 Industry-standard revenue generation assessment tools

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Revenue Management for Hoteliers
 Industry-standard revenue generation assessment tools

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Revenue Management for Hoteliers
 Forecasting Demand
For hoteliers, an accurate estimate of future room demand is essential to the
effective operation of their hotels because:
• Accurate revenue forecasts allow hotel department leaders to more
efficiently schedule the departmental staff needed to serve guests.
• Accurate revenue forecasts give those responsible for purchasing supplies the
information required to buy needed items in the correct quantities.
• Accurate revenue forecasts allow managers and owners to estimate the
future profitability of their properties.
• Accurate demand forecasts allow managers to make better decisions about
how to modify and manage the prices of their products and services.

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Revenue Management for Hoteliers
 Forecasting Demand
3 sources of data:

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Revenue Management for Hoteliers
 Forecasting Demand
Four
Components of
Effective
Demand
Forecasts

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data
• Historical data: Data describing events that have already
occurred. Such data are also known as actual data and results
data.
• Understanding a hotel’s past (historical) performance is one of
the best ways to make good decisions about future
performance

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data
Assume that for the past eight weeks you had carefully collected and
sorted the daily ADR and occupancy information for the 200-room hotel at
which you are working.

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data
• Assume that, as this 200-room hotel’s RM, you are now confronted with the
following question: Do you recommend that the hotel fill a tour operator’s request
to reserve 100 rooms on the Monday night that is three weeks from now, if the room
rate requested by that tour operator is $109.00 per room?
• To determine the answer to this and other questions similar to it, RMs use the
following three-step procedure:
1. Calculate the forecasted RevPAR based on the estimated demand for rooms
that does not include the new piece of business.
2. Calculate the forecasted RevPAR based on the estimated demand for rooms
that includes the new (proposed) piece of business.
3. Assess the difference between the two RevPAR estimates and make a
recommendation
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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data

• Step 1. Lacking any additional information or data, one of the best predictors of
what will happen in the future is what has happened in the past. Based on the
average performance of your hotel over the past eight weeks, your estimate for the
RevPAR you would likely achieve on the Monday three weeks from now is:
$158.75 (trailing ADR) x 0.88 (trailing Occupancy %) = $139.70 RevPAR forecast

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data

• Step 2. If 100 rooms are sold at $109.00, it is reasonable to assume a sellout of all
remaining available rooms. The estimated RevPAR generated in such a case would
be calculated as:
$109.00 (proposed tour operator rate) x 0.50 (Occupancy % @ 100 rooms) = $ 54.50
Plus
$158.75 (trailing ADR) x 0.50 (Occupancy % with sellout) = $ 79.38
Total RevPAR = $ 133.88
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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data

• Step 3. The difference between the two RevPAR estimates is $5.82 ($139.70 -
$133.88 = $5.82). Thus, your hotel would actually achieve a lower RevPAR by
accepting the tour operator’s proposal and selling out the hotel than it would if the
proposal was rejected.
• Additional factors to be considered are: Revenue impact, Expense impact, Impact on
future pricing

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data
• Revenue impact. This refers to the impact on total hotel revenue of the additional
rooms sales. If the hotel offers additional services such as food, beverages, in-room
services, spa services, or other opportunities for guest purchases, the additional
revenues that could be generated from a sellout (200 rooms sold in this example)
compared to the 88 percent occupancy (176 rooms sold) might affect the decision
you would make. In this specific example, it is unlikely that the additional revenue
would cause you to want to accept the group.
• Expense impact. This refers to the additional costs that would be incurred through
the servicing of the additional 24 sold rooms (200 rooms -176 rooms = 24 additional
rooms). Room cleaning costs, in-room supplies, and amenities used and additional
labor costs required in other areas of the hotel may be additional expense factors to
consider.

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data
• Impact on future pricing. This refers to the impact on the remaining rooms’ selling
prices if in fact 100 rooms are “presold” on that specific Monday. Note that the ADR
estimated for your property is $158 at a forecasted occupancy of 88.5 percent. If,
however, a sellout is forecast, discounts that may have been offered to guests
unwilling to pay full rack rate for your remaining rooms should likely be scaled back
or eliminated. Taking the tour group could result in the elimination of discounted
rates and thus an increased ADR for all unsold, non–tour-committed rooms. As a
result, a higher RevPAR may be achieved for those nongroup rooms and, as a result,
the entire property.

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Revenue Management for Hoteliers
 Forecasting Demand: Historical Data
▪ Number of reservations/ room nights booked per day
▪ Number of reservations/ room nights denied per day
▪ Number of daily reservation cancellations
▪ Total number of room nights canceled
▪ Number of check-ins (arrivals)
▪ Number of check-outs (departures)
▪ No-shows
▪ Walk-ins

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 Forecasting Demand: Historical Data
▪ ADR achieved
▪ Occupancy % achieved
▪ By the property
▪ By room type
▪ Average number of guests per room
▪ Average length of guest stay

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Revenue Management for Hoteliers
 Forecasting Demand
Four
Components of
Effective
Demand
Forecasts

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Revenue Management for Hoteliers
 Forecasting Demand: Current Data
Current data: Data describing currently occurring events.
➢ Divided into 3 main operating areas:

1. Occupancy and Availability Reports

2. Group Rooms Pace Reporting

3. Non-rooms Revenue Pace Reporting

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Revenue Management for Hoteliers
 Forecasting Demand: Current Data
Occupancy and Availability Reports
What is happening now is best communicated by the monitoring
of four key areas:
1. The number of rooms available to sell

2. The number of rooms reserved

3. The number of rooms held or blocked

4. The estimated ADR resulting from currently reserved or

blocked rooms
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Revenue Management for Hoteliers
 Forecasting Demand: Current Data
• Group rooms pace report - summary report describing the
amount of future demand for a lodging property’s group
rooms and the rate(s) at which that group business has been
captured. Also referred to as a group rooms booking pace
report.

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Revenue Management for Hoteliers
 Forecasting Demand: Current Data
• Non-rooms Revenue Pace Reporting - use of pace reports
designed especially for nonrooms revenue areas such as sales
and catering, which generate significant food and beverage or
meetings income and thus may impact guest room pricing
decisions.

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Revenue Management for Hoteliers
 Forecasting Demand
Four
Components of
Effective
Demand
Forecasts

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Revenue Management for Hoteliers
 Forecasting Demand: Future Data
Factors that will most affect the future demand for any single hotel’s guest
rooms:
• Demand generators

• Demand drains

• The strength or weakness of the local as well as state or national

economy
• The property’s addition or elimination of specific services

• The opening or closing of competitive hotels

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Revenue Management for Hoteliers
 Forecasting Demand: Future Data
Factors that will most affect the future demand for any single hotel’s guest
rooms:
• Predictable factors such as planned road construction or seasonality

• Unpredictable factors such as unplanned events, road construction, or

severe weather
• The pricing decisions made by the property’s competitors

• The pricing decisions made by the property

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Revenue Management for Hoteliers
 Forecasting Demand: Future Data
RMs must:
• Know about special citywide or areawide events in the area that affect demand for
their properties.
• Have an understanding of the demand for competitive hotel properties in the area.
• Consider any the opening or closing of competitive hotels in the area.
• Adjust demand forecasts very quickly when faced with significant demand-altering

• events (i.e., unusual events, inclement weather, power outages, and airport or
highway closings).

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Revenue Management for Hoteliers
 Forecasting
Future
Demand

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Revenue Management for Hoteliers
 Forecasting Demand: Future Data
The misuse of forecasts:
• Unrealistically Low Forecasts - it is usually because a signifi cant
incentive exists for exceeding or beating the forecast that has been
developed.
• Unrealistically High Forecasts - may be produced to achieve either
external or internal goals.

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Revenue Management for Hoteliers
 DEMAND FORECASTS AND STRATEGIC
PRICING
3 critical issues confront the RM who seeks to optimize revenue in a highly
constrained supply setting:
1. Impact of demand on price

2. Impact of price on demand

3. Impact of demand forecasts on an RM’s pricing strategy

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Revenue Management for Hoteliers
 DEMAND FORECASTS AND STRATEGIC
PRICING
Impact of demand on price - in the lodging industry the best practice is
one of not permitting demand to have a direct impact on price.
• Demand can and should, however, be permitted to affect discounts.

• To optimize ADR and RevPAR in periods of temporarily heightened

demand RMs should seek to eliminate discounts rather than increase
their rack rates.

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 DEMAND FORECASTS AND STRATEGIC
PRICING
Impact of price on demand
➢ Although demand should not be allowed to dictate price, it is certainly
true that a change in price will often result in a shift in buyer demand.
➢ Buyer demand is influenced by: Reductions in price to be paid, Increases
in price to be paid

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Revenue Management for Hoteliers
 DEMAND FORECASTS AND STRATEGIC PRICING
Impact of Demand Forecasts on RM Strategy
RMs who want to be continually headed in the proper direction do the
following:
➢ Understand the unique property features that affect demand for their
hotels
➢ Know about special citywide and areawide events that affect room
demand
➢ Understand the demand for competitive hotels in the area

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Revenue Management for Hoteliers
 DEMAND FORECASTS AND STRATEGIC PRICING
Impact of Demand Forecasts on RM Strategy
RMs who want to be continually headed in the proper direction do the following:
➢ Consider the pricing strategies of competitive hotels in the area

➢ Include weather, road construction, season of the year, special occurrences,

and any other relevant factors when making demand assessments
➢ Adjust forecasts quickly when confronted with significant demand-affecting
events.
➢ Keep the interest and reactions of guests foremost in all decisions related to
rooms pricing.

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Revenue Management for Hoteliers
 Question 1
The Grand Inn is a limited-service hotel with 200 rooms. Considering the values
below, calculate the RevPar for each month.

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 Question 2
What is the industry term for the average revenue generated by each
occupied guestroom during a defined period of time?
Answer: RevPOR

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 Question 3
What is the formula revenue managers use to calculate an Average Daily
Rate (ADR)?
Answer: Total room revenue/Total rooms sold = ADR

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 Question 4
What is the average (mean) revenue generated by each available guest room
during a specific period of time?

Answer: RevPar = ADR x Occupancy Percentage

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 Question 4
As a manager, you need to decide if you accept or reject a tourist group on
Friday. The group requested 54 rooms at the rate of P3,750 in 2 weeks. The
total number of the available rooms in the hotel is 120. Considering the
additional information below, provide your decision.
Average – Last 10 Fridays
Occ – 85%

ADR – 4,700

Answer: Accept, because you will achieve a higher revenue.

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Revenue Management for Hoteliers
 END

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Introduction to Numbers, Accounting, and Financial Analysis