Revenue

Management
• means predicting consumer behavior to sell the product at an optimal
price every day. Therefore, the definition of hotel revenue management is
straightforward: selling the right room to the right client at the right moment at
the right price on the right distribution channel with the best commission
efficiency. Sometimes revenue management is called yield management, but
these terms aren’t interchangeable.

• Revenue management refers to the strategic distribution and pricing

tactics you use to sell your property's perishable inventory to the right
guests at the right time, to boost revenue growth. The best strategies are
based on the understanding that hotel pricing is fluid, and can change from one
day to the next.
NON-PRICING HOTEL REVENUE
MANAGEMENT TOOLS
Given the large scope of services offered in the hospitality
industry, the need to regulate the usage rate of the various
sectors is crucial to the success of the industry. It is therefore the
role of capacity management to match supply with demand.

Since the hospitality industry deals with people, it is

necessary to match the services supplied with the number of
clients served.
Capacity management
- set of activities dedicated to a hotel’s capacity control.

2 Types of Capacity
Management:

• Strategic
• Short-term or Tactical
Strategic
includes capacity expansion (e.g. number of rooms), carrying capacity
(the optimal use of physical capacity before tourist’s experience
deteriorates, e.g. optimal occupancy rate), and capacity flexibility (a
hotel’s ability to respond to fluctuations in demand by changing its
capacity by closing or opening wings/floors).

Strategic capacity planning in operations management requires

businesses to:

 Determine their goals

 Understand the sales demands
 Analyze the opportunities
 Evaluate their resources
 Eliminate bottlenecks
 Review production capacity
Short-term or Tactical
 refer to the set of activities related to managing capacity on a
daily basis – work schedules, guest arrival/departure times,
service interaction time, application of queuing and linear
programming models to service processes, customers’
participation in the service process, etc.

 The goal of short-term capacity planning is to handle unexpected

shifts in demand in an efficient economic manner. The time frame
for short-term planning is frequently only a few days but may run
as long as six months.
Overcontracting
 refers to the signing of contracts with distributors
(GDSs, OTAs, tour operators, travel agents, etc.)
for a greater number of rooms than the physical
capacity of the hotel.
Advantages:

Competent management system even for complex hotel contracting

Support for the management of rate updates from all your contracted hotels
 Comprehensive platform to enter your hotel contracts in order to fulfill your end users’
buying needs
Necessary because distributors do not utilize their entire allotments in hotels.
 Tour operators, for example, contract more rooms in hotels at a destination than the
number of seats they have in (charter) flights in order to have greater flexibility and
choice of accommodation establishments for their customers.

Disadvantages:

 Such opportunistic behavior from their side puts hotels in a vulnerable position where
they are not sure whether the contracts with the tour operators will be fulfilled, or what
percentage of the contracted rooms will effectively be booked and used by them
Overbooking

• relates to confirming to distributors and direct

customers bookings for a greater number of
rooms than the available capacity of the hotel.
• It is based on the assumption that some
customers that have booked rooms will not
appear for check-in, others will cancel or amend
their bookings at the last minute, while still others
will prematurely break their stay in the hotel (due
to illness, personal reasons, traffic, bad weather,
force majeure, or other reasons)
Advantages:

 Losses from no shows or cancellations will be covered.

 Optimizes the operations efficiency by increasing profitability.
 Compensation are normally cheaper than keeping a room empty.
 Because hotel rooms are considered as perishable products, overbooking yields
considerable impact on hotels revenue.

Disadvantages:

 The additional financial loss for example guest staying at the hotel might have used
other hotel facilities.
 Guests need to be walked to other hotels in case predicted overbooking is more than
actual availability.
 Reservations must be closely monitored to control overbooking.
 If communicating compensation and process is not appropriate there is a risk of
significant financial loss.
Scenario:
When more guests appear for check-in, the hotel must walk some of
them to a different property. The term in the travel industry is “walked.”
That’s when a hotel tells a traveler with a confirmed reservation that it
does not, in fact, have an available room and instead books a room for the
guest at another hotel. “Walking” is not new. According to hotel industry
experts, however, it has been on the rise as the strong economy drives up
hotel occupancy rates. At the same time, hotels have been under pressure
to maximize their revenues, experts say. To do that, hotels, much as
airlines do, try to predict who will not show up or cancel at the last minute.
Sometimes, they guess wrong.
This requires the front office manager to make several
decisions about walking guests (Baker, Bradley & Huyton, 1994;
Ivanov, 2006)
Who to be walked?
A suitable approach is to accommodate guests on a ‘first come-first served’ basis and
walking late arrivals to other hotels.

Length-of-stay
guests with shorter stays (one night) could be walked instead of those with longer stays.

Guests’ loyalty
walking a regular customer might incur more negative impacts than a first-comer. Therefore
they should be walked last.

Room rate
 usually hotels walk guests who have paid the lowest rates. This means that hotels prefer
to accommodate direct customers at the expense of those sent by tour operators and
travel agents.
Where to walk guests?
 A hotel must redirect its guests to another establishment of the same or
higher category. If this is impossible (there is no other similar hotel in the
city/resort or no rooms are available), overbooked guests could be
walked to a hotel of a lower category but they must receive a refund
equal to the price difference between the two hotels.

What compensation to provide?

 When a guest is denied service and must be walked to another
property, he has to receive monetary or non-monetary compensation,
e.g. direct cash refund, complimentary meal, a free voucher for a spa
centre or casino, bottle of wine/champagne, or other gift.
Room availability guarantee
 Walking guests with confirmed bookings to another hotel creates stress for them
and loss of brand image/customer goodwill for the hotel. To eliminate their
perceived risk from potential overbooking, hotel chains provide a room
availability guarantee to selected guests (e.g. members of a loyalty
programmed ) according to which guests will be accommodated in the hotel,
regardless of its occupancy rate, provided the guests made the booking a
certain minimum number of days before check-in. Room availability guarantee
does not result in direct revenues for the hotel but it decreases the perceived risk for
the guest. It is not provided to all guests because walking guests in case of an
overbooking then becomes impossible – the hotel cannot walk guests with a room
availability guarantee.
Length-of-stay control (LOSC)
 plays a significant role in building effective RM systems and
increasing revenues in the hotel industry. This is used to estimate
the relative values of various segments and to keep track of
hotel performance in attracting and keeping guests in house.
Some hotels have certain booking policies in place. These can be
used to manipulate booking factors when seeking to fill as many
rooms as possible
 Usage of LOSC
 Length-of-stay control is a much neglected area of research (Ismail, 2002; Kimes &
Chase, 1998; Vinod, 2004), yet widely applied in hotel business practice. Through
it, hotels set limits on the minimum and, rarely, maximum number of nights in the
customer bookings. It allows hotels to protect themselves from losing revenues when
customers book rooms for short stays in periods of huge demand (e.g. during special
events such as exhibitions, fairs, congresses, sport events, etc.)

 Length-of-stay control may be successfully implemented only if it is applied by most of

the hotels at a destination during a given period.

 Cooperation among hotels at a destination proves, again, to be a prerequisite for

successful revenue management
links:
https://www.wallstreetmojo.com/capacity-management/
https://setupmyhotel.com/train-my-hotel-staff/front-office-training/439-overbooking.html
 https://www.nytimes.com/2019/02/18/business/hotels-overbooked-walking-travel.html
 https://l.messenger.com/l.php?u=https%3A%2F%2Fwww.altexsoft.com%2Fblog%2Fbusi
ness%2Fhotel-revenue-management-solutions-best-practices-revenue-managers-role%2
F&h=AT2hYZ2pCKUNEt1npEGQeisYz3jfY08sn3o1UqsjfzswwTX-5_tenZOSzyMrXB4FtZ
JvSy8bjPVgOJojLlz4I4BY9KIRbRL2u2MXuaNny5zLtGP-G6ZtlmJjRRTQg__vW97ZVG-C
w7f8g_I
 https://journals.sagepub.com/doi/abs/10.1177/1354816619901207?journalCode=teua
 https://www.xotels.com/en/glossary/los-length-of-stay
Group 7

Almerino, Renalyn
Dela Torre, Redelyn
Logronio, Stephanie
Narcillo, Hannah Riza
Panong, Nicko
Roque, Chrisztal Raizalie
Saep, Mikaella
Valdez, John Cell
Maratas, Kevin