Front Office Yield Management - I

I- THE CONCEPT OF YIELD MANAGEMENT:

¨Yield Management is based on Demand and Supply

¨ The Hotel Industry’s Focus is shifting from High Volume Booking to High Profit Booking

1. Hotel Industry Applications:

¨The Commodity that the Hotel sells is Time in a Given Space, and if it is Unsold, Revenue is lost forever

¨Yield Management is composed of a set of Demand Forecasting Techniques used to determine whether Room Rates should be raised or lowered, and whether a Reservation should be accepted or rejected in order to maximize Revenue

¨ In order to maximize Revenue, the Front Office Manager needs to forecast Information concerning Capacity Management, Discount Allocation, and Duration Control

Capacity Management Þ tries to solve the following Problems:

·         Controlling and limiting Room Supply

·         Balancing the Risk of Overselling Guest Rooms with the Potential Loss of Rooms arising from Room Spoilage

·         Determining how many Walk-ins to accept during the Day of Arrival

Discount Allocation Þ Involves restricting the Time Period and Product Mix Available at reduced or discounted Rates, and limiting Discounts by Room Type through encouraging Upselling

Duration Control Þ Places Time Constraints on accepting Reservations in order to protect Sufficient Space for Multi-Day Requests Þ “A Reservation for a One-Night Stay might be rejected, even though Space is Available that Night”

2. Measuring Yield:

¨ The Yield Statistic is the Ratio of the Actual Revenue (Generated by the Number of Rooms Sold) to Potential Revenue (THE Amount of Money that would be received from the Sales of Rooms in the Hotel at a Rack Rate)

Formula 1: Potential Average Single Rate:

¨Potential Average Single Rate = (Single Room Revenues at Rack Rate) / (Number of Rooms Sold as Single)

Formula 2: Potential Average Double Rate:

¨Potential Average Double Rate = (Double Room Revenue at Rack Rate) / (Number of Rooms Sold as Double)

Formula 3: Multiple Occupancy Percentage:

¨Multiple Occupancy Percentage = (Number of Rooms Occupied by more than 1 Person) / (Total Number of Rooms Sold)

Formula 4: Rate Spread:

¨Rate Spread = (Potential Average Double Rate) – (Potential Average Single Rate)

Formula 5: Potential Average Rate:

¨Potential Average Rate = (Multiple Occupancy Percentage * Rate Spread) + (Potential Average Single Rate)

Formula 6: Room Rate Achievement Factor:

¨Room Rate Achievement Factor = (Actual Average Rate) / (Potential Average Rate)

 Formula 7: Yield Statistic:

1.  Yield Statistic = (Actual Rooms Revenue) / (Potential Rooms Revenue)

2.  Yield Statistic = ((Rooms Nights Sold) / (Rooms Nights Available)) * ((Actual Average Room Rate) / (Potential Average Rate))

3.  Yield Statistic = Occupancy Percentage * Achievement Factor

Formula 8:Identical Yields Occupancy:

¨Identical Yields Occupancy = (Current Occupancy Percentage) * (Current Rate / Proposed Rate)

Formula 9:Equivalent Occupancy:

1.  Equivalent Occupancy = (Current Occupancy Percentage) * ((Rack Rate – Marginal Cost) / (Rack Rate * ((1 – Discount Percentage)) – Marginal Cost)

Equivalent Occupancy = (Current Occupancy Percentage) * ((Contribution Margin) / (New Contribution Margin)

MANWAL