FRONT OFFICE REPORT

ON
YIELD MANAGEMENT

Arsh Bery
4th Year BHM
Reg. No. -0911908,
Department.Of Hotel Management
Christ University, Bangalore-560029, Karnataka, India.

[1]

DECLARATION
I hereby declare that this Project belongs to Mr. Arsh Bery and has been solely done by me,
with the guidance and inputs given by my project guide and all the information in the report
is true to my knowledge.

[2]

ACKNOWLEDGEMENT
It gives me immense pleasure to acknowledge all those who have with good grace given
their time and energy to contribute facts and opinions that has helped me in the making
of this project. Much of this is due to the generosity of Mrs. Nita Thomas, our faculty
guide, for giving me the opportunity to do this project on Yield Management and for
her constant guidance and support.
I would like to thank Father Vice Chancellor Thomas. C Mathew, Christ University
Bangalore and the Director of Hotel Management Father Arun for giving me this
opportunity.
I would also like to thank Mr. Sushil Dwarkanath, Head of Department of Hotel
Management, BHM faculty members and my librarian for their invaluable contributions,
advise, time and support.
I would also like to thank my family and friends for their support and encouragement
which helped me in completing this project. I am grateful for the suggestions, inputs and
precious time given professionals, without whom this project would have been
impossible to conclude.

[3]

CONTENTS

Sr.No

TOPIC

PAGE NO.

1.
2.
3.
4.
5.
6.
7.
8.
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11.
12.
13.
14.
15.
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17.
18.

INTRODUCTION
DEFINATION
DURATION MANAGEMENT
INGREDIENTS IN YIELD MANAGEMENT
YIELD MANAGEMENT IN AIRLINE INDUSTRY
YIELD MANAGEMENT IN HOTEL INDUSTRY
TOOLS AND STRATEGIES
SYSTEMS AND PROCEDURES
STRATEGIES AND TACTICS
YIELD MANAGEMENT TEAM
TRAINING AND ORGANISATIONAL CULTURE
CASE STUDY: HILTON HOTELS
RESTRICTIONS
YIELD MANGEMENT FOR GROUPS
ARTICLES
UNRESOLVED ISSUES
REVENUE CHALLENGES
CONCLUSION

5
7
11
14
17
23
25
28
29
37
39
41
49
52
54 & 57
62
63
64

YIELD MANAGEMENT IN HOTEL INDUSTRY

INTRODUCTION
Yield management originated with the deregulation of the US Airline Industry in the late
1970s. Peoples Express, one of the new airlines that emerged, offered customers a low priced
ticket with minimal amenities. Major airlines, such as American and United, decided to
compete with Peoples Express by offering a few seats at even lower fares but maintaining
higher fares on the remainder of their seats. In this way, they attracted the price sensitive
Peoples Express customers while still maintaining their other higher-paying passengers. As a
result, many Peoples Express passengers switched to the major carriers, and Peoples

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Express eventually declared bankruptcy. Former Peoples Express Chairman Donald Burr
attributes many of Peoples Express problems to the lack of a yield management system.
Yield (or revenue) Management, a method for managing capacity profitability, has since
gained widespread acceptance in the Airline and Hotel Industries. The term yield originated
in the airline industry and refers to yield (or revenue) per available seat mile. The term is
easily applied to other industries by altering it to yield (or revenue) per available time-based
inventory unit. Yield management is a method which can help a firm to sell the right
inventory unit to the right type of customer, at the right time and for the right price. Yield
management guides the decision of how to allocate undifferentiated units of capacity to
available demand in such a ways as to maximise profit or revenue. The problem then
becomes one of determining how much to sell at what price and to which market segment.
Research in yield management has previously addressed the theoretical and practical
problems facing airlines and hotels, among other industries, but has given little consideration
to other industries. Many industries are similar enough to hotel and airline operations that
they should be able to apply yield management principles, but the applications have so far
been mostly tactical. I believe that a broad theory of yield management would permit other
industries to gain the benefits of yield management that they currently lack.
Yield management offers the potential of increased revenue to any capacity constrained firm.
A good yield management system helps to coordinate complex information which can then be
used to make better pricing and duration control decisions.
Yield management is a flexible tool that directors of transient sales use to maximise revenue.
Its flexibility allows for continual adjustments as business factors change. As we know,
availability can evolve from minute to minute.

[5]

Yield management can be thought of as an automobile engine. Sometimes, the driver pushes
the accelerator to speed up. Other times, the driver may let up or pull off the accelerator to
coast along. At still other times, a brake may be applied. The ever-changing circumstances of
the roadway dictate to the driver what tools are needed to manage the car. Yield management
works in the same way. The director if transient sales can accelerate or pull the brakes on
how the transient rooms are sold.
In the hotel industry, the engine from this analogy is replaced with the hotels rate structure.
Lower rates, which are cheaper to buy, act as an accelerator by making it more attractive to
book. Higher rates (and their higher prices) slow down the booking process as more guests
are presumably priced out of the market.

DEFINING YIELD MANAGEMENT

The word yield means to produce or give forth an output or return, and the term yield means
output management. When applied to accommodation, the term means the management of
revenue generation from rooms/accommodation. In other words, it is the yardstick of
performance of the establishment in terms of achieving maximum occupancy i.e. full house at
optimum revenue generation. Making the very best use of product is yield management.
Yield management is the application of information systems and pricing strategies to allocate
the right product to the right customer at the right place for the right price at the right time.

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Right Customer: Do not sell discounted rates/packages to those who are willing to pay
more.
Right Place: Property direct, chain, representation, intermediary, internet.
Right Price: Rack rates, corporate rates, packages and discounts.
Right Time: Season, month, week, day
In practise, yield management has meant setting prices according to predicted demand levels
so that price sensitive customers who are willing to purchase at off-peak times can do so at
favourable prices, while price insensitive customers who want to purchase at peak times will
be able to do so.

The application of yield management has been most effective when it is applied
to operations that have the following characteristics:
a. Relatively Fixed Capacity:
Yield management is appropriate for capacity-constrained service firms. Firms not
constrained by capacity can use inventory as a buffer to deal with fluctuations in demand, but
capacity constrained firms must make do with what they have. Capacity can be measured in
both physical and non-physical units. For example, physical capacity may be measured by the
number of seats, the number of rooms or the number of square meters. Non-physical capacity

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is usually time-based and reflects the notion of physical capacity used for certain periods of
time. Examples include room-nights (for hotels), seat-hours (for restaurants).
Capacity is generally fixed over the short term, although some firms are able to change their
capacity by adjusting the amount of space or time available. For example, airlines can change
the size of their planes and restaurant can reconfigure their dining rooms or use outdoor
seating during summer months.

b. Predictable Demand:
Demand for capacity-constrained firms consists of customers who make reservations and
walk-in customers. Both forms of demand can be managed, but different strategies are
required. In sum, customers who make reservations and those who walk in constitute an
inventory from which managers can select the most profitable mix of customers. To forecast
this demand and manage the yield it generates, a manager needs to compile information on
the percentage of reservations and walk-ins, and customers desired time periods and likely
service duration. Tracking customer arrival patterns requires an effective computerized or
manual reservation system.

c. Perishable Inventory:
One might think of inventory as physical, but the inventory of capacity-constrained service
firms should be thought of as time-or, in this case, the time during which a unit of capacity is
available. If an inventory unit is not occupied for a period of time that part of the firms
inventory perishes. This is the key to the strategic framework, and it is the element that has
been missing in most approaches to yield management. Instead of counting the number of
customers or calculating the average yield per customer, managers should measure yield per

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available time-based inventory unit. This measure captures the time factor involved in
capacity-constrained service firms.
Many companies evaluate managers and employees based on average sales per customer.
This is equivalent to hotels measuring effectiveness by average daily rate without paying
attention to occupancy.
d. Appropriate Cost and Pricing Structure:
Industries using yield management should possess a cost structure that features relatively
high fixed costs and fairly low variable costs. Like hotels and airlines, other capacityconstrained industries must generate sufficient revenue to cover variable costs and offset at
least some fixed costs. The relatively low variable costs associated with many capacityconstrained industries allow for some pricing flexibility and give operators the option of
reducing prices during low demand time.

e. Time-Variable Demand:
Customer demand varies by time of year, by week, by day, and by time of day. For some
firms, demand may be higher on weekends, during summer months, or at particular times of
day. Managers must be able to forecast time-related demand so that they can make effective
pricing and allocation decisions to manage the shoulder periods around high-demand periods.
A special factor for firms using yield management is that they have to predict the length of
time a customer will use the service. For example, in restaurants while it is usually true that
lunch is short and dinner is long, if managers can accurately predict customer duration, they
can make better reservation decisions and give better estimates of waiting times for walk-in
customers.
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DURATION MANAGEMENT
Managers of capacity-constrained firms typically face an unpredictable duration of customer
use, which inhibits their ability to manage revenue. To allow for better yield management
opportunities, managers must increase control over the length of time customers use their
service. To do this, they can refine the definition if duration, reduce the uncertainty of arrival,
reduce the uncertainty of duration or reduce the amount of time between customers.

Refining the Definition of Duration

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Duration is how long customers use a service and is measured either in terms of time (i.e. the
number of nights and number of hours) or by event (i.e. a meal). When duration is defined as
an event rather than as time, forecasting the length of customers use becomes particularly
challenging. Thus, if duration for all industries could be defined in time, rather than events,
better control of duration would be likely to result.

Uncertainty of Arrival
In order to increase duration control, companies must ensure that customers honour their
reservations. If customers do not arrive. Or arrive late; the company may be faced with
unused capacity and, therefore, less revenue. Since many capacity-constrained firms have
perishable inventory, they should protect themselves from no shows. Firms can use both
internal (not involving customers) and external (involving customers) approaches to decrease
uncertainty of arrival. Internal approaches include the forecasting of arrivals and no-shows
and overbooking models. External approaches include deposit and cancellation policies.

Uncertainty of Duration
Reducing duration uncertainty enables management to gauge capacity requirements better
and hence to make better decisions as to which reservation requests to accept. Both internal
and external approaches can be used for this purpose. Internal approaches include accurate
forecasting of the length of usage and the number of early and late arrivals and departures,
and improving the consistency of service delivery. External approaches for handling
uncertainty duration generally reach the customer in the form of deposits or penalties.
Although penalties may work in the short term, they risk incurring customer wrath and
hurting the company in the long run. Therefore internal approaches are more preferable.
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Reduce Time between Customers

Reducing the amount of time between customers by definition means that more customers
can be served in the same or a shorter, period of time. Although changeover time reduction is
not normally considered a tool of yield management, it is a tactic which can be used to
increase the revenue per available inventory unit. Such tactics play an important role in the
yield management strategy. Many restaurants have instituted computerized table management
systems which track tables in use, the progress of mean and when the bill is paid. When
customers leave, the table management system notifies bussers and the table is cleared and
reset. The result is an increase in table utilisation and hence revenue per available seat hour.

PRICE
To use yield management effectively, companies must develop logical differential pricing
policies. Industries actively practising yield management use different prices depending upon
customer and demand characteristics.

Optimal Price Mix

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Companies must be sure that they offer a logical mix of prices from which to choose. If
customers do not see much distinction between the prices being quoted, a differential pricing
strategy may not work. Determining the best mix of prices is difficult because management
often had little information on price elasticities. The lack of price elasticity information
usually results in pricing decisions based solely on competitive pressures.

Development of Rate Fences

The possession of a good pricing structure does not ensure the success of a variable pricing
strategy. Companies must also have a logical rationale, or, in industry terms, rate fences that
can be used to justify price discrimination. Industries often use rate fences when the service is
consumed, to determine the price a customer will pay. Rate fences refer to qualifications
which must be met in order to receive a discount. Physical rate fences include tangible
features such as room types or view for hotels, seat type or location for airlines, or table
locations for restaurants. Non physical rate fences include cancellation or change penalties,
and benefits based on when the reservation was booked, desired service duration, group
membership or affiliation or time of usage.
It is a common practice for companies to adopt differential pricing schemes without rate
fences. Hotels use top-down pricing in which reservation agents quote the rack rate (generally
the highest rate) and only quote lower rates if customer asks for them. Knowledgeable
customers may know to ask for lower rate, but inexperienced customers may not. Customers
view this practice in a highly unfavourable way.

NECESSARY INGREDIENTS FOR A YIELD MANAGEMENT SYSTEM

[13]

In order to implement a yield management system, a company must possess the ability to
segment the market based on willingness to pay, information on historical demand and
booking patterns, good knowledge of pricing, a well developed overbooking policy and a
good information system. Each of the necessary ingredients is discussed below.

Market Segmentation
In order to be able to use yield management effectively, a company must be able to segment
its customers into those who are sensitive to price and those who are insensitive to price.
Airlines have done an excellent job of segmenting their passengers by willingness to pay. The
restrictions associated with low fares (i.e. Saturday night stays, advanced purchase
requirements and cancellation penalties) encourage price-conscious travellers to book ahead
if they wish to obtain lower rates. Business travellers, who are typically more time-sensitive,
are unable to qualify for the lower rates. The hotel industry has also experimented with
similar ideas.

Historical Demand and Booking Patterns

Accurate forecasts are essential to a yield management system. Extensive information on
demand and booking patterns by rate level and length of usage is necessary for forecasting.
Most firms have information on historical sales patterns, but may not track when customers
make their reservations. Without this type of information, it is almost impossible to make
accurate forecasts.

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Booking curves can be developed which show the increase in reservation over time. Booking
curves, which show the number of reservations on hand for various days before customer
arrival (often referred to as reading days), are the foundation of any yield management
system. The booking horizon for different types of business varies, for example, reservations
are made far in advance for resort hotels, but may be made at the last minute for an airport
hotel. If managers know their booking patterns, they will be better able to decide which
reservation to accept and which one to deny.

Pricing Knowledge
Many people believe that yield management is a pricing method by which firms change their
price thousands of times a day. In reality, companies using yield management rely on opening
and closing already existing rate classes. Some theoretical work on dynamic pricing has been
published, but computational intensity has so far prevented wide spread use of dynamic
pricing models. Many airline and hotel firms are actively studying the possibility of
developing dynamic pricing approaches to yield management.
Yield management is essentially a form of price discrimination. As with other businesses such
as telephone service and cinemas, when demand is low, discounted prices are available, but
when demand is high, discounted rates are unavailable. By offering multiple rates, firms hope
to increase their revenue. If firms price their services incorrectly, yield management systems
may end up making incorrect decisions about rate and availability restrictions.
Most firms that practice yield management rely on competitive pricing methods. Global
distribution systems, electronic commerce sites and shopping services help companies
determine the prices that their competitors are offering.

Overbooking Policy
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A logical overbooking policy is essential to any good yield management system. Companies
overbook to protect themselves against the possibility of no-shows. To develop and
overbooking policy, a firm must collect information on no-show and cancellation rates over
time. Companies can develop other methods, such as guarantees, customer reminders or
deposits, to reduce the likelihood of no-shows. In addition, firms must develop internal
methods for dealing with displaced customers. If employees are not trained in how to handle
this potentially unpleasant situation, both customer and employee satisfaction may suffer.

Information System
For a yield management system to be successful, it must be integrated with the other
information technology systems of the company. Without system integration, the same data
may be entered into multiple systems and each system may be operating without complete
information. The lack of computer integration is one of the biggest obstacles facing
successful yield management implementation. Although some firms (most notably in airline
industry) have successfully addressed this issue, most yield management systems are not well
integrated with other IT systems

YIELD MANAGEMENT AND THE AIRLINE INDUSTRY

INTRODUCTION OF YIELD MANAGEMENT
The history of civil aviation can be traced back to the early 1920s, when air postal systems
were set up in the USA and Europe. These air mail flights were far more influential on
development of aviation in this early period than carriage on passengers, which was seen as a
secondary (and hazardous) activity. In the 1930s the early, pioneer passenger services began

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to emerge, with such players as KLM, Air France and Imperial Airways becoming
established. This phase of development was interrupted by the Second World War in 1939.
The war proved to be the turning point for airline industry, giving a huge boost to the
production of larger, and more powerful and more reliable aircraft. Following the cessation of
the conflict in 1945, aircraft manufacturers turned their energy to modify their machines of
war as domestic carriers. Examples are the civilianized Lancaster bomber having a modest
success with British Overseas Airways Corporation (BOAC). In the USA, all aluminium
wartime utility aircraft, the Douglas Dakota DC3, and variants were produced in their
thousands, with many still in use today. The Dakota was the first aircraft that allowed airlines
to make a profit from the carriage of passengers alone. Developments continued apace, with a
long lineage of technical achievement by manufacturers, now household names, such as
Airbus industries, Boeing and British Aerospace, producing ever larger, faster, more efficient
and now quieter and less polluting aircraft. This has led to the familiar fleets of jet and
turboprop aircraft in variants to cope with short haul business flights, tightly packed package
holiday flights and long haul journeys, non-stop half way around the world. Thus the modern
airline industry has all the aircraft variants it needs to operate, but it must do this in a highly
competitive open market.
Airline seats are the ultimate perishable commodity. Once the aircraft has departed the
revenue from the unfilled seats will never be recouped. It is therefore perhaps unsurprising
that airlines were the birthplace of yield management. Indeed, airlines were well placed
technically to introduce statistical tools, with their large operational research units and the use
of sophisticated computerized booking systems from an early date. Airlines used break-even
analysis to analyse yield. Indeed, some airlines found that they needed a 90 per cent load
capacity just to break even!

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Prior to the introduction of yield management, discounted fare systems such as APEX and
super APEX were introduced in the 1960s. These would provide discounts for customers who
were willing to book in advance. However, there was no provision for maximising revenue
from those who were willing to pay top fares, other than the traditional first class section, and
this was relatively inflexible. The introduction of yield management is generally credited to
American Airlines, around the late 1970s. American began its studies into operations research
modelling in the early 1960s. It soon realized that managing revenue using data from its
reservations inventory was a huge task given the technology available at that time, so it
reduced the large problem into three manageable sub-problems. These were the now familiar
overbooking discounting practice and traffic management. American then used yield
management to determine flight schedules and fares. These are open to the public via the
reservations system SABRE (semi-automatic business research environment), now updated to
super SABRE. All sales must pass through this system, which updates availability and prices
for all flights continuously. Reservations are only accepted if yield management programme
allows. Most airlines have since followed suit in introducing revenue management systems.
These CRSs (computerized reservation systems) are a key to the operation of yield
management for the airlines.
The deregulation of airlines in the USA in 1979 was the cause of major upheaval in the early
1980s, with airlines facing heavy competition. This competition leads to a price cutting war.
Some airlines cut prices to suicidal levels, several going out of business.
A second factor which was to upset the competitive balance was globalization and the
development of hub and spoke networks. Hubs were also developed as a result of
deregulation, as airlines were allowed more freedom to develop their routes and schedules.
The underlying idea is that a number of regional airports will feed into a hub airport using
small aircraft. Thus a large number of passengers can be concentrated in the hub airport and
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the carrier can fill a large aircraft for an onward intercontinental journey. This is obviously
more cost-effective, but provides a larger logistical problem for the airlines in managing
flights, revenue and thus yield. A new competitive feature was introduced into the airline
industry in the late 1980s (USA) and early 1990s (Europe) with the low-cost start-up airlines
such as easyJet.

HOW DOES AN AIRLINE YIELD MANAGEMENT SYSTEM WORK

Once all the data regarding all of an airlines flights are collected and input into the system,
they are used to give a flight analyst the best opportunity of making an accurate decision as to
what categories of passenger to take. On a daily basis the computer will give the analyst a
consolidated breakdown of the capacities of all the flights which is it handling, all the seats
booked and the availability. This is for every flight for everyday and well into the future.
Dependent on the size of the system the future can be anything from two to six months. With
this information the analyst can now look at each flight and make an educated decision as to
which categories to close out and which to open. For example, a mid-summer flight to Paris
may have long ago been closed out to group or cheap fares because the allocated numbers of
seats for these fare classes have been used. However, with only two days to go before the
flight leaves the expected number of full fares has not materialized. This being the case, the
analyst could decide that it will be financially beneficial to this flight to open up the cheaper
fares to try to fill the aircraft, while at the same time keeping the group or party fares still
closed. All of this achieves optimum revenue by taking all the influencing factors into
account.
So that the maximum benefits can be achieved for an airline with regard to filling each
aircraft and at the same time gaining the best revenue from each flight, forecasting is
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essential. According to the senior flight analyst of British Midland Airways, everything is
only as good as the demand forecast.
What then are the overall benefits of implementing a yield management system? Apart from
the obvious aspect of maximization of revenue, it allows an airline the chance to operate a
large variety of fares as to enhance the attractiveness of that airline to the customer. However,
the computerized system gives the analyst far more information, far more quickly than could
have been achieved through a manual system. This in turn not only allows the flight analyst
to look at load factors and revenue on a seasonal or weekly basis, but permits fine tuning for
flights on a daily and even hourly base. British Midland gave the example of a flight leaving
Paris for London, with a seating configuration of 30 first class seats and 102 in economy. On
a late afternoon flight there may be only 24 in first class and 80 in economy, yet only 50
minutes later the flight could have over 90 requiring first class and 130 for economy. In this
case the computer will analyse the flight for revenue optimization and give its best prediction
to the flight analyst, who could go with that prediction or personally fine tune the suggestion
so as to achieve even better revenue.
Yield management would bring attention to the fact that there is a great demand for first class
seats for the late Paris-London flight. Accordingly the airline can fly a larger capacity aircraft,
or possibly alter the seating configuration so as to enlarge the business/first class section of
the aeroplane. Sometimes a flight may be comprised of business class only.
The sales and marketing department of an airline can also use yield management as a sales
tool. For example, an airline may have three classes within the business segment of the
aircraft. Class A if for full fare paying passengers and will remain open at all times. Class B
could be for passengers with a 5 per cent discount and would be closed only when all the
class A seats have been taken. Class C could be for business passengers with 10 per cent or

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more discount and would be the first to be closed out as the business segment of the aircraft
filled. All the opening and closing of classes would be monitored by the flight analyst.
However, the sales department may have reached a particularly good deal with a company
and offers it 12 per cent discount. While the discount in itself may be good offer, a further
inducement could be to categorize all corporate staff as class B passengers. This would mean
that although class C is the first to be closed out, this companys passengers could still get a
flight. It could be extended even further by offering senior managers within the company
class A status and thus they would always be ensured a seat even with a 12 per cent discount.

The following quotes from the flight analyst staff of British Midland Airways aptly
summarize the attitude of the airline industry towards yield management:

Yield Management allows you to sell any class at any rate at any number you want.
It (Yield Management) gives you the scope to match whatever the market is out there.
Yield Management helps you to find what fare within each class is being sold. You
can see what load factors at what fare are coming in. You can then control that

demand.
You cannot monitor the demand and play with it without a computer.

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The principal information which a sales and marketing team requires in order to be effective
in fully utilizing an aircraft is:

How many seats are available?

What price are those seats?
What is the time of day of that flight?

A computerized yield management system can give teams this information, both current and
historical, swiftly and accurately. They are then able to ascertain the shortfalls in both seat
capacity and revenue, and from that to devise the necessary strategies to counteract the
problems.

APPLICATION OF YIELD MANAGEMENT IN THE HOTEL

INDUSTRY
The principle role of any room division manager is not only the maximization of space in
particular bedrooms, but also revenue and the use of staff. With labour costs rising and the
average spend by customers in the hotel industry declining it is imperative that the gap be
closed. However the closing of this gap has created three challenges between cost and speed.
The first is that the hospitality industry is in the mature stage of its life cycle, especially in
developed countries. Second, the service industry is a provider of just that service, and the
service element requires people to carry out such a task. The third challenge is the break with

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tradition, whereby training and employee development are seen as things to be carried out
when times get better. So far it would appear that such times have not yet arrived.
While room division managers, on the other hand, wrestle with the cost implications of staff
productivity within their departments, they can find solutions to their other challenges,
namely rooms and revenue maximization, by looking at them objectively through yield
management. Hotel rooms, like airline seats, are a highly perishable commodity. In the case
of an aircraft, once the plane has taken off the revenue from the unfilled seats is lost forever.
The same is true for hotel rooms unsold or any given night. Neither aircraft seats nor hotel
bedrooms can be stored for future use. Although yield management is a relatively new term
coined by the airline industry, the underlying idea is not. The basic concept is that during
periods of high demand for hotel rooms the prices are set at the highest rate so as to maximize
revenue; and at times of lower demand the rates are set so as to encourage occupancy.
This yield management strategy is nothing new to the hotel industry and some basic form or
another has been used for many years. Many hotels offer special rate packages for periods of
low occupancy; weekend rates, mid-summer breaks, Christmas breaks and so on. Many bars
and restaurants also offer discounted rates to get their customers to arrive earlier or to stay
later, offers such as early dinner specials and happy hours, at both the beginning and the end
of the evening.
Apart from the variety of discount packages being offered by hotels to entice the prospective
guest into the hotel during the periods of low occupancy, the front office manager has to
balance the rooms being sold during high occupancy periods so as to ensure that a full
house is achieved.
To help counter losses through the non-achievement of 100 per cent occupancy, historical
data have to be used. The main causes for not hitting the 100 per cent target are non-arrival of
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guests, no shows, people who cancel their rooms on the day of their actual arrival and
cancellations; added to these non-arrivals are those guests who decided to leave earlier than
expected (under stays). One also needs to take into account those customers who want to stay
on longer than their booked stay (overstays) and those who arrive by chance without a room
booking (walk-ins).

SYSTEMS AND STRUCTURES IN PLACE FOR YIELD MANAGEMENT

Yield management will only operate within a hotel that has a mix of market segments with
variable rack rates. The property should ideally have over fifty rooms and a computerized
reservation/management information system.
The tools and strategies for operating a yield management system are the foundations of any
worthwhile yield optimization programme. However, before we analyse the tools and
strategies of a yield management system it is necessary to explain the basic yield
management formula, as it applies to hotel rooms.

YIELD MANAGEMENT FORMULAE

A room yield management formula is established by dividing the revenue realised for a given
day by the revenue potential for that day.
Yield =

Room nights sold

Room nights available

Actual average room rate

Room rate potential

OR
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Yield = Revenue realized

Revenue potential
Revenue realized is variable and revenue potential is fixed. Revenue potential can be
calculated by multiplying the number of rooms by the actual rack rate.

TOOLS AND STRATEGIES

Yield management emphasizes high rates on high demand days and high occupancy when
demand is low. The focus of yield management is to maximize revenue everyday-not for
seasons or periods.
The underpinning framework of yield management consists of four steps:
1.
2.
3.
4.

Forecasting
Systems and procedures
Strategies and tactics
Feedback

FORECASTING

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Forecasting is the key to effective yield management. Forecasting must be done on a daily
basis and must encompass more than 30 or 60 day projections. In order to make accurate
forecasts a variety of information is required.
The information sources available to the yield management team are:
1. Historical data, both recent and past year, on the number of bookings and knowledge
of how transient customers and groups behave with regard to booking events and/or
accommodation. This information will give the team details on lead times, wash
factors, high and low demand periods, from which the team will formulate the rack
rates.
2. Other factors need to be considered when considering forecasting:
Weather
Events in local area
Competitors activities
Airlines schedule and services
Limitations of the property
Strategies of the property
Internal promotions
Internal policies on overbooking
Consumer behaviour
Not all the above factors are controllable but they will affect the demand upon a hotels
facilities and the subsequent pricing strategies and decisions.
Yield management is the management decision tool, and even if the forecasts are off,
decisions are better than if they were made on the basis of no forecast at all.
The reservation forecast may impact:

Asset allocation: hotels can predict from the forecast what demands may be placed on
its infrastructure. How the depreciation of high occupancy will affect the renovation
cycle of sleeping rooms is one example. Engineering can use forecasts to schedule

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repairs as well as predict what the cost of heat, light and power will be. Forecasts also
provide data to the group sales department notifying them well in advance of low
occupancy-need periods. This enables the group sales effort to allocate resources in
filling those need periods.

Staffing levels: the front desk, the bell stand, the outlets, and ancillary venues in a
hotel use the reservations forecast to determine future demand. The forecast aids in
anticipating required staffing levels to meet this demand. A fully staffed front desk
may not be necessary when the hotel is only half full. The forecast will note the
arrivals and departures on a given day so that housekeeping and the bell stand will be
aware and ready ahead of time. The health club and the golf course know from history
how many people they can expect based on these forecasts as well. Human resources
can step up recruitment efforts if the forecast shows a large increase in demand.

Inventory availability: in addition to asset allocation and staffing, forecasts aid in

determining what inventory each of the departments must keep on hand. The
restaurants and lounges can order the requisite food and beverage based on the
forecasted occupancy levels. Again, based on history, the outlets can calculate how
many guests (called covers) they can expect from the forecast. Housekeeping will
know how many sheets and towels they would need.

SYSTEMS AND PROCEDURES

A computerized system aids the communication of forecast information from the yield
management team to relevant departments of the property and in some cases between
properties and booking agencies or central reservation systems. A computerized system
allows 24 hour input of information and link up to enable efficient circulation of current
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information. The yield management team and/or analysts can, in some cases, enter the system
directly and make phantom bookings to close a rate level in order to stop any reservations
clerk or booking agencies selling any more rooms at that particular rate.
The information from yield management team regarding the various rate levels per number of
rooms is input into the computer system. The customer makes a telephone inquiry, the
reservation clerks works from the VDU screen, first looking at the days required and then
checking the room availability. The reservation clerk, using basic upselling skills, will always
offer the highest price room and work down, thus not losing any potential revenue.
The system needs to be flexible to accommodate the regular customer who will expect a
continuation of a corporate or special rate. This flexibility is necessary to maintain goodwill,
especially for the long-term customer; the organisation must retain a human side in yield
management. The system cannot take over the role of the manager and many situations may
still require to be handled on a case by case basis.

STRATEGIES AND TACTICS

Decisions are made by the yield management team in relation to pricing policies and market
demand. There are two main aims of yield management:
1. On high demand days maximize average room rate to increase revenue.
2. On low demand days maximize occupancy and average room rate.
The strategies are as follows.
On high demand days the team will plan for transient reservations (a guest that is not part of a
group booking). They will determine the correct mix of market segments so as to sell out at
highest rates possible, e.g. the walk-in business man who will pay the highest rate for the
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privilege of walking in off the street at the last minute and being able to book a room. Once
the mix of market segments has been decided the team will assign a number of rooms to each
segment of the mix. For example, a hotel has 100 rooms, and allocates the following numbers
of rooms to each market segment:
Rate levels:
No. 1 (highest)

80 rooms

No. 2

60 rooms

No. 3

40 rooms

No. 4

20 rooms

This means that at all times 80 per cent of the rooms will be held for rack rate guests, and 20
per cent will be held for cheaper clients. Similarly only 20 per cent of the rooms will be
available for cheaper rates. The operating procedure is simple. The reservations clerk will
monitor the pickup of each room category as she proceeds through the lead time to the day of
arrival. If she finds that unexpectedly the high rate categories are filling up faster than
anticipated then she would close down the lower rates.
The strategy restricts low profit categories, and limits or eliminates local group such as local
sports team or womens institutes. The team might also require minimum stays to prevent the
early departure factor that often happens when an individual books in advance for six nights
but may only stay for four nights, and thus it is often too late for the hotel to re sell those
remaining nights, even in a high demand period.
The team will also plan for group bookings that will fall on high demand days. First of all, the
hotel will only sell to groups that are willing to pay higher rates and provide high occupancy

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per room. A tactic often used to sell only to a group that books meeting space and hospitality
suites as well as accommodation, thus encouraging guests to stay in-house for meals and to
use the bar and other facilities. For more price-sensitive groups, the sales team will attempt to
allocate their booking in low demand dates; this is particularly relevant for local clients who
want to book function space for a dinner dance or meeting and who wish to have overnight
accommodation.

OVERBOOKING POLICY
To compensate for late-cancelled bookings, early departures and no-show bookings an
overbooking policy is integrated into a yield management system. The yield management
team will set a level, i.e. a number of rooms, at which they are prepared to overbook. The
level at which the overbooking is set will depend upon the market mix forecast for that period
and the associated drop-out rate and the demand for those dates. For example, during the
sports world cup, the hotels will be in high demand due to the number of spectators, group
supporters, teams, families of the teams, officials, media and other promoters.nif the world
cup tournament lasts for four weeks, and the market mix considers of teams and families, the
hotel might find it is empty by the end of the second week because many of the teams have
lost their matches and are flying home. The yield management team will need to forecast the
length of the stay of each team and the probability of them staying for the whole tournament
despite the possibility of being knocked out. Consequently the yield management team would
use the overbooking policy to ensure the highest occupancy and maximum revenue for
remaining two weeks of the tournament.
On low demand days the team will aim to maximize occupancy and average room rate. They
will give the booking agencies and reservations the opportunity of offering alternative rates to
price sensitive groups or certain situations, such a weekend leisure breaks or pensioners
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group outings, whereby the lower rates will be opened with the possibility of combining an
accommodation rate with an evening meal, thus offering bed, breakfast and evening meal for
set rate, enhancing all aspects of the hotels revenue earning departments. It will also ensure
better utilization of the staff of the hotel. The yield management team will monitor the
response to these promotional deals and continually scan the environment for new market
conditions and adjust the rates if necessary. The yield management team will also remove
high demand restrictions such as a minimum two-night stay and attempt to solicit business
from the local community, both group and transient.
A technique that is frequently used by reservations during low demand dates is to upsell. The
reservations clerks may offer a standard room first and then offer a more deluxe room at a
slightly higher price or offer extras for minimum cost. The customer is offered an upgraded
room at a lower rate than usual. It is good practice to inform the customer that it is a one-off
deal, a gesture of goodwill, so the customer does not expect it every time they book.

OVERSELLING
Based on availability on any given night, a hotel may sell more rooms than are actually in
inventory. This practice is called overselling. Using the historical record, a hotel may over
sell in order to offset the effect of the minus (or negative) factors that determine availability.
Though some consider over selling an undue gamble, many hotel managers strive to fully sell
out the hotel using the practice. There are drawbacks to overselling. The most obvious of
which is not having enough rooms for guests with reservations. When a hotel aggressively
oversells and does not have enough rooms for confirmed reservations, it must walk the
guest. A walked reservation is a guest who must stay somewhere other than where initially
booked to be. A confirmed reservation refers to guaranteed reservations, not those held on a
time-of-arrival basis. The hotel that walked the guest must honour its obligations by the
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compensating them in some way. There are no hard and fast rules as to how the hotel must
compensate the guest, but most reputable hotels will:

Pay for the room at another facility of the same or better quality.
Pay for a phone call so that the individual can notify others of the change in

accommodations.
Provide transportation to the new facility, and back if applicable. A guest who is part
of a group will want to return in the morning to attend group functions. A transient
guest who has more than a one night stay should be allowed to return to the original

hotel to complete the stay if they wish.

Other incentives can include a free breakfast, an upgrade upon return, an in-room
amenity, an apology from management, and even some type of direct monetary

compensation.
It is up to the reservation department to monitor the extent to which a hotel may
oversell. A hotel that is oversold many days in the future may find that wash factors
have reduced the number of reservations as the date approaches. Had that hotel not
oversold in the first place, it would find itself with too few reservations. Upper
management largely dictates that extent to which a hotel may oversell. Some hotel
managers fell the risk of walking guests does not justify the potential return of a soldout hotel. After all, a guest who is upset about being walked may never return.

The determination of how far to oversell differs from hotel to hotel. The criteria used will
differ as well. Following are the factors a director of transient sales may consider in
determining how far to oversell a hotel:

Number of rooms currently on the books for a particular date.

Number of guests due to arrive on a particular date.
Number of nonguaranteed reservations for that date. Nonguaranteed reservations play
a role in overselling because they often do not arrive.

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The estimated number f guests who will not arrive even though they have guaranteed
reservations. History may provide a percentage by which the number of the no-shows

can be estimated.
The number of guests who may depart earlier than their reservations dictate. Again,

history can be a guide.

The estimated number of guests who will stay longer than expected.
If a hotel managed its over selling perfectly, it is said to have achieved the perfect sell.
A perfect sell is reached when every room is occupied and no guest was walked.
Some conservative hotel managers have lowered the level at which they consider the
hotel perfectly sold. To reduce the risk of walking, some managers accept a 95 to 98
per cent occupied hotel as fully sold. Wherever the threshold is set, the reservations
department always prides itself on achieving a perfectly sold hotel.

FEEDBACK
Feedback enables the team to judge the accuracy of their forecasts and form the subsequent
months and years historical data. More importantly, it gives the team an indication of the
responsiveness of the organisations reservation system to their strategies and also the
effectiveness of the effectiveness of their strategies in response to market demand.
Monitoring denials and conversions help to keep track of the amount of business gained or
lost due to yield management efforts. Feedback allows everyone involved in yield
management to keep updated on strategies and information, as well as acting as a mechanism
for praise and assessing individual or departmental performance. These are the structures and
basic yield management team.

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SALES STRATEGY
By providing reservations agents the tools of training and education, and enhancing that with
motivation techniques, the director of transient sales can be confident that the hotels vision is
being implemented. Proper call management allows the director to verify that each agent
shares the vision. That vision, the primary driver of all activities in reservations, is the
transient sales strategy. The transient sales strategy embodies all the aspects of reservations
management, from determining availability and over-selling, to yield management and
forecasting. The implementation of all these concepts in an effort to maximise transient room
revenue is the primary goal.
There are several different selling strategies when it comes to reservation sales. The top
down strategy is the most widely used. This strategy has the agent quoting a rate for the
hotels best room type (i.e., the most expensive) and moving down to a lower rate if not
accepted. This strategy is used in situations where the hotel wants to drive rate. It is not
successful in a highly competitive market with low guest room demand. Is it successful,
though, when buyer confidence is high. Buyer confidence is defined as a hotel guests
predetermined desire to book a room at a hotel at almost any cost. Buyer confidence prepares
the caller to expect a higher price because of preconceived notions about the hotel. Hotels
with a reputation for high quality and service invoke buyer confidence.
The bottom up strategy is just the opposite of the top down strategy. The agent begins by
quoting a rate corresponding to the lowest room type (least attractive or least expensive of the
available rooms). The agent then lets the caller know the better rooms (i.e., more expensive)
are also available. The agents inform the guests of the incremental rate increases
corresponding to the next level of guest room. The bottom up strategy is also called menu
quoting because it also gives the caller a choice of different rate options. This strategy is the
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best way for agents to upsell. As each successive rate is quoted, the agents have another
opportunity to convince the caller that this is the room type or configuration best suited for
them. The bottom-up strategy is also successful when buyer confidence is low. Guests who
do not feel a specific need to stay at any hotel may have low buyer confidence. Guests simply
looking for the lowest rate, called rate shopping, and may not give an agent the time to upsell
to the next level of rooms. Agents using this method must be careful not to convey any room
type as inferior, as can happen in aggressive attempts to upsell.
The mid range strategy suggests that the agent quote a rate from middle room type, going
either up or down a tier based on acceptance or opposition of the guest. Agents using this
strategy have the flexibility to tailor their approach to the guest and the progress of the call.
Experienced agents are best suited for this strategy, because it requires experience and the
ability to implement either the top-down or bottom-up strategy as needed.
Different agents may have varying success with each strategy. It is usually best to allow the
latitude to find the selling method best suited for each agent. This would not apply, of course,
if the hotels yield management strategy dictated a specific course of action. The director of
transient sales should make every effort to inform the reservations agents when changes in
strategies will occur. If new rate triggers are to be imposed, agents should be informed-to
avoid surprises.

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THE YIELD MANAGEMENT TEAM

Before an effective yield management system can be put into place and used it is necessary to
have an operations team. They will be the driving force behind its successful implementation
and will be the group of people who regularly meet to forecast the forthcoming business of
the hotel.
The team will typically consist of the rooms division manager, the sales manager and the
reservations manager. This doesnt not mean that anyone else is excluded, but for a speedier
and more effective decision-making process, it is wise not to make the yield management
team too big. In some hotels the general manager likes to be involved or the front office
manager might take the place of the reservations department. However, the original three
would tend to make the best team. The rooms division manager has the overall control of the
department, with targets for maximising both occupancy and revenue. The sales department
must be invited for it is they who go out on daily basis to sell the hotels bedrooms. While
they are fully aware of the need to maximise revenue, their primary thrust is to get bodies into
the hotel. However, working with rest of the forecast team ensures that the sales and
marketing team are fully informed of the peaks and troughs of the hotels business. The last
but still the very important member of the team is the reservations department. The
reservation manager is the person who is completely au fait with all the hotels bookings, the
future booking patterns and the past histories of the hotels arrivals and occupancies.
The role of the yield management team is fourfold:
1.
2.
3.
4.

To predict demand.
To assign rooms to transient reservations.
To open or close rates as seen fit.
To conduct feedback sessions.

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The principal role if the team is to predict the demand for rooms into the foreseeable future. It
is insufficient simply to take last years figures and adjust by an agreed percentage figure.
for a maximum yield takes a different approach. It asks questions like What would be our
mix of market segment if we were to maximize yield? what was the successful formula for
filling bedrooms a few years ago may be completely wrong for todays market mix. Thus it is
up to the team to remind each other constantly of the fact that neither the customer nor their
expectation remains static.
By trying to predict demand the team assesses what has happened in the past, the time of the
year, the weather, and any exceptional circumstances which surrounded bookings for then
and so on. They then look into the future for any similar occurrences which could affect,
either positively or negatively, the booking of hotel rooms. While no one can accurately
predict what the future may hold, it is still better to conduct such predictions and to make
management decisions with limited information than which no information at all.
Once a fair estimate has been made of the room requirements for both the near and distant
future, the team then has to allocate the right amount of room inventory, i.e. number of
rooms, to the various market segments. This is done by discussing, reasoning and deciding
what groups will arrive, their room requirements, what will be the volume of the corporate
rate business, how many walk-ins will arrive, etc. All of these imponderables are examined
and, with them, the historical data which management has amassed, the yield team decide
which classes or levels of rates to open or close.
The fourth aspect of the yield management teams work is to conduct feedback sessions.
These sessions are necessary to help to judge whether or not the forecast have been accurate
and effective. Feedback acts as a measure of responsiveness in terms of systems, strategies
and the management if revenue and occupancy. It also acts as a measure of staff performance.

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It is necessary for the yield team to strive constantly to have the most up-to-date information
and to react quickly to the subtle changes in the accommodation business. It is no longer
sufficient to believe that a good overbooking policy is enough to ensure a full house. Unless
all the available data are used the rooms division manager can end up with a 100 per cent
rooms occupancy but with a yield of considerably less.

TRAINING DEVELOPEMENT AND ORGANIZATION CULTURE

A yield management system creates a formalized and effective procedure for manipulating
rates to optimize both market demand and revenue. This presents the individual property
manager and the organization with change; that is, a change in both staff attitude and working
procedures. An integral part of this management of change process will require managers,
reservation clerks and booking agents to be trained. The training and the educational process
would consist of areas such as new computerized systems, yield management policies and
customer enlightenment programmes. For example, reservation clerks will need to be trained
to say no to low rates and learn to hold out for the higher rates of late corporate business and
the techniques of upselling. Upselling is the strategy whereby reservation clerks are prompted
to sell rooms starting from the highest rate and decreasing to lower rates only if they receive
price resistance by customers.
The organization night also undergo a culture change in its approach to using yield
management. The system actively encourages managers to be pro-active in their decision
making, planning and communicating strategies to both staff and booking agencies. This
change in process, thought and behaviour will need to be developed and nurtured from within
a supportive structure and climate. Such an environment stems from senior managers beliefs
and values, which are shown by their commitment to yield management.
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THE CUSTOMER
Yield management is a system which is entirely objective in its approach. That is, it places
the needs of the customer secondary to those of the hotel. Yield management systems want to
maximize both the occupancy and the revenue of the hotel and to do this the yield team open
and close room categories at their will and not in accordance with what the customer wants.
For many years prospective hotel guests has become used to bargaining for room rates or at
least expecting that a room at the rate which he or she normally pays will be available. The
hotel has been seen by its customers as being simply a provider of room and bed space, and
the idea that it is a highly organized establishment whose sole purpose for the owners is to
make money appears not to be a part of the hotels guests thoughts. For as many years as
these thoughts have been with the customer, the hotel industry has permitted them by
acceding to the needs, wants and whims of their guests. They have given the feeling that they
are ashamed of their product and even their profession by rarely questioning the customer or
sticking to their guns with regard to room rates. The idea seems to have been that We should
be grateful for who we can get to come and stay.
Yield management has turned this aspect of hotel operation on its head. What the system now
tells the customer is that we have certain rooms set aside at certain price categories and once
they are full you will have to pay more. The initial fear of the hoteliers is that prospective
guests may choose not to stay with one hotel because of its perceived inflexibility and
intransigency over room rates. After all, hotels are not like aeroplanes, they cannot move and
therefore have no time schedule to keep, and consequently will sell their rooms at any price
so as to ensure that they achieve 100 per cent occupancy.
The education problem appears to have been very necessary in the earlier days of yield
management implementation. Initially customers rejected the idea that certain room
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categories were closed out to them. The idea that people could just arrive at the hotel and
expect a room of their choice, at a price that they wanted to pay, significantly diminished as
the concept of controlling room categories, customer market mix and revenue took hold.
Time will tell whether the hotel industrys newly found cavalier attitude will be maintained,
or whether it will revert back to the old ways.

CASE STUDY: HILTON NATIONAL HOTELS

Reference taken from a book- Yield Management: Strategies for Service
Industries by Anthony In gold, Una McMahon-Beattie and Ian Yeoman
Within the West Midlands region of Hilton National there are four hotels, Eaten Green,
Milton Keynes, Coventry and Warwick. The four hotels range from 150 to 181 bedrooms,
with Warwick being the largest of the four. All are strongly corporate business.
Prior to yield management system, Hilton used the CHAMPS management information
system, which is acknowledged as good information system for occupancy reports and
statistics. For example, it can give the number of rooms a specific company has booked with
the hotel, per day or week, for current years or previous years. This, form the reporting point
of view, is efficient, but for the demands of todays hotel operations it has become somewhat
outdated. The CHAMPS system has a limited use for forecasting and thus the room division
at Hilton had to make many decisions from gut feeling.
Yield management and the integral forecasting carried out y rooms division involves many
techniques, data and the confidence to hang on for a higher rack rate. This may see the
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volume of business staying the same or possibly decreasing, but the yield may have doubled
because the manager has had enough confidence and knowledge to hang on for the best
price for the product offered.
The management at Warwick Hilton believes that there are three tools needed in order operate
a yield management system effectively.
1. A computerized decision support system (in this case Fidelio)
2. Communications. That is, an internal communication system, as well as the ability of
staff to communicate to the customers.
3. Active forecasting. A conscious effort to explore the future booking patterns for the
hotels bedrooms.

THE BEGINNINGS OF YIELD MANAGEMENT IN HILTON

Prior to Fidelio, the management at the Warwick Hilton was using yield management in a
very naive form, looking at yield in a statistical format, comparing current to historical data
and deciding whether the yield had increased by using the following formula:
Rooms revenue achieved

100

Total possible rooms revenue

From using this basic form of yield analysis, the management at the Hilton Warwick began to
notice a 5.00 yield per room over a year (their first year of using this form of yield
management). The management continued to calculate demand for room space, regardless of
whether it was for bedrooms or conference rooms, as far out as six months, and in turn was
able to instruct reservations to hang on for full rack rate.
Jane, the rooms division manager, explained:
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It is very difficult to sit and wait, you wonder what you have done, but it does work. The
reservations sit there and say to perspective clients, were terribly sorry, we are fully booked,
but in actual fact we have got 15-20 rooms to sell. (But because of the rate offered by the
client we wont take it.) Hanging out for the full rack rate is worth it, because we are
bumping up our yield all the time.
The managers have the knowledge and confidence to hold out because they know that they
will get someone else who will pay the full or second highest rack rate.
To operate a yield management system effectively the manager, at unit level, must have a
very good knowledge of the hotels competitive environment and its market mix; for
example, how much trade the hotel receives and the average spend from each market
segment. The market mix for Hilton at Warwick is as follows:

50 per cent conferences

12 per cent rack
25 per cent leisure
13 per cent corporate

Such market sector information is vital to all departments of a hotel because of its close ties
with profit maximisation from the type of customers using the hotels facilities.
For example, if t here are no conferences for three months but lots of corporate trade, the
food and beverage department needs to change the menus and packages and sell them hard
to the private independent diners. Thus yield management is as applicable to food and
beverage as it is to the rooms division.

YIELD MANGEMENT AT HILTON WARWICK

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The forecasting team at Warwick Hilton consists of the rooms manager, general manager,
food and beverage manager and financial controller. Surprisingly, the sales manager is not
involved at the hotel but the forecasting team do communicate to the sales department what
information they require, such as market segment analysis and a monthly plan of their rooms
and rate targets. Other people who supply information to the yield management team are the
front office manager and the reservations manager. The forecasting team meet once a month,
towards the end of each operating period. To discuss forecasts made by the rooms manager
(who forecasts every week) for the coming months.
The Warwick Hilton has to achieve within 5 per cent of its target sales forecasts. The yield
management ethos and process helps to identify demand trends. It immediately picks up what
markets are dropping and what they are picking up, and flags up whether your selling
strategies are working and your lead-in times are correct. Thus yield management is seen by
Hilton as making forecasting a much easier thing to do, and making the front office team
more aware of the business on the books.
With the introduction of Fidelio, the rooms and reservation staff underwent a seven-day in
depth training with Hiltons trainers. The staffs were trained on how to sell, how to deal with
the guests, guest history, company history and loyalty.
Working along Fidelio is a tool called Northern Demand Pricing. This pricing strategy is
concerned with the Hilton global distribution system, HRW (Hilton Reservations Worldwide),
which is owned by Hilton international and Hilton Corporation. As a consequence Hilton
Warwick now has direct global links to 370,000 outlets selling Hilton hotels. Northern
Demand Pricing is used as part of this global reservations system and uses the upselling
techniques.

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Fidelio also allows the rooms manager to close or block out set number of rooms at specific
rates. For example, three nights of Monday, Tuesday and Wednesday would be closed out if
you have got only 20 rooms to sell and you know on the day the hotel will pick the people on
the rack rate.
When forecasting demand, Fidelio helps by identifying potential quiet weekends from its past
records. Hilton Warwicks rooms manager gave the following example:
Friday and Saturday is desperate because we have just had two bank holidays and everybody
that wanted to come to Warwick for the weekend have been and gone, so there is not much I
can do this weekend. But having said that, if I had been proactive enough in January and I
had Fidelio then, I would have seen this potential quiet spot in June and would have had
enough time to book in a coach tour.

CULTURE CHANGE WITH YIELD MANAGEMENT

The implementation of a yield management system is not just about computerization and
forecasting; most companies will need to undergo some form of culture change. Hilton has
experienced this change mostly within the sales department. It is the norm for most sales
managers to compute success by adopting a book by volume policy rather than by striving
to maximize revenue, which is in conflict with the yield management ethos of maximizing
revenue to volume. This culture change has to come about by a rethink and a new approach in
achieving sales.
Hilton also underwent a change in the way bookings were taken, through having to teach the
reservationist to say no. One temporary solution to this problem was the ability of the rooms
manager to enter the system and take off blocks of rooms through phantom bookings, thus
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leaving reservationists with no option but to say, I am sorry, we are fully booked. This
denial of accommodation was done even though the hotel has rooms available, but it
introduced the hold out policy of yield management to the reservation staff. The
reservationists have had to learn not to be afraid of quoting rack rate, as it is easy to reduce
the rack rate when faced with price resistance by a customer.
A disadvantage if yield management that Hilton found was that it takes more time and more
professional staff to get it right. You need to have well trained reservation staff plus sales staff
who will chase potential bookings, develop new business and maintain accurate records of
the conversion rate from provisional to confirmed bookings for all business.
To encourage and as an overt display of managements commitment to yield management the
staff at the Hilton use incentives to achieve high performance in terms of attaining full rack
rate and upselling facilities. For every 5 per cent over estimated occupancy the reservationists
get a monetary reward.

CUSTOMERS AND YIELD MANGEMENT

Jane, the rooms division manager at Hilton Warwick, explains the difficulty of educating the
hotel users:
Say for instance you purchase a bedroom according to either the season or the day, the same
as you would buy a train ticket. If you want to go peak time, you pay peak prices and accept
the amount of money you have to pay. Of you want to go low time you pay a low price. So
therefore, why do companies expect hotels to offer low rates throughout the year? Using yield
management we give them an adjusted rate, the same as any other service industry. But it is
proving very difficult in trying to get the customer around to our way of thinking. Also if
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companies want more rooms they have to pay the going rate for those rooms, and not expect
to get a discount for group bookings. Within the service industry we have always have the
idea that the customer is always right but now we gave to go to turn that around. Customers
are now paying for the privilege to book a room at the last minute and knowing that hotel will
have rooms available, most of the time.

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Large and mega-size hotels need more tools to best maximise their room revenue. Due to the
complexity of managing the inventory of hundreds of sleeping room, directors of transient
ales in larger hotels can expand their yield management tools. These hotels use limiting
criteria called rate restrictions to manage inventory. These hotels incorporate two main
restrictions into their yield strategy: RATE AVAILABILITY and LENGTH OF STAY.

RATE AVAILABILITY RESTRICTIONS

Rate restrictions are the most widely used type of restriction. This practice is similar to the
numerical value strategy. The difference here is that the manager actively manages the
availability of each rate. As availability changes, the director of transient sales may input
certain rate triggers that alter what rates are to be quoted. A rate trigger is a signal
programmed into the reservation computer system that instructs it to change the rate based on
present criteria. As rooms are booked and others cancelled, different rate triggers become
active or inactive. This active rate management approach highlights the difference between
rate restrictions and the more basic numerical pricing method.
In situations where demand is thought to be forthcoming, but the time frame hasnt entered
the traditional booking cycle, the director of transient sales may restrict a rate before any
rooms are booked. The manager is said to have turned off these rates. Normally, once
occupancy reaches prespecified number, discounted rates are turned off. However, there are
cases where a large convention citywide convention or major sporting event is known to be
coming long before any transient reservations are made. Here the manager becomes proactive
buy turning off discounted rates early. In some cases, the hotel may have never sold
discounted rates, and thus may have them restricted from the start. This practice is called
driving rate because it attempts to maximize the rate revenue early. This approach must be
[47]

made carefully. If too many rates are restricted too early, the hotel might itself empty when it
had hoped to fill. In those situations, the director of transient sales may have to open up all
rate restrictions at the last minute to try to gain occupancy.

LENGTH OF STAY RESTRICTIONS

Rate restrictions are not the only yield management tools available to the hotel. Lengths of
stay restrictions attempt to limit imbalances in occupancy during the week. Situations can
occur where one night, for whatever reason, a higher demand than others do. An availability
spike is said to occur. A spike can be problematic for hotels. If a spike occurs to such an
extent that one night becomes sold out, but the following night is wide open. No new
reservation could be taken for both nights. The spike precludes any additional occupancy on
the night the hotel really needs it. The same spike can affect the various hotel types in
different ways. Based on the traditional demand level, a spike on a Wednesday is not as big a
problem for a resort as it is for an airport hotel. A Friday night spike may not be an issue for
that same airport hotel because Friday is a traditionally low-demand night. Nut a Friday spike
for the resort would preclude two night stays, and weekend nights are in high demand for
resorts in season.
The opposite of spike is a called a hole. Periods of low demands resulting in low occupancy
also create problems for a hotel. A hotel that has spikes and holes in succession must take
another look at their yield management strategy because that situation is very difficult to
rectify.
There are three types of length of stay restrictions a hotel may employ to avoid and rectify
spikes, based on the situation:

[48]

CLOSED TO ARRIVAL RESTRICTIONS

A closed to arrival (CTA) restriction is useful in solving demand on one night while
increasing demand on the other prior night. A CTA restriction wont allow any new
reservations for check-in on that night, but does allow for stay-overs. Literally, it closes new
arrivals. A CTA encourages reservations on the night before where it is needed. For example,
if Tuesday were already spiking for a particular week while Monday resembles a hole, a CTA
on the Tuesday night would be a good option to even out the demand.

MINIMUM LENGTH OF STAY RESTRICTIONS

The minimum length of stay (MLS) restriction mandates that all new reservations stay at the
hotel for a minimum number of nights. This restriction is effective when demand is known
ahead of time to be strong on certain nights but less so on others. The MLS is very effective
when used over holidays, for special events, or for city wides. For example, if any event falls
on a Sunday, with the primary demand Saturday and Sunday, an MLS on a Friday would
mandate saying all three nights. That will help bring the occupancy up on a date not
otherwise effected by an event. The term MLS is usually followed by the number of nights it
affects. For example, a MLs-3 equates to a minimum three night stay on a given day. The
MLS is also referred to as a must stay, as in must stay three restriction. Restrictions can be
used in combinations as well. Using the previous example, a MLS on that Friday, coupled
with CTA on Friday doesnt become hole. The MLS on Friday does not preclude one night
stays, which are also desirable in this situation. In this example, with these restrictions in
place, a new reservation could be for one night or three nights, not two.

[49]

MODIFIED LENGTH STAY RESTRICTIONS

The modified length stay (also called Min/Max) restriction takes longer stays into
consideration. It is a hybrid of the MLS and the CTA. It is similar to MLS in that it requires a
certain number of nights and resembles the CTA in that new arrivals are restricted. The
differences are that it focuses on lengthening a reservation as well as limiting the length of
stay. For example:
Assume that a hotel is full on Tuesday, Wednesday and Saturday. A Min/Max will restrict
Tuesday arrivals unless the guest is staying more than two nights. This way, the hotel will
also receive demand on Thursday night, which might be needed. But, that same Min/Max will
not allow that reservation to extend past Friday night because Saturday night is sold out. In
this example, the Min/Max becomes a must stay three, but no more than four night
reservation.

RATE AVERAGING
A yield management tool used less frequently than the restrictions already presented is rate
averaging. Rate averaging simply averages the target rates for any multiple-night reservation.
Averaging rates may be easier than applying the other restriction. A drawback, of course, is
that averaging does not apply to one-night stays. For example, a guest wishing to stay at a
hotel Wednesday, Thursday and Friday nights may be quoted the average of the available
transient rates.

[50]

YIELD MANAGEMENT FOR GROUPS

It is generally understood that groups are booked in advance of the transient booking cycle.
Using the three sides of the hotel success triangle, groups are evaluated on their total impact
to the hotel. That is, groups are measured not only u their sleeping room impact but also by
their catering contribution and their anticipated outlet/ancillary usage. What happens when
group booking opportunities come up with the transient booking cycle? As can happen,
depending on the hotel, groups may find themselves in need of sleeping rooms and meeting
space at the last minute. At times like these, the group sales people must consult with the
reservations department.
If the reservations department has begun to implement yield management strategies, the
group sales effort should mirror them. Group-bookings of short term nature should be quoted
target rates supplied by the director. It is understood that the room rates are higher within the
transient booking cycle. Due to opportunity cost considerations, hotels must maximise the
room revenue if each remaining room. Group bookings should not be lower than transient
available rates for this season. Displacement occurs when lower-rated group rooms are
booked in place of higher-rated transient rooms. Hotels try to minimize displacement
whenever possible. Ideally, the last-minute group booking will achieve a rate comparable, if
not higher than, the rate being quoted for transient rooms.
There are situations, though, where the hotel may forgo the higher room revenue. If the group
in question is providing an extremely high amount of revenue to the other two sides of the
hotel success triangle (namely catering and outlet/ancillary revenue), an argument could be
made to book it. If a group is able to shift their arrival/departure pattern, it may become more
attractive as well. Displacement can be minimized if the group is providing rooms on one or
more dates with holes. Groups who book several programmes at one time, called series
[51]

groups, might merit an exemption from yield management as well. A series group may need
to bring their lower-rated business over one or two dates of expected high occupancy. But
their remaining sets of dates may be over periods of low occupancy. These situations mandate
looking at the big picture.
In the modern hotel, computer programmes can determine profitability and assist in booking
decisions. These programmes take the proposed groups revenue impact and compare those
figures to expected transient revenue. Using historical data and forthcoming yield
management restrictions, these programmes then provide a detailed displacement analysis.
Together with the director of group sales, a director of transient sales can make a decision
based on what is best for the hotel using this information.

[52]

THE EFFECT OF YIELD MANAGEMENT ON HOTEL CHAINS

- By NICK NIKOLIS
Yield, or revenue management, is the process by which sales of a limited quantity of goods,
such as hotel rooms, airline seats, apartment leasing, rental cars, or etc. are managed in order
to maximize profits. Successful yield management focuses on selling the product in such a
manner that is timely, price competitive, and directed towards the right subset of customers.
An economic concept first posited by Dr. Matt H. Keller, and first used by the airline
industries beginning in the 1970s, yield management has evolved in more recent years as an
important tool especially for the airline and hotel industries for staying economically
competitive in otherwise saturated business playing fields.

The basic concept of yield management is based in the economic principle of supply and
demand: when supplies are short, prices go up; when supply is high, prices go down. Yield
management is a studied, systematic method by which managers can logically place
customers within the supply demand spectrum, and thus gain the highest yield for their
products. For example, a customer who has very little flexibility in his or her travel plans is
the customer who is most likely to pay a higher price for airline tickets and hotel rooms. The
customer with a great deal of flexibility is not as inclined to pay a higher price.

Hotel Chains and Yield Management

Many hotels rate their success by their occupancy levels, but this isn't necessarily the best
measure of success. Another way to rate a hotel's performance is by determining its
REVPAR, or Revenue Per Available Room. REVPAR is calculated by dividing the total room
revenue by the total number of rooms. For example, a hotel that makes $6,000 one night with
[53]

a total number of 100 rooms has a REVPAR of $60.

The yield manager's job is to maximize the revenue per available room by selling rooms to
the right customers, at the right price, at the right time. How does the yield manager
accomplish this somewhat nebulous task?

Successful yield management arises from several factors: an understanding of what the hotel
hopes to achieve (whether that is room occupancy, REVPAR, or some other measurement); a
clear understanding of what kind of hotel the manager is working with, which will lead to an
understanding of what a customer visiting the hotel wants in his or her hotel experience, and
why customers choose their hotel over another hotel; an ability to measure group sales
against the overall goals of the hotel (for example, a hotel whose main goal is occupancy will
be happy to host a large group at a lowered rate, but a hotel whose main goal is revenue may
turn down a larger group in favor of a smaller group who can pay a higher rate); and a
knowledge of what will cause the market to fluctuate (such as holidays, regular regional and
local events, etc.). The yield manager will ideally consider all these factors when creating
different rates for hotel guests.

Typical Yield Management Arrangements

A basic yield management price arrangement might look something like this:
Regular Rate: $89.00
Corporate or Business Rate: $79.00
Triple-A or Other Special Discount rate: $69.00

[54]

Other arrangements will take into account seasonal price changes. A mountain resort whose
main business is serving winter vacationers, such as skiers and snowboarders, will have a
lower supply and higher demand of rooms during winter months, whereas a hotel on the
beach can charge more for rooms during the summer months than during the winter months.
Hotels can create three seasonal rates: the highest rate for the months during which they
expect to serve the most guests, a mid-season rate, and the lowest rate for months during
which they have the lowest demand.

Seasonal arrangements do not necessarily need to be tied to the local geography not all hotels
are in the mountains or on the beach. City hotel managers must take it upon themselves to
learn about the corporations in their area and make personal connections with these corporate
executives, learning their business cycles. Different businesses have annual events or
conferences that they will be host on a regular basis; it's up to the hotel sales managers to
learn these business cycles and cater to these corporate clients.

In conclusion, to stay competitive in today's market, any hotel that wishes to be successful
must learn how to apply yield management techniques to their particular situation. Having
determined how to gain the highest yield per room, any staff member who interacts with
customer must be trained in how to clearly explain room rates to guests. The ability of staff to
explain room rates to guests will determine whether customers are happy or unhappy. Their
ability will stem from managements' ability to clearly communicate the hotel's goals and
yield management principles.

[55]

YIELD MANAGEMENT IN PRACTICE

-By GLENDA ARNOLD
Director of Reservations
Indianapolis Marriott North
Supply versus demand is the basic discipline behind yield management. To take the fixed
amount of inventory (supply) and to determine the guests needs to utilize that inventory
(demand) is the objective of yield management. To exhaust the maximum amount of
inventory available and to realize maximum dollar value of that inventory is the goal.
We use all pertinent information at hand, such as current pace trends, historical data, group
activity, city events, competitors rates, and availability-are all valuable tools in determining
whether there is a need to yield the available supply. For example, if there is a slow demand
time and inventory is abundant, every opportunity should be left open for the guests to book
rooms at a rate that is market friendly-in other words, open your doors to allow everyone
you can! Is there is a high demand time and inventory is limited, it then becomes beneficial to
sell rooms based on more rigid guidelines such as minimum length stays and at more
lucrative rates such as concierge or rack. Most hotels offer a variety of rates to accommodate
the budgetary needs of various customers. Groups may be offered a discounted rate based on
a volume booking; negotiated rates are offered to corporations based on estimated yearly
volume; special interest groups such as government employees and special member
organisations may also have a preferred rate. In addition, there is typically a general
population rate or corporate rate offered. Deciding which rates to offer, and on which days of
the week, is all part of the yield process. There are occasions when it may be necessary to
actually slow down the booking process because of a peak night situation. Typically, in a
[56]

corporate environment hotel, Tuesday and Wednesday nights are considered peak nights.
Those are the most often utilized nights for business travellers. To prevent filling only those
nights, it may be necessary to put restrictions on the Tuesday and/or Wednesday to accept
only multiple-night stays and at a higher rate. This method of yield management helps to
even out the pattern of arrivals and departures, thus increasing revenues and occupancy.
Watching the trends, booking pace, and nonprice turndowns is critical in understanding
whether the restrictions for booking are too aggressive or too lenient. Changes to the booking
guidelines and/or rates may need to be made daily to achieve optimal revenues.
Yielding inventory for special events such as the Indianapolis, 500 Race, Brickyard 400, and
Formula One is typically managed a little differently than day-to-day reservations. Where
there may be an offering of multiple rates on an average day, there may be only one rate
offered during a special event. Whether the reservation is booked as part of a group or as an
individual, the criteria for booking are the same.
There is greater opportunity to increase revenues during special events because the basic
principle is the same- supply versus demand. Special events draw attention, so the demand
for inventory is greater. Much more rigid booking requirements such as prepay/nonrefundable packages and multiple-night stays may be put into place to guarantee the
anticipated or even budgeted revenues.
Knowing your competitors rates, booking requirements and availability are important in
helping to decide if your rates and requirements are in line with what the market will bear.
Historical data, as well as current trends, are valuable in making an informed decision. Of
course, it is important to balance that information with the profitability margin expected at
your hotel to set the rate.

[57]

The simplest but not the easiest way to secure sales is to contract group bookings, which meet
the pre determined requirements such as minimum stays and non refundable advance
payments. Utilizing minimum stays ensures that throughout the event time frame, maximum
revenues will be realized. Requiring non refundable prepayments helps to guarantee the
guests intent. During non special event times, a reservation may be guaranteed but not
prepaid. The guest simply has to call within a certain time to cancel without the fear of
penalty. During special events, and in many cases, because higher revenues have been
budgeted, there is a need to prevent a mass cancellation effort and lost revenues.
For over all successful yield management, the balance between group sales and individual
sales is critical. The interplay and understanding of both entries make the process of yield
strategies ever changing. Being flexible and quick to react to the current trends helps to
increase revenues and occupancy at an immediate level. Using all the aforementioned tools to
see how future demand is trending helps in making proactive decisions for long-term growth
in both revenues and occupancy. Know the market, shop the competition, watch the trends,
and be flexible. Yield management can definitely make a difference to drive occupancy and
increase profitability which are the ultimate goals.

[58]

UNRESOLVED ISSUES AND THE FUTURE

Although yield management has met with success in many industries, many issues remain
unresolved. Major unresolved issues include the best and appropriate uses of forecasting,
information system integration, pricing, and customer satisfaction and incentive systems. In
addition, other areas, such as expansion into other areas of business, regional or city wide
yield management and integration with e-commerce, offer great potential.

Forecasting
A detailed and accurate forecast is the key ingredient for any yield management system but
little research on the best forecasting method, the best level of aggregation and the best
constraining method exists. Recent research in the hotel and airline industries shows that
simple exponential smoothing and pick up methods provide the most accurate forecasts and
that disaggregated forecasts provide more accurate results than aggregated forecasts. Without
good forecasting, yield management systems may result in erroneous recommendations and
poor performance.

Information Systems Integration

A yield management system requires an additional computer system which must be integrated
into the IT structure of a company. Companies using computerized yield management
systems have faced severe integration problems and are frequently unable to rely on two-way
interfaces between their yield management systems and other IT systems. Until such issues
are resolved, the implementation of yield management will be difficult.

[59]

Pricing
Most yield management systems assume that the set of prices are given and that the role of
the yield management system is to determine which prices are open and which are closed.
Airlines and hotels are actively researching dynamic pricing and are trying to determine how
to apply optimal pricing in real time. A 1 per cent increase in price can result in a net income
gain of 10-15 per cent. Clearly, efforts to determine the structure and application of the
optimal price mix are worthwhile and can result in a high return.

Customer Satisfaction
Long-term studies on the impact of yield management on customer satisfaction and loyalty
have not been conducted. If yield management results in a serious decline in customer
satisfaction and repeat business, the use of yield management may be unwise. If customers
perceive that the firms are behaving in an unfair manner, they are less likely to patronize that
firm. Customers are more likely to view yield management practices as fair if they are
provided with full information on restrictions associated with discounted rates and if
customers are given sufficient benefits to offset rate and booking restrictions.

Incentive Systems
Some companies that have tried to implement yield management have been unsuccessful
because of a lack of attention to appropriate employee incentive systems. Incentive system
that help to align the goals of employees and managers with the goal of maximizing revenue
must be developed if a yield management system is to be truly successful.

[60]

Expansion to Other Parts of the Business

Yield management has typically been applied to the reservations of individuals, but in the
hotel industry, for example, this effectively precludes groups, tour operators, corporate
accounts and other non-rooms revenue (food and beverage, recreation, retail). Some hotel
chains are seeking to develop total hotel yield management in an attempt to maximize their
total revenue rather than just their room revenue.

City-Wide Yield Management

In a related issue, some companies are trying to do more than maximize the revenue of a
single hotel. For example, Disney controls over 20,000 rooms in Orlando, Florida. Rather
than maximize the revenue for each of their hotels, Disney tries to maximize their revenue
over all hotels. Maximizing revenue across hotels requires a sophisticated campus-wide
system approach in which business can be easily transferred from one unit to another.

Integration with E-commerce

E-commerce will significantly change the way in which companies sell their capacity. Ecommerce businesses such as priceline.com, expedia.com, and other bid based companies
give capacity-constrained firms an opportunity to sell their capacity directly to consumers and
profitably and efficiently to dispose of unsold perishable inventory. E-commerce also offers
the potential of dynamic, customer-based, pricing which may alter the way in which yield
management is practiced.

[61]

REVENUE CHALLENGES
Complexity:
Different types of products
Different types of guests
Uncertainty of duration

Variety:
Number of reservations
Cancellations
No-show
Early departure
Group wash factor

Dynamic:
Numerous changes to booking situation
Alterations

Risk:
Overbooking (walking guests)
Empty rooms/seats/banquet not reaching optimal revenue

[62]

CONCLUSION
In conclusion, Yield Management offers the potential of increased revenue to any capacityconstrained firms. A good yield management system helps to coordinate complex information
which can then be used to make better pricing and duration control decisions. If yield
management is to be truly successful, companies must seriously address both the technical
and non-technical implementation issues and must be prepared to embrace and anticipate
future technological changes.
To stay competitive in today's market, any hotel that wishes to be successful must learn how
to apply yield management techniques to their particular situation. Having determined how to
gain the highest yield per room, any staff member who interacts with customer must be
trained in how to clearly explain room rates to guests. The ability of staff to explain room
rates to guests will determine whether customers are happy or unhappy. Their ability will
stem from managements' ability to clearly communicate the hotel's goals and yield
management principles.
Hotels use this system largely to calculate the rates, rooms and restrictions on sales in order to
best maximize the return too. These systems measure constrained and unconstrained demand
along with pace to gauge which restrictions e.g. length of stay, non refundable rate, or close
to arrival. Yield management teams in the hotel industry have evolved tremendously over the
last 10 years and in this global economy targeting the right distribution channels, controlling
costs, and having the right market mix plays an important role in yield management. Yield
management in hotels is selling rooms and services at the right price, at the right time, to the
right people. The most important goal is to retain their customers in order to generate
maximum revenue throughout the year.

[63]

BIBLIOGRAPHY
Front Office Management- by Bhatnagar
Yield Management for Service Industries- by Anthony Ingold, Una McMohan, Ian Yeoman
Front Office Operations and Management- by Ahmed Ismail

WEBLIOGRAPHY
www.hotel-online.com
www.hotel-management.bestmanagementarticles.com
www.eventogo.com
www.adhp.org
www.hospitalitybizindia.com
www.hotelmarketingcoach.com

[64]

ANNEXURE
Revenue Grabbing Tips for Independent Hotels;
Start Thinking Like the Chains
By: Neil Salerno

In many Florida coastal cities, and cities across the country, smaller independent hotels
struggle with the daily task of selling rooms along-side franchised brands.
Most Independent hotels have to contend with relative obscurity in the marketplace, limited
marketing funds, and sometimes a need to rely on overflow from their larger franchised
neighbours. But, what happens when there is no overflow?
Consolidated marketing and the synergy of chain branding threaten the future existence of
many independent hotels, but now there are some solutions on the horizon.
Thanks to the Internet and other forms of electronic sales tools, independent hotels have their
best shot at playing on a more level playing field, but they may need to borrow some
techniques from the playbook of the chains.
Reservations Contribution
Reservations contribution has been the bastion of hotel franchises for many years. Central
reservations offices, participation in the Global Distribution System, instant electronic access
to rates and inventory, and brand advertising are formidable franchise assets. The promise of
25%, 30%, 35%, or more in reservations contribution to total sales is the strongest reason to
buy a franchise.

[65]

The sheer nature of the Internet and the popularity of online third party aggregators are
changing the playing field itself. Its now possible for Independent hotels to get 30% or more
reservations contribution directly from the Internet; without a franchise. The fact that most
franchise fees are upwards of 5% or 6% of total room sales, while Internet sales costs are so
low, is causing some consternation among many franchisees.
The franchises self-imposed war against third-party aggregators was caused, at least in part,
by their fear that the success of third party bookers could threaten their reservations base and
their very way of life by also eroding brand loyalty. In part, their fears are warranted. Thirdparty suppliers are developing their own brand loyalty. Independent hotels can play the thirdparty game.
The proliferation of specialized brand types, created by the franchises, has caused some
confusion in the marketplace. In their effort to fill niche markets, some franchises have
diluted their branding effort by creating too many brands and confusing at least some of the
traveling public. Frankly, I know many knowledgeable hotel people who cant define or
describe all the latest products in the marketplace; imagine the plight of the average traveler.
Now, dont get me wrong, I certainly dont predict the doom of hotel franchising. For the
most part, they employ brilliant people and do a great job for their franchisees. I do, however,
feel that smaller independent hotels, for the first time, have a wonderful opportunity to
compete.
Many franchised hotels are now taking a second look at their franchises reservations
contribution to their properties.

[66]

The Importance of Electronic Sales

The most obvious lesson to be learned from franchised hotels is the value of the Internet. As
experts have said for quite some time, the Internet is still the most effective and value-packed
sales tool ever devised. Yet, its hard to believe that there are still many independent hotels
which have not yet discovered the many benefits of the net.
There are now many independent hotels receiving upwards of 30-35% of their total sales
online, just like their bigger franchise brothers. The Internet has raised independent hotels
from relative obscurity in the marketplace to global players in the world-market.
Through third-party players like GenaRes in Texas, independent hotels have access to the
valuable Global Distribution System which enables travel agents, airlines and car rental
companies to book their hotels. Fees are reasonable and it squares them with the franchises.
Travel agent reservations are on the rise again.
Expert Hotel Business Advice
Another strong advantage enjoyed by franchisees has always been the expert knowledge base
provided by the franchise itself. Good business advice from knowledgeable and talented
franchise people helps their members set the right course in marketing and operating their
hotels.
They assist with rate and market positioning, valuable market data collection, data analysis,
and provide sales techniques to franchisees, which, in turn, help them to develop successful
operational strategies. Many independent hotels are still flying by the seat of their pants, often
without a good strategic plan.

[67]

The entrepreneurial spirit of many independent hotel operators, in some respects, has
hindered many of them from seeking outside expert advice and assistance. In some cases, its
that inside-the-box thinking which has limited their growth. In addition, most of the
membership affiliations, available to smaller independent hotels, have neither the budget nor
the expertise to help their members in the same ways in which franchises offer their
franchisees.
There are resources available to independent hoteliers, but unlike franchises, they need to
reach-out to find them. There are many experienced hoteliers who can provide guidance,
sound solutions, and technical expertise for modest fees. Sometimes just a little advice will
do the trick. It doesnt have to be costly nor a permanent situation. .
The biggest difference between large hotels and smaller independent hotels are the numbers,
themselves. Many smaller hotels would do well to utilize some of the techniques used in
franchised properties to position and market their hotels.
Although jobs are more consolidated in smaller hotels, they can still deal with the same sales
and data collection issues as their big brothers by hiring an experienced coach for their
business; someone to temporally guide their hotels growth in the market. The rewards can be
enormous.
Copying someone is the sincerest form of flattery; it could be the key to success. Most
franchises have healthy budgets for research and development; they can afford the very best
people available; and have their finger on the pulse of the market. Independent hotels would
do well do study and emulate some of those resources.

[68]

Hotel Revenue ManagementThe way I see it

By: Neil Salerno - Hotel Marketing Coach
The way I see it, there are almost as many versions of revenue management as there are
people actually using it. Whether its referred to as yield management or revenue
management, its obvious that it means different things to different people, but no matter
what definition or tasks are applied to revenue management; it can work magic if its applied
correctly and consistently.
The way I see it, the process of managing the flow of ones business revenues can and,
possibly, should be tailored to the individual hotel operation and what one is looking to
accomplish. The primary goal is to maximize hotel revenue by taking advantage of available
pockets of occupancy demand.
Many hotels and major franchises or hotel membership type affiliations take revenue
management very seriously and have people dedicated to the process; while others leave the
responsibility to local management, the front office, or reservations department. The sad part
is that many people, with the revenue management title, have never been trained nor provided
with the tools and goals of their job.
Preferred Hotels & Resorts have true revenue management professionals who follow strict
guidelines to walk their member hotels through the process of maximizing their revenues.
Their commitment to revenue management has contributed to their great success as a
company, one of the many benefits of being a member of this fabulous group of hotels.
The way I see it, no matter who is charged with this important responsibility, revenue
management can make a serious impact on your bottom-line. There are several important
elements of revenue management, but none more important than knowing your competition.
[69]

Many years ago, I worked for an owner who constantly reminded me that increased
occupancy had its own associated increases in expenses; linen, disposables, housekeeping
payroll, etc. The key to increased profit, he used to add, is to find ways to increase average
rate; where a dollar improvement meant that at least $.95, from every room sold, goes to the
bottom line.
Revenue management is a combination of art and science.
It doesnt happen by accident or simply good fortune. It takes work and dedication. The first
step is to know your competitive business environment.
Start with knowing your competition
For those fans of the Sopranos, there is an Old Italian proverb which says Stay close to your
friends, but even closer to your enemies. I hope no one considers business competition this
harshly, but this can easily be translated to Know your hotel well, but know your
competition even better.
The way I see it, there is no better way to begin the process of revenue management than to
understand your competition. I can think of no better way to begin that process than to
subscribe to Smith Travel Research weekly and monthly reports. Smith Travel Research
compiles data on occupancy, average rate, and revenue-per-available room for your hotel as
compared to your competition. This will help you to develop your hotels true position in the
marketplace and to set goals for where you want to be in the market.
The way I see it, too many hotels, especially independent ones, place themselves in a box by
ignoring competing hotels. Hotels cant operate well in a vacuum. I cant understand how a
hotel can set competitive rates without knowing what the competition offers.

[70]

Traditional Revenue Management

Traditional revenue management involves the adjusting of rates and hotel inventory based
upon room demand. These adjustments are usually dependent upon current reservations,
historical data, forecasting, and a good measure of gut-instinct; the art in revenue
management.
In traditional revenue management, discounted rate tiers are closed as occupancy increases.
Historical data may also indicate that a certain period has high demand even though
reservations may be weak at the current time. Basically, as occupancy increases, rates
available for sale should also increase. In this way, the hotel is building a base of business,
which enables the hotel to sell rooms at higher rates.
Many hotels build this base with discounted group business; dedicating a portion of their
rooms to groups, actually enables the hotel to end up with stronger average rates overall. This
would be a very simple process except that revenue management should be applied to group
bookings as well. One of the factors affecting good revenue management is the fact that many
hotels accept too many group rooms at deeply discounted rates.
Telltale Signs of Poor Rate Management
Its very easy to spot hotels which are not using revenue management; hotels which start-off
with strong rates and begin dropping rates when they realize that reservations are not what
they expected. Dont you just love those feelings of panic, one or two weeks into the month,
when management finally figures-out that you arent going to make budget and declares that
rates need to be reduced? Its usually much too late, but something has to be done; right?

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Its amazing how often this takes place. On the other hand, this is the same hotel which will
do nothing when reservations appear stronger than anticipated. Frankly, I dont know which
scenario is the bigger sin. This rate, set it and forget it, situation is more common among
smaller independent hotels and can be avoided if someone is assigned to revenue
management.
The way I see it, revenue management need not be a complicated process in order to be
effective. Sometimes our industry tends to magnify the complexity of various tasks. Revenue
management is a learned process, but you need to assign it to someone who has a legitimate
interest and curiosity for numbers. If there is no one on staff with this knowledge, there are
many outside authorities who can handle training. The return on this modest investment can
be huge.

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CERTIFICATE
This is to certify that this project entitled Yield Management is a bonafide research
work carried out by Mr. Arsh Bery under our guidance which form the partial fulfillment
of requirements for the Bachelors Degree in Hotel Management of Christ University,
Bangalore.

Mrs. Nita Thomas

Project Guide
Department of Hotel Management

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