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REvenue Management

This document discusses revenue management concepts and techniques. It defines revenue management as enhancing firm revenues by selling the same amount of products at the right time and price. Revenue management was pioneered in the airline industry in 1985 and later applied to hotels. Key areas of application include hotels, aviation, media, car rentals and more. Yield management focuses on high profit booking through techniques like demand forecasting, capacity management, discount allocation and duration control. Measuring yield through statistics like yield, potential revenue, room rate achievement factor and equivalent occupancy helps maximize profits. Benefits include improved forecasting, pricing, identification of new markets and increased business/profits.

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Arushi Chadha
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296 views30 pages

REvenue Management

This document discusses revenue management concepts and techniques. It defines revenue management as enhancing firm revenues by selling the same amount of products at the right time and price. Revenue management was pioneered in the airline industry in 1985 and later applied to hotels. Key areas of application include hotels, aviation, media, car rentals and more. Yield management focuses on high profit booking through techniques like demand forecasting, capacity management, discount allocation and duration control. Measuring yield through statistics like yield, potential revenue, room rate achievement factor and equivalent occupancy helps maximize profits. Benefits include improved forecasting, pricing, identification of new markets and increased business/profits.

Uploaded by

Arushi Chadha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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REVENUE MANAGEMENT

Submitted byArushi chadha


Msc 1st year

AGENDA
The Concept of Revenue Management
Hotel Industry Applications
Benefits of the techniques
Areas where this concept is applied
How the concept is applied
Measuring Yield
Yield statistic
Potential Revenue
Potential Average Single Rate
Potential Average Double Rate
Multiple Occupancy Percentage
Rate Spread
Potential Average Rate
Room Rate Achievement Factor
Identical Yields
Equivalent Occupancy
Benefits of Revenue Management

CONCEPT OF REVENUE
MANAGEMENT
Revenue Management is the art and science of
enhancing firms revenues while selling
essentially the same amount of products
or
Revenue Management is a technique to
optimize the revenue earned from a fixed,
perishable resource.
Selling the right product to the right customer at the
right time for the right price.
-Robert G. Cross Aeronomics

HISTORY
Before its emergence BOAC (now
British Airways) experimented with
differentiated fare products.
The concept was pioneered by
Robert Crandall CEO of American
Airlines in the year 1985.
First major users were American
Airlines and Delta Airlines.

CONTINUED
In 1990 it spread to other travel
and transport companies, specially
at national Car Rental.
By the early 1990s the concept
also began to influence television
ad sales.
The concept was first started in
hotel by Bill Marriott, Jr, CEO of
Marriott International in the 90s.

3 ESSENTIAL CONDITIONS FOR REVENUE


MANAGEMENT TO BE APPLICABLE
Fixed amount of resources available for sale.
The resources sold are perishable.
Different customers are willing to pay a
different price for using the same amount of
resources.

AREAS OF APPLICATION
Hotels .
Aviation.
Media/ telecom.
Car Rentals.

CONTINUED
Cruise Liners.
Financial services.
Apartments.
Medical services.

REVENUE MANAGEMENT TEAM


WITH HIERARCHY
OF AN INDIAN 5 HOTEL

THE CONCEPT OF YIELD


MANAGEMENT
Yield Management is based on Demand
and Supply.
The Hotel Industrys Focus is shifting
from High Volume Booking to High Profit
Booking.

HOTEL INDUSTRY APPLICATIONS


The Commodity that the Hotel sells is Time in a
Given Space, and if it is Unsold, Revenue is lost
forever.
Yield Management is composed of a set of Demand
Forecasting Techniques used to determine whether
Room Rates should be raised or lowered, and whether
a Reservation should be accepted or rejected in order
to maximize Revenue.
In order to maximize Revenue, the Front Office
Manager needs to forecast Information concerning
Capacity Management, Discount Allocation, and
Duration Control.

CAPACITY MANAGEMENT
It tries to solve the following Problems:
Controlling and limiting Room Supply
Balancing the Risk of Overselling Guest Rooms with
the Potential Loss of Rooms arising from Room
Spoilage
Determining how many Walk-ins to accept during
the Day of Arrival, given projected cancellations, noshow and early departures.

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

DURATION CONTROL

Places time constraints on accepting


reservations in order to protect sufficient
space for multi-day requests.

MEASURING YIELD

YIELD STATISTIC

Yield Statistic is the Ratio of the Actual Revenue


(Generated by the Number of Rooms Sold) to
Potential Revenue (The Amount of Money that
would be received from the Sales of Rooms in
the Hotel at a Rack Rate)

YIELD STATISTIC FORMULAS


Formula 1
Actual Rooms Revenue
Potential Rooms Revenue
OR
Room Nights Sold

Room Nights Available

Actual Average Room Rate


Potential Average Rate
OR

Occupancy Percentage Room Rate Achievement Factor

POTENTIAL REVENUE

It is the maximum revenue that could have


been generated by a hotel in one day.

POTENTIAL AVERAGE
SINGLE RATE
Formula 2:
Single Room Revenues at Rack Rate
Number of Rooms Sold as Singles

POTENTIAL AVERAGE
DOUBLE RATE
Formula 3:
Double Room Revenues at Rack Rate
Number of Rooms Sold as Doubles

MULTIPLE OCCUPANCY
PERCENTAGE
Formula 4:
Number of Rooms Occupied by more than 1 Person

Total Number of Rooms Sold

RATE SPREAD
Formula 5:
Potential Average Double Rate
Potential Average Single Rate

POTENTIAL AVERAGE RATE


Formula 6:
(Multiple Occupancy % Rate Spread)
Potential Average Single Rate

ROOM RATE ACHIEVEMENT FACTOR

Formula 7:
Actual Average Rate
Potential Average Rate

IDENTICAL YIELDS
Formula 8:
Identical Yield Occupancy Percentage =
Current Occupancy Percentage

Current Average Rate


Proposed Average Rate

EQUIVALENT OCCUPANCY
Formula 9:
Equivalent Occupancy = Current Occupancy Percentage
Rack Rate Marginal Cost
Rack Rate (1- Discount Percentage) Marginal cost
Equivalent Occupancy =
Current Occupancy Percentage Contribution Margin
New Contribution Margin

BENEFITS OF REVENUE
MANAGEMENT

Improved forecasting
Improved seasonal pricing
and inventory decisions
Identification of new
market segments
Identification of market
segment demands
Enhanced coordination
between the front office
and sales divisions

CONTINUED

Determination of discounting activity


Improved development of short-term and longterm business plans
Establishment of a value-based rate structure
Increased business and profits
Savings in labor costs and other operating
expenses
Initiation of consistent guest-contact scripting

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