Revenue Management in Hospitality Industry

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Revenue Management in Hospitality
Revenue (Yield) Management
Airline & Hotel Yield measurement
Importance and the role of
yield & revenue management
Group Activity (1)
Please explain the main points of last week’s
session to each other
– Which are the areas you feel confident about?
– Which of the areas do you feel you need to
Group Activity (2)
Please discuss the following and prepare to share
with the class:
– What is yield management?
– Which type of industries are suitable for the
application of yield management?
– What are the characteristics of these industries?
Objectives for today
● Describe the application of yield measurement to airline
fares and hotel room rates
● Calculate room occupancy percentage and seat load factor
and yield calculations
● Explain the Importance and the role of yield and revenue
Yield management
“Yield management can be defined as selling
a product or service to the right customer, at
the right time, and at the right price.”
Industry examples
Business Characteristics
● Has a fixed number of products to sell. Examples include
hotel rooms, airline or bus seats, or rental cars.
● The product’s value is time-constrained, meaning that
after a certain date or amount of time, the product loses
● Different customers are willing to pay different prices for
the same product or number of products.
Yield management in hotels
● Your facility has a finite number of rooms.
● Once all the rooms are rented for the night (whether the hotel is
full or not), you have hit the revenue ceiling for that night. Your
facility could be further limited by season, such as a summer
beach, or winter ski destination.
● Customers who book far in advance generally expect to pay a
lower price than those who book on impulse, close to their
desired check-in date.
The objective of yield management strategies for
your small or independent hotel is not to simply
increase room rates, or only to increase rate of
occupancy. It is to maximize the average
revenue per available room, per night.
Calculating revenue per available room
Revenue per available room
= average room rate X occupancy rate
100 room hotel
60% occupancy
£50 average room rate
What is the revenue per available room?
Forecasting demand
What kinds of things will you take into account to
forecast daily demand for (1) a hotel (2) an
airline? Please discuss them and write a list in
your groups.
Historical data
– Room type
– Rate range
– Length of stay
– How far in advance the average customer books a stay
– Days when demand outstripped supply, and by how
much (and why)
Setting limits
Application to airlines
An airline has 2 prices – discount and full price
The flight has 200 seats for an early morning flight on
February 16th (Monday).
What are the potential problems the airline has to
consider in order to maximise its yield on this flight?
The flight can easily sell off all seats at a discounted
BUT an increasing number of customers will pay full
price as February 16th gets closer.
Leisure demand occurs before business demand?
Consider also:
How many seats the airline should sell at leisure fare
and how many seats should it protect for people who
would pay full price?
If the airline protects too many seats, it could fly part
empty. If too few seats are protected, the airline
might lose extra revenue from the business fliers.
Airline introduces barriers:
E.g. phase in full fare seats as the flying date gets
closer and phase out the discounted seats.
Holiday fliers with advance itineraries make the most
of the discounted fares. Business trips, decided within
a week or two from the date of travel, allows the
airline to collect full fares from business fliers.
Calculating airline load factor:
Load factor represents the proportion of
airline output that is actually consumed.
Load factor for a single flight can be
calculated by dividing the number of
passengers by the number of seats.
Importance & role of yield and revenue management
● Helps companies combine:
○ fixed capacity
○ with perishable inventory
● Helps manage impact of fixed cost structures
● Provides focus
● Creates metrics
Using revenue management, companies can:
• Better understanding what customers want need & expect
• Shape the product and its presentation
• Create a competitive pricing strategy to draw in customers and gain an
edge over competitors
• Continue competing effectively
• See the full extent of its market segment and introduce the company to
new market segments
• Expand their focus to continue growing in the industry
• Make adjustments to what they offer
• Change their structure to better meet business needs
Exploring writing skills
For your participation today!
Do you have any questions?

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