THE SHORT HISTORY OF REVENUE
1970: Yield management was introduced by airlines who
realised that they needed to have a strategy for offering an
identical flying experience to different customers for different
prices, based solely upon the time at which they booked and
the flexibility that they required.
1985: American Airlines launched Ultimate Super Saver fares in
an effort to compete with low cost carrier PEOPLExpress.
1990: Revenue management spread to other travel and
transportation companies, specially at National Car Rental.
1995: Hotel started in an attempt to rationalise the wide variety
of rates that they were charging different customers.
THE CONCEPT OF REVENUE MANAGEMENT
Revenue Management is about making predictions and decisions
about how much and what type of business to expect, and the
subsequent decisions a manager makes to get the most revenue
from that business.
This concept was originated in the airline industry, becoming
discounts, advance-purchase or different fares the norm for airline
pricing. Like airline industry, hotel companies have a common
problem: there is a fixed inventory of perishable products that cannot
be stored if unsold by a specific time.
The goal of revenue management is that it involves selling the right
rooms to the right guests at the right rate at the right time. Selecting
revenue management strategies and tactics is really about picking
and choosing the reservation you want. Each day is a separate
situation and implements tactics best suited to your property, your
guests, your market and your demand conditions. This is done
Capacity Management, also called selective overbooking,
balances the risk of overselling guestrooms against the
potential loss of revenue arising from room spoilage. Capacity
management strategies usually vary by room type and it might
be economically advantageous to overbook more rooms in
lower-priced categories, because upgrading to higher-priced
rooms is an acceptable solution to an oversell problem. A
walking guest leads to guest dissatisfaction and will change
hotels or brands if overbooking relocates them too often. In
addition, hotel management must be aware of how the local
laws interpret overbooking.
Discount Allocation involves the time period and availability.
The primary objective is to protect enough remaining rooms at
a higher rate to satisfy the projected demand for rooms at that
rate, while at the same time filling rooms that would otherwise
have remained unsold. And second objective is to encourage
upselling, but this technique requires to estimate the of price
elasticity, referring to the relationship between price and
Duration Control places time constraints on accepting
reservations in order to protect sufficient space for multi-day
requests; this means that a reservation for a one-night stay may
be rejected, even though space is available for that night.
These strategies may be combined but it must be cautioned because
a guest might not understand the reason. Proper use of revenue
management relies on selling; it never divulges the revenue
MAIN FACTORS OF HOTEL REVENUE MANAGEMENT
There are three main factors, which affect Hotel Revenue
Length of stay: is a term commonly used to measure the
duration of a guest in a hotel.
Stay: length of stay from a specific check in date to a specific
check out date.
Price: it is what a buyer pays to acquire products from a seller
(including discounts for instance).
Rate: it is a tariff integrated in a ranking of rates.
Channel: Tour Operators, OTA, CRS, GDS, etc.
Segment: corporate, leisure, etc.
Historically, TT.OO. had supremacy over leisure market, even setting
rates over hotels. But Irruption of Internet changes play rules because
now hotelier can control his or her availability, domaining his or her
dynamic rates, even reducing TT.OO. presence in Urban Markets.
So, TT.OO. are opening new ways of business to survive: using FIT
rates to distribute through Internet, modifying commercial mark-up
(from B2B to B2C as CRSs) following strategy of increasing volume
of sales in front of margin of benefit.
However, FIT rates cause disparity problems in face of Hotels and its
distributors. In reply to this situation, Hotels must demand pledge of
opaqueness, creating packages. Also, Hotels must demand:
Contract clause to avoid internet distribution of fit rates
A minimum mark-up
Contract clause to control over partners
Eliminating security quotes
Promoting free sale
CRS (CENTRAL RESERVATION SYSTEM) PRESENTLY
CRS has evolves from B2B to diversification, B2B + B2C as a result
of irruption of internet but CRSs cannot offer same products (type of
promotions) because they have not an appropriate technology.
Another question is parity of rates because there is a iron surveillance
B2B (BUSINESS TO BUSINESS) AND B2C (BUSINESS TO
B2B and B2C are both terms used in e-commerce. First describes
business-to-business transactions but second describes business to
EVOLUTION IN ELECTRONIC DISTRIBUTION
Hotel distribution channels are undergoing changes because
electronic distribution of room information, prices, and availability has
changed the way that hotel properties and chains interact with their
vendors and customers. Consequently, as shown in next exhibit,
electronic distribution-channel options constitute a complex web of
choices through which suppliers and buyers of hospitality services
must navigate to ensure favorable transaction results. This form of
distribution makes booking hotel services more efficient than are the
former telephone-based approaches, but 20% of customers who look
at the chain's website end up calling the chain's reservation center to
make a booking.
Hotels and chains are using electronic distribution to reduce costs by
shifting transactions from intermediaries to their own facilities through
direct connections and websites because this saves intermediaries'
fees (travel-agency commissions, GDS fees per transaction). Most of
online bookings will be made by leisure and unmanaged business
customers (Hotel and Lodging Commerce 2002-2005, PhoCusWright
Inc., November 2002), chains promote loyalty programs with their
websites for them. Definitely, hotel chains increasingly use their own
web sites, in concert with other marketing and sales efforts, to drive
information delivery and online bookings.
GDS's (Global-distribution systems) are repositioning themselves to
become maketing and service companies for their suppliers,
principally travel agencies, changing their focus form airlines t other
travel-industry segments. There are four G.D.S. classified in three
Markets: Europe (Amadeus), USA (Sabre and Galileo) and Asia
Travel agencies (sometimes called "brick and mortar" agencies) are
also transforming themselves. Facing financial pressure, they are
increasingly using the internet as a cost-saving and service-extending
tool. They are replacing commissions with incentive payments from
suppliers, including hotels, for shifting market share. Even they are
looking for ways to exploit the internet, grow their share of revenues
from sources other than airlines, and implement alternative-pricing
Distribution-service providers (DSPs) provide switches that link hotel
CRSs with GDS and online sites, commission-and fee-payment
services, representation services, and PMS services.
RELATIONSHIP BETWEEN OCCUPANCY AND HOTEL'S RATE
What's the degree of linkage between a hotel's rate and its
occupancy levels for hotels in different market segments under
various competitive situations? Cornell University studies from 2001
through 2003 reveal that hotels that drop their prices relative to their
competitive set capture market share from the competition but do not
gain higher RevPARs than those same competitors, then these
suggests to hold relative rates constant even when demand drops
under specific competitive conditions. In other words, raising prices
above those of a hotel's competitive set will lead to loss of
occupancy, but that loss does not diminish RevPAR.
Good revenue management exists when hotel rates and occupancies
are positively correlated. Comparing the relationship between
average daily rate and occupancy for hotels that were pricing above
their competition and for those that kept their rates below those of
their direct competitors, we come to conclusion of hotels that set
rates just slightly below most of their competitors are likely to have
strong and positive correlations between their ADRs and occupancies
but hotels that priced substantially below their competitors
experienced much lower RevPARs.