Revenue
Management is the procedure of considerate, anticipating and
influencing consumer activities in order to make the most of yield or profits
from a fixed and a perishable resource. It was Airline Industry who initiated the concept
of Revenue Management. Nowadays revenue management has taken hold widely
throughout the rest of the Travel industry as well. More or less all major
Hotel, Car Rental Agencies, Cruise Lines and Airlines have developed or are developing
revenue management systems.
Supplementary industries that appears ripe for the application
of revenue management concepts includes Golf Courses, Freight Transportation, Health
Care, Utilities, Television Broadcast, Spa Resorts, Advertising,
Telecommunications, Ticketing, Restaurants and Web Conferencing.
As we know that Airline passengers on the same
flight shell out different fares. Post departure of the aircraft, the seats
which are not sold cannot engender any revenue and thus can be said to have
perished.
Consequently Airlines industry adopts various strategies to overcome
its loss toward unsold seats. For example, airlines can proffer discounts on
low- demand flights, Saturday night packages. The contrary, selling more
expensive seats when there is excess Demand.
To be more precise, inventory-focused branch of
revenue management, yield management involves strategies in order be in command
of of inventory to sell it to the right customer at the right time for the
right price.
Most of the Hotels have a familiar problem mainly
they generate a fixed inventory of perishable products that cannot be stored if
unsold by a specific time. For example, if a hotel room is not able to sell by
the night of arrival, then that room for that night will not be able to source revenue.
Occasionally, if reserved guest did not turn up to occupy the room, the blocked
room for the guest will not generate revenue and thereby hotel has to incur
loss. Therefore hotel's management also espouses various strategies to overcome
its loss toward unsold rooms.
In order to shun the risk of cancellations and
no-shows, overbooking is very glowing way to follow in hotels. Overbooking is a
necessity for any business that accepts reservations. In hotels, the method to
put into practice of overbooking requires a fine balance between guest service,
operational procedure, and revenue optimization. In favor of hotels with
multiple room types, the complexity is multiplied.
Managers need to anticipate
and need to consider the competitive market, future events, previous year's
revenue, guaranteed reservation guests, seasonal rate, activities in the city,
business guests, Long stay guests etc. The aspiration is to identify the high yield
guest- the one who will pay the most and stay the longest, to achieve the
highest possible profit.
The front office manager must resolve what rates
will be used on a given day. Hotel rooms are sold for not to be trusted prices
which depends on the time of the booking of the room. One of the major tactics
is to organize Hurdle rate. We all recognize that Rack rate is the highest rate
to be given for a guest room, which moreover changes from day to day.
Whichever room price we offer to our clientele cannot
exceed its Rack Rate. Usually Rack rates are presented to walk in guests, other
than Front office manager must set the lowest rate for a given date based upon
the demand. This lowest rate is called as Hurdle Rate. A few rooms can be sold
at a price above than its hurdle rate. It might vary from day to day depending
upon the hotel?s desired yield and market conditions.
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