Hotel Revenue Management - Essay Example

Revenue Management Introduction The success of business entities is reliant on many factors. Some of the factors include the availability of capital,good management skills, and government policy and customer satisfaction among others. Most significantly is the essence of revenue management in the organisation. Decisions made by the management are essential for prosperity and survival of any business. Amid economic challenges and cutthroat competition in various sectors, there is a growing need to put into place strategies that sustain business organisations. However, the impact of the diverse resolutions undertaken has to be evaluated. The assessment should be done from different perspectives, which include customers, organisation, and from the human resource point of view. Evaluation strategy enhances acceptability of the changes and has the potential of improving a quality of services offered. Hotel revenue management is fundamental to success in the competitive hospitality industry. Hotels revenue management implies selling the appropriate room to the best client at the most competitive price on the right supply channel. Hotel rooms are considered as perishable products owing to their limited number. Hence, the satisfaction of customer needs and settling for the right price are the main variables to be considered. Revenue management will strive to achieve equilibrium of demand and capacity by predicting and setting prices that ably maximise the utility of all the resources in the hotel (Legohérel, Poutier and Fyall 2013: 96) Emphasis has to be placed on two very important concepts in hotel revenue management. These are rooms’ revenue per available room (RevPAR) and gross operating profit per available room (GOPPAR). RevPAR is used in analysis as a reflection of revenue accrued per available room. The parameter is got from dividing the net revenue collected from a hotel room and the total number of rooms present in the particular hotel. Besides, the value can be arrived at by multiplication of the daily average room rate (ADR) the occupancy of the room. It is, therefore, able to monitor the performance of the system inventory management of the hotel room. Maximisation of RevPAR is the main objective of hotel managements, thus the trade-off between average rate and occupancy. It is very evident that revenue collected from rooms in the hotel constitutes a large portion of the overall revenue generated. Thus, more emphasis should be placed on revenue management in regards to rooms. Gross operating profit per available room (GOPPAR) denotes the profitability level of the hotel, management efficiency as well as the hotel value. It does not account for revenue mix (Gray and Liguori 2003: 75) Beyond the benefits of RevPAR, there are pitfalls, which exist in its application. These include revenue mix, which implies incidences where the revenue allocated to rooms constitute about 50% of the total revenue collected by the hotel. In light of this, RevPAR is likely to be biased, reflecting only a small section of the hotels revenue performance, assuming other sources of incremental sources. Therefore, the inaccurate and unfocused analysis will be done. However, GOPPAR reflects the actual operating profit of the organisation. Hence, gives a clear picture of the managements performance matrix not only on revenue per room but also on the overall revenue collected (Tranter, Stuart-Hill and Parker 2009: 89) Pursuing this further, size seems to affect RevPAR analysis a great deal. The concept proves to discriminately affect large hotel premises with the higher number of bed capacity as opposed to small hotels with relatively lesser bed capacity. Occupancy is expected to be higher in a small hotel than a bigger hotel particularly when there are seasonal peaks and fluctuations. Consequently, revenue collected in all available rooms in bigger hotel settings is likely to be less than that of smaller rooms. Hence, the size of a hotel premises should be considered when utilising RevPAR. In contrast, GOPPAR takes care of all expenses, fixed and variable together. Here fixed costs mean the size and supplies of a hotel. The variable component is about volumes of the business. Therefore, GOPPAR gives a better estimate of the hotel conditions in relation to size (Dix and Baird 1998: 88) Value implications constitute another pitfall for RevPAR. It is because net free cash and not total revenues define values of hotels. The concept, RevPAR is not directly proportional to the value of the hotel. It can be estimated that it is only an example of the elastic relationship. On the other hand, GOPPAR has a higher and more reliable relationship with the value of the hotel than RevPAR. Undoubtedly, it is useful in an analysis of the hotel investment standard value and management of revenue (Bowie and Buttle 2004: 98). Benefits of Revenue Management to Stakeholders Organisation Hotel management benefits greatly from efficient revenue management strategies. First it will enable them predict demands of customers and appreciate the influence of demand to various organisational functions. They will be in a position to maximise revenue collection and guarantee the profitability of their business ventures. The organisation will be able to explore different distribution channel management approaches. Wastages will be greatly minimised and economically focused decisions made and implemented effectively. Moreover, the organisation will be in a position to ably assess and institute better pricing strategies that are fair to consumers and yet profitable to the hotel too. Furthermore, the organisation will be able to evaluate the performance of all the resources available. Maximum resource utilisation will then be evaluated and appropriate measures taken. Finally, they will have at their disposal enough funds to improve services to all the stakeholders (Ivanov 2014: 84). Employees Workers are well positioned to receive better remuneration and other benefits from proper revenue management. Their efficiency will be vastly improved upon evaluation of the available resources and determination of their roles and performances. They are more likely to understand the significance of the policies advocated by the hotel management. Revenue management culture will be inculcated into their daily activities. Subsequently, they will be well placed to efficiently manage their resources better while achieving companys goals. Customers Customer satisfaction is an essential objective for all hotels. Revenue management guarantees adequate fulfilment of customers needs. They will enjoy better services, at low prices. Professionalism will also be enhanced by the pool of resources able to attract better-trained staff (Ivanov 2014: 84). Conclusion Revenue management is very vital to the success of a hotel. Assessment of hotel performance in terms of revenue management is better done through the use of RevPAR and GOPPAR. RevPAR helps in evaluation of the room inventory management and generalised market trends. Relatively, GOPPAR indicates a wider perspective of a hotels performance. It denotes the profitability level. Evaluation and critical consideration of various facets of the two concepts guarantee revenue management. Benefits can consequently be accrued by the organisation, customers, and the employees. They are thus pillars of success for any hotel. References Bowie, D. & Buttle, F. (2004), Hospitality marketing, Amsterdam, Elsevier Butterworth-Heinemann. Dix, C. & Baird, C. (1998), Front office operations, Harlow, Essex: Longman. Gray, W. & Liguori, S. (2003), Hotel and motel management and operations, Upper Saddle River, N.J., PH/PTR. Ivanov, S. (2014), Hotel Revenue Management from Theory to Practice, Clifton Park, Delmar Cengage Learning. Legohérel, P., Poutier, E. & Fyall, A. (2013), Revenue management for hospitality and tourism, Woodeaton, Oxford, Goodfellow. Tranter, K., Stuart-Hill, T. & Parker, J. (2009), An introduction to revenue management for the hospitality industry, Upper Saddle River, N.J., Pearson Prentice Hall. Read More