Chapter 6 – Revenue Management

Revenue Management
The determination of precisely what a hotel’s room should sell for and the methods used to sell them make up the increasingly complex process the hotel industry calls
Yield Management
Demand forecasting systems designed to maximize revenue by holding rates high during times of high room demand and by discounting room rates during times of lower guest room demand these systems may be applied manually or with programs built into a hotel’s PMS
Rooms of all types that are available to be sold by the hotel
Negotiated Rates
A special room rate offered for a fixed period of time to a specific hotel client
Blackout Dates
Any day in which the hotel will not honor a negotiated rate
Length of Stay (LOS)
The number of nights a hotel’s individual guests use their rooms
A guest not scheduled to check out of the hotel on the day his/her room status is assessed. The guest is staying at least one more day
Central Reservation System (CRS)
An entity, operated by a franchisor, that offers potential guests the opportunity to make reservations as its affiliated (branded) hotels by telephone, fax, and/or the internet
Rate Resistance
Refusal to make a reservation because the rate quoted is perceived, by the guest, to be too high
The total amount of a good or service consumers want to buy at a specific price
The total amount of a good or service available for sale
Room Rate Economics
The processes by which revenue managers price rooms while considering how consumers may react to pricing strategies used
Law of Demand
The concept of economics that recognizes when supply is held constant, an increase in demand results in an increase in selling price conversely, with supply held constant, a decrease in demand leads to a decreased selling price
Law of Supply
The concept of economics that recognizes when demand is held constant, a decrease in supply leads to a decreased selling price. Conversely, with demand held constant, a decrease in supply leads to an increased selling price
Rate Type
A single (unique) rate for a specific type of room. Rate Types are preprogrammed into a hotel’s PMS
Concierge Level
A section of a hotel (usually with restricted access) reserved for special guests paying higher room rates and receiving special amenities
Special Event Rates
A temporary increase in rack rate based upon a specific event such as a concert, sporting event, or holiday. Also “super” or “premium” rack (i.e: New Years Eve at Manhattan)
American Plan (AP)
A special rate that includes specifically identified guest meals (typically breakfast, lunch, and dinner)
Modified American Plan (MAP)
A special rate that includes a specifically identified guest meal (usually one per day, often breakfast)
European Plan (EP)
A room rate that doesn’t include guest meals
All-inclusive (Rate)
A special rate that typically includes all guest meals and unlimited beverages as well as the use of other specifically identified hotel amenities and services
Day Rate
A special rate that typically includes 8-12 hours (not-overnight) use of a room
Half-Day Rate
A special rate that typically includes 1-4 hours (but not overnight) use of a room
Fade Rate
A reduced rate authorized for use when a guest seeking a reservation exhibits price (rate) resistance. Sometimes called “flex rate”
Hubbart Formula
Determines room rates (ADR) or what the hotel’s ADR should be to reach the hotel owner’s financial goals to compute the formula, specific financial and operational assumptions must be provided, including dollar amounts for property construction, total cost of operations, number of rooms sold, the owner’s desired ROI on the hotel’s land, building, and FF&E
Cost Per Key
The average purchase price of a hotel’s guest room expressed in thousands of dollars (i.e: a 200-room hotel offered for 12,000,000 is selling at a cost of 60,000 per key)
a telephone “shopping” technique in which a hotel staff member calls competitive hotels to inquire about room rates and availability (helps determine room rates)
Revenue Management Essentials
Making forecasts, managing occupancy (TBA)
Other Revenue
Revenue derived from the sale of hotel products and services that are not classified as rooms, food, or beverages
Minimum Length of Stay (MLOS)
A hotel requires guests who seek a room to stay for a designated minimum number of nights
Close to Arrival (CTA)
the hotel declines reservations for guests attempting to arrive on this specific date
A situation in which the hotel has more guest reservations for room than it has rooms available to lodge these guests. Also “oversold”
A situation in which a guest with a reservation is relocated from the reserved hotel to another hotel b/c no room was available at the reserved hotel
Frequent Guest Program (Loyalty Program)
A promotional effort administered by a hotel brand which rewards travelers each time they choose to stay at that specific brand’s affiliated hotels. Rewards include: free night stays, room upgrades, and complimentary hotel services
Short for gross operating profit per available room.

Total revenue – Direct Operating Expense + Indirect Operating Expense / Total Rooms available to be sold

Competitive Set
The group of competing hotels against which an individual hotel’s operating performance is compared
Occupancy Index
Occupancy rate of a selected hotel/Occupancy Rate of that hotel’s competitive set
ADR Index
ADR of a selected hotel/ADR of that hotel’s competitive index
RevPar Index
RevPar of a selected hotel/RevPAR of that hotel’s competitive index
Room Mix
The ratio of room types contained within a hotel

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