REVENUE MANAGEMENT & CALCULATION

1)   Franco is the RM at the 200 room No-Tell Hotel.  Disappointed in his occupancy rate last year, he decided to reduce room rates this year to help increase sales and improve his RevPAR.  This action resulted in an upswing in occupancy, from 78% last May to 90% this May; and increase of 12.8%.   Last May his ADR was $129.99 and this May it was $118.99.

Last year, Franco’s controllable operating costs were $60.00 per room.  This year they rose to $62.00, an increase of only 3.3%.  Help Franco understand the overall results of his rate reduction strategy by calculating several key benchmarks.

  1. What was Franco’s RevPAR last May?
  2. What was Franco’s RevPAR this May?
  3. What was Franco’s GOPPAR last May?
  4. What was Franco’s GOPPAR this May?
  5. Compare the GOPPAR performance from this year to last. How effective do you believe Franco was in devising and implementing his revenue optimization strategy?
  6. Is the change in GOPPAR just a result of the increase in controllable operating expenses?  What is happening here?
  7. What is the incremental revenue per room for the additional rooms rented this May versus last may?
  8. What is the minimum incremental revenue we would have to achieve to have a positive impact on GOPPAR?

 

2)  Complete the table for the Hotel below.  Comment on the performance of the Novotel.  Is there any reason for optimism?  Do the results give you any indication of the types of revenue management strategies they might be implementing?  What can you say about what is happening in the market?

Occ % Hotel Comp Set Index
This month 65% 68%
Last 3 months 66% 69%
Last 12 Months 68% 70%
ADR
This month  $  149.99  $  141.99
Last 3 months  $  145.99  $  141.99
Last 12 Months  $  139.99  $  141.99
RevPAR
This month
Last 3 months
Last 12 Months

 

3)  Patricia is the front office manager and RM for the 150 room limited-service Best Stay Inn.  She has just taken a call from the RM of a nearby hotel in her competitive set.  Because of an internal oversight, the other hotel is overbooked by 70 group rooms next Saturday.  They would like to purchase 70 rooms from Patricia at their previously agreed walk rate of $75.  The normal rack rate is $129.00.  Currently she has 75 occupied rooms (arrivals and stayovers) on the books for that day.  She estimates that she could sell, at her normal ADR, another 25 rooms by Saturday.

  1. A) Complete the table below.
With Walks Without Walks
Sold
ADR $129.00
Total Revenue Estimate
Daily Room Ancillary Revenue $8.00 $8.00
Total Ancillary Revenue
RevPOR
RevPAR
Total Revenue
Difference

 

Additional question:

  1. B) What is the highest that management controllable (per room variable costs) could be for this to be positive for GOPPAR?
  2. C) Are there any reasons you might accept the walks from Lawrence even if the GOPPAR impact is negative?

4)  Consider a recent hospitality purchase.  Did you get value?  What contributed to that value?  Who influenced the value you received (or didn’t).  Comment on the implications for revenue managers.

 

5)  Researchers have found that normally frugal buyers are, when spending someone else’s money on themselves, often less cost conscious when purchasing than they would otherwise be.  How might what they purchase and the value they get from the purchase change when they are travelling on an expense account versus when they are travelling for leisure?

 

6)  Sherri Lamar is the RM at the 200-room Belleville Harbour Inn.  The Inn has five different room types, each with a rack rate that reflects its guests’ view of each room type’s value.  Sherri knows she cannot upsell guests who stay in her highest rated rooms; however she feels there is good potential to impact her hotel’s revenue performance via upsells to guests who orgininallyreserved one other  four lower-priced room types.  Sherri created and implemented a comprehensive upsell training program for her hotel’s front desk.  The cost of providing the upsell training to the Inn’s eight desk staff was $100 per employee.  At the end of the first week of the program’s implementation, Sherri found that her clerks were successful at upselling approximately one of every ten guests arriving at the hotel.  A summary of the Inn’s guest reservation/actual stay records is displayed below.  Complete the summary for her then provide Sherri with the answers she needs for the questions that follow.

Room Type Rack Rate Nights Reserved Reserved Revenue Actual Night Usage Actual     Revenue
Superior Parlor Suite 299.99 75 75
Parlor Suite 249.99 100 110
Jr. Parlor Suite 219.99 125 140
Deluxe 159.99 250 275
Standard 109.99 450 400
Total Nights 1,000 1,000
Total Revenue
ADR
RevPAR

 

  1. what is the amount of increased revenue as a result of the upsell program?
  2. What is the percentage increase in revenue as a result of the upsell program?
  3. How long will take to payback the investment in training?

 

7)  Consider this example.

“How many rooms do we have left for next weekend?” asked Ben Humphrey, GM of the Lennox Suites.

“165,” replied Hillary, the Lennox Suites’ Front Office manager.

“We got too aggressive,” said Ben.

It was Thursday afternoon, and Ben and Hillary were discussing room pricing for the Friday, Saturday, and Sunday that were now only eight days away. The three weekend days they were discussing coincided with the International Cattle Breeders Association meeting, which was to be held at the convention center in the city where the Lennox was located.

Together, Ben and Hillary filled the role of revenue manager for their property, and they were discussing room rates.

“The organizers claimed their attendance would be higher,” said Ben. “That’s why I felt we should keep the rates at full rack, plus 20 percent, for so long. If we had known their attendance was going to be this soft, we could have backed our rates off earlier. But since we have only 200 rooms reserved as of today, we need to move quickly if we are going to sell our remaining 165 rooms.”

“What do you think we should do?” asked Hillary.

“Let’s take the rates from $299.00 per night to $199.00. Put that on our Web site. If we aren’t fully booked by next Thursday, drop the rates another $50.00 per night. That should allow us to sell out any remaining rooms.”

  1. Consider the buyer’s value formula and the target market. Do you think Ben’s pricing strategy will significantly increase value offered and thus help the hotel sell out?
  2. What impact will Ben’s pricing strategy likely have on the value perceptions of those guests who have already booked at the Lennox?
  3. Is it likely that those guests who have already booked rooms at the Lennox will find out about the new room rates? How would they? If you were Hillary, how would you respond to a telephone inquiry from an “early buyer” regarding the hotel’s willingness to change the rate the guest had agreed to pay previously to the newer and lower room rates?