TRM73001 Revenue And Yield Management For Tourism And Hospitality

TRM73001 Revenue And Yield Management For Tourism And Hospitality

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TRM73001 Revenue And Yield Management For Tourism And Hospitality

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TRM73001 Revenue And Yield Management For Tourism And Hospitality

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Course Code: TRM73001
University: Southern Cross University

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Country: Australia

Question

Requirements
You are required to prepare a critical and in – depth analysis on your contribution you made to optimise your hotel profit over the past two years. The report should 1/ discuss the tactics / strategies you have applied to achieve your year 2 target(s) and its impacts and 2/ benchmark your hotel performance (year 2) against the year 1 performance, other hotel teams and hotel industry performance (STAR) with supporting evidence from the HOTS simulation. Each student should select one aspect of revenue management , for example, rate management, distribution channels , advertising, financial stability, social media etc. , to focus on. Additionally, y our report should 3/ reflect the experience s you learnt through working with your revenue management team and 4/ recommendations for your hotel manager.
The recommended report includes the following items, but not limited to:
Title page (SCU cover is not required)

Hotel name
Student name (student ID )

Report

State the purpose of your report.
Justify the aspect of revenue management you selected to discuss , for example, rate, overbooking, advertising, social media, target market, calendar of events, F&B, gross profit etc.
Recall the target which you set in your business plan year 2 i.e. select one target only
Explain (What) and justify (Why) the decision ( s ) i.e. tactics/strategies you made to achieve your set target .
Compare * your achievement/ impacts/ outcome/benefit with

Your set target – Business Plan Y ear 2 (i.e. discrepancy)
Your hotel performance Year 1 (increase or decrease)
Hotel industry ( Comp s et – indexes : MPI, ARI, RGI ), if relevant

Discuss your contribution and/o r lessons / experiences, you learnt through working with your revenue management team
Recommendations for your hotel manager to implement in year 3 (related to your discussed strategy) .

Answer

Reflective paper: Revenue and yield management
Introduction
Hotel Sydney remains one of the most famous destinations in this part of town. The number of visitors could be attributed to the attractive suites in addition to the quality of services offered. It is however a fact worth noting that the hotel, like any other in the industry faces a number of inconsistencies in the flow of revenue (Abrate and Viglia, 2016). Based on a comparative study of the financial performance of the hotel for two different years, I shall give an account of the noted improvements or declines in revenues in the various departments within the hotel. By supporting the arguments with facts from HOTS, the strategies which could be responsible for the improvement in performance shall also be extensively outlined with references to specific parameters. This reflective report shall therefore entail a critical analysis of the Hotel’s performance by benchmarking the two different but consecutive years. I shall also include an outline the individual efforts which could have contributed in the improvements in performance by comparing the outcomes of the current year by the initially set targets. Additionally, this reflective report focuses on advertising as the main tool for revenue management. Consequently, the personal experiences gained during the process shall also be indicated before ending the report with a list of recommendations for the hotel management on some of the strategies which could be implemented in order to enhance effective revenue flow and performance improvement.
Strategy Justification
In order to achieve my set target, I settled on advertisement as the most appropriate revenue management strategy. This approach was picked due to the vast impacts that it has on various parameters with the hotel. The merits that come with proper advertisement are numerous. The strategy does not only enhance the consumer awareness about the products and services but also stabilizes sales by ensuring a consistent market presence (Alderighi, Nicolini and Piga, 2015). I also picked on advertisement due to the fact that various avenues can be used to implement the marketing strategies. These include the use of online platform to complement other standard procedures. The comparison in the statistics is a sure indication of improvement which in turn affirms the effectiveness of the chosen tactic of revenue management.
Comparison of achievements/Impacts of RM strategy

 
 

Current Year

 

Last Year

 
 

$

 

$

Revenue

 

 

 
 

  Rooms

 

448,309

 

444,696

  Food & Beverage

 

228,442

 

225,215

   Other Operated Departments

 

40,674

 

39,721

  Other Revenue

 

0

 

0

 Total Revenue

 

717,425

 

709,632

Expenditure

 

 

 
 

  Rooms

 

116,981

 

111,668

  Food & Beverage

 

133,478

 

130,820

  Other Operated Departments

 

30,307

 

29,679

  Administrative & General

 

34,773

 

34,027

  Sales & Marketing

 

21,083

 

17,064

  Property Operation & Maintenance

 

92,868

 

90,522

  Utilities

 

20,624

 

20,183

  Property Taxes & Insurance

 

15,788

 

15,552

  Bank Charges

 

2,308

 

2,357

  Interest Expense

 

9,997

 

11,506

  Depreciation

 

110,249

 

121,896

Total Expenses

 

588,456

 

585,274

Income before Income Taxes

 

128,969

 

Statement of Income from HOTS
Total Revenue
By comparing the two years, it can be deduced that the total revenue of the hotel improved by about 0.01% which is comparatively a positive deviation. Despite its marginal value, the improvement in the hotel’s revenue could be attributed to the efficient advertising strategies which played a crucial role in increasing awareness among the consumers about the packages offered in the hotel (Aubke, Woeber, Scott and Baggio, 2014).
Out of the total revenue, the percentage of room was 62% while the percentage of the food and beverages was approximately 31% of the total revenue. The room percentage increased by 1% from 61% which had been recorded the previous year.  The statement above therefore reveals an improvement in the room income. The improvement was as a result of the enhanced quality of services to the customers which in turn enhanced their loyalty hence stabilizing the market base for the rooms. Additionally, online advertising strategies were used to inform the prospective customers of the available room services and varying prices. The advertising approaches played a crucial role in increasing awareness among the clients. The statement of income above however indicates a marginal improvement in the sales of foods and beverages. A comparative analysis of the two years reveals a slight improvement of about 0.02% hence the need for the implementation of more effective marketing strategies in addition to quality and price control.
The F & B gross profit is 146, 014. This is a slight improvement on the previous year’s grows profit which was 144,940. Despite the registered improvement in the profit margin by comparing the two years, I can note that this change is not satisfactory. The minimal change in profit indicates that the management strategies aimed at enhancing the sales of food and beverages at the hotel were not effective enough in achieving their objectives. With reference to retained earnings, an increase in the earnings has been registered. In order to achieve this, the expenses were greatly minimized and reduced after critically analyzing the past balance sheet in a bid to identify the specific areas which could have brought about overspending. 

 

Current Period

Year-To-Date

 

 
 

Current Year

Last Year

Current Year

Last Year

 
 

$

%

$

%

$

%

$

%

Revenue

 
 
 
 
 
 
 
 
 

  Rooms

 

448,309

62.5

444,696

62.7

5,289,990

61.5

5,386,158

61.2

  Food & Beverage

 

228,442

100.0

225,215

100.0

2,807,514

100.0

2,893,066

100.0

  Other Operated Departments

 

40,674

5.7

39,721

5.6

510,416

5.9

528,210

6.0

    Total Revenue

 

717,425

100.0

709,632

100.0

8,607,920

100.0

8,807,434

100.0

Departmental Expenses

 
 
 
 
 
 
 
 
 

  Rooms

 

116,981

16.3

111,668

15.7

1,439,690

16.7

1,468,408

16.7

  Food & Beverage

 

133,478

18.6

130,820

18.4

1,654,804

19.2

1,708,808

19.4

  Other Operated Departments

 

30,307

4.2

29,679

4.2

376,723

4.4

391,531

4.4

    Total Departmental Expenses

 

280,766

39.1

272,167

38.4

3,471,217

40.3

3,568,747

40.5

Undistributed Operating Expenses

 
 
 
 
 
 
 
 
 

  Administrative  General

 

37,081

5.2

36,384

5.1

472,859

5.5

488,323

5.5

  Sales & Marketing

 

21,083

2.9

17,064

2.4

273,112

3.2

318,734

3.6

  Property Operation & Maintenance

 

92,868

12.9

90,522

12.8

1,123,247

13.0

1,171,305

13.3

   Utilities

 

20,624

2.9

20,183

2.8

253,698

2.9

264,489

3.0

Total Undistributed Operating Expenses

 

171,656

23.9

164,153

23.1

2,122,916

24.7

2,242,851

25.5

Income Before Fixed Charges

 

265,003

36.9

273,312

38.5

3,013,787

35.0

2,995,836

34.0

Fixed Charges

 
 
 
 
 
 
 
 
 

  Fixed Charges

 

15,788

2.2

15,552

2.2

204,100

2.4

212,593

2.4

  Interest Expense

 

9,997

1.4

11,506

1.6

139,016

1.6

168,208

1.9

Total Fixed Charges

 

25,785

3.6

27,058

3.8

343,116

4.0

380,801

4.3

Net Operating Income

 

239,218

33.3

246,254

34.7

2,670,671

31.0

2,615,035

29.7

Summary operating statement (HOTS Website)

(Averages for period shown)

 

Room Occupancy (%)

50.3

Standard Room Occupancy (%)

43.97

Executive Room Occupancy (%)

96.96

Suite Occupancy (%)

98.57

Average Room Rate $

123.40

   Weekday Standard($)

114.20

   Weekend Standard($)

133.59

   Weekday Executive($)

150.00

   Weekend Executive($)

165.00

   Weekday Suites($)

201.79

   Weekend Suites($)

220.00

   Contract ($)

0.00

   Conferences ($)

106.94

   Groups ($)

42.48

Indicator averages (HOTS Website)
Rooms’ occupancy
From the tables above, it can be deduced that the room occupancy for the previous year was 49% while the recorded room occupancy for the current year was 50%. This indicates that the room occupancy increased by 1%. The increase in occupancy could be attributed to the increase in number of visitors to the hotel. The data also indicates that the executive rooms had more occupants compared to the case for standard rooms. There are two explanations to this positive deviation. First, the advertising strategies have been enhanced over the past 10 months by harnessing every possible avenue to inform the prospective customers of the packages offered at the hotel. Secondly, the quality of services was adjusted by introducing new procedures aimed at customer satisfaction and retention. These strategies have led to customer loyalty which can be confirmed by the outlined statistics (Bilegan, Brotcorne, Feillet, and Hayel, 2015).
The MPI currently stands at 18.63 which is an improvement from the previous years since the value then was 18.58. The revenue per available room has also increased from 61 in the previous year to 62 in the current year. The average daily rates as well as the RGI remained fairly constant over the months owing to the little emphasis laid on the short term objectives on sales improvement.
Marketing
The average Market Image Index increased from 49 to 50 indicating a deviation of 1. Similarly, the Public Awareness Index increased from 38 to 40. With respect to marketing related expenses, the percentage of revenue spent on marketing can be approximated at 0.02%. The amount is comparatively low as the strategy here involved minimizing expenses as much as possible. Adequate marketing resulted in positive impacts as the hotel was able to receive an increased number of visitors due to increase in awareness. The minimized expenses equally served well to ensure the hotel registered a good return on investment at the end of the financial period (Board and Skrzypacz, 2016).
Graph comparing the Market Image index and Public Awareness Index for the two years
(Kimes and Wirtz, 2015)
In summary, the stated targets were as 75% improvement in revenue during the summer season and a 58% improvement for the winter season. This implies that the average target at the beginning of the year was 66%. Based on the analytical comparison of the two years above, it can be deduced that the percentage improvement in revenue was 62% which is only 4% shy of the original target. Despite the fact that the target was to reached, the statistical records indicate that the revenue management strategy was effective in enhancing better sales and minimizing related expenses (Solnet, Boztug and Dolnicar, 2016).
Lessons and experiences
The period provided an excellent platform for learning. Through the meetings, it was possible to learn from the other members of the team, identifying the strengths and hence making use of each other’s unique abilities to gain the best. The experience also helped to build my team management as well as communication skills (Bodea and Ferguson, 2014). The group comprised individuals with varied personalities hence obtaining a common ground required the right approaches. Finally, the interaction with the other members of the group enabled me to establish new insights especially those that are associated with management. It was not only an interesting experience working with different people but a good avenue for learning as well.
Conclusion and recommendations
This reflective paper was basically aimed at analyzing the impacts that the revenue management strategy would have on the total revenue at the hotel. The arguments above reveal the fact that advertisement which was the chosen strategy played a pivotal role in increasing the market image of the hotel and its products thereby increasing the number of visitors. However, the fact that the registered improvements were only in small margins reveals the need for more effective measures that could be used to complement the current strategy in a bid to improve sales further (Di Foggia and Lazzarotti, 2014).
Consequently, the following recommendations are presented to the hotel management:

The management ought to explore other strategies of enhancing market presence. This could be achieved through product and service variation, variation in prices as well incentives to loyal customers.
The management ought to continuously work on minimizing expenses through constant evaluation of the performance indicators to identify the less effective areas which tend to increase process costs/expenses.
There is need for staff empowerment through motivation and training. This enhances the quality of services offered at the hotel which in turn improves the rate of customer retention.
The management may also need to vary its cuisine and hence provide the customers with a wide variety of food and beverage options to pick from.
There is need to replace the existing facilities with new ones as this forms part of quality assurance and ultimate customer satisfaction.

References
Abrate, G. and Viglia, G. (2016). Strategic and tactical price decisions in hotel revenue management. Tourism Management, 55, pp.123-132.
Alderighi, M., Nicolini, M. and Piga, C.A. (2015). Combined effects of capacity and time on fares: insights from the yield management of a low-cost airline. Review of Economics and Statistics, 97(4), pp.900-915.
Aubke, F., Woeber, K., Scott, N. and Baggio, R. (2014). Knowledge sharing in revenue management teams: Antecedents and consequences of group cohesion. International Journal of Hospitality Management, 41, pp.149-157.
Bilegan, I.C., Brotcorne, L., Feillet, D. and Hayel, Y. (2015). Revenue management for rail container transportation. EURO Journal on Transportation and Logistics, 4(2), pp.261-283.
Board, S. and Skrzypacz, A. (2016). Revenue management with forward-looking buyers. Journal of Political Economy, 124(4), pp.1046-1087.
Bodea, T. and Ferguson, M. (2014). Segmentation, revenue management and pricing analytics. Routledge.
Di Foggia, G. and Lazzarotti, V. (2014). Assessing the link between revenue management and performance: insights from the Italian tourism industry. Measuring business excellence, 18(1), pp.55-65.
Fiig, T., Cholak, U., Gauchet, M. and Cany, B. (2015). What is the role of distribution in revenue management?–Past and future. Journal of Revenue and Pricing Management, 14(2), pp.127-133.
Kimes, S.E. and Wirtz, J. (2015). Revenue management: Advanced strategies and tools to enhance firm profitability. Foundations and Trends® in Marketing, 8(1), pp.1-68.
Solnet, D., Boztug, Y. and Dolnicar, S. (2016). An untapped gold mine? Exploring the potential of market basket analysis to grow hotel revenue. International Journal of Hospitality Management, 56, pp.119-125.

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