I. konferenca Združenja hotelirjev Slovenije Posebnosti računovodskega poročanja in Revenue management v hotelirstvu Dr. Gorana Ivankovič, izr. Prof. UP FTŠ Turistica
Benchmark hotelske verige
European Hotel Prices in April 2013 increase by up to 38% following last month’s decrease
Leto 2013 v Sloveniji ¢ V prvih petih mesecih je v Sloveniji padla povprečna stopnja zasedenosti hotelskih zmogljivosti za 10 % v primerjavi z lanskim letom.
Osnovne kategorije v hotelirstvu ¢ Sobe – temeljna kategorija (opredelitev zmogljivosti, % zasedenosti, povprečna cena/soba, GOP/sobo, stroški dela/soba, rezervacijski in distribucijski sitemi, segmentacija gostov, dnevi v tednu po zasedenosti…) ¢ ¢ Hotel – temeljna enota poročanja po USALI Zajemanje stroškov (neposredni, splošni obvladljivi, neobvladljivi) % GOP/Rev ¢ Rev/PAR ¢ ADR ¢ BAR ¢ Yiled percentige ¢
USALI - Za namene predvsem finančnega računovodstva Vpliv ameriških mednarodnih hotelskih verig Enotni standardni sistem računovodskega poročanja na ravni poslovne enote
USALI ¢ POROČANJE PO POSLOVNIH ODSEKIH JE V SVETOVNI HOTELSKI INDUSTRIJI PRISOTNO ŽE OD LETA 1926!
Kaj je USALI ? ¢ Kratica od: ¢ Uniform System of Accounts for the Lodging Industry ¢ Pomeni: ¢ Enotni sistem ¢ računovodskega poročanja v svetovni hotelski industriji
USALI (UNIFORM SYSTEM OF ACCOUNTS FOR THE LODGING INDUSTRY) ¢ KAJ JE TO – Standardi poročanja v svetovnem hotelirstvu in prvi uspešno organiziran poskus vzpostavljanja računovodstva odgovornosti ¢ KJE SE DOBI - Knjiga USALI - X izdaja iz leta 2006, American hotel & Motel Association ¢ OD KDAJ JE V UPORABI - Od leta 1926, začetnik Hotel Association of New York City ¢ KAKO FUNKCIONIRA – omogoča primerjavo dosežkov posameznega hotela s povprečjem primerljive skupine ¢ Koordinira konzultantska hiša “Horwath&Horwath” – World Wide Hotel Industry
UPORABNIKI POROČIL : ZUNANJI IN NOTRANJI (ravni poslovodstva) : najvišje poslovodstvo srednja raven poslovodstva nižja raven poslovodstva USALI VSEBINA POROČILA : VRSTA INFORMACIJ, KI JIH POSAMEZNA POROČILA MORAJO VSEBOVATI ? temeljna finančna poročila notranja poročila (odseki in stroškovna mesta) odvisno od vsebine ponudbe DINAMIKA POROČANJA: dnevno tedensko mesečno letno
RAČUNOVODSKE REŠITVE V HOTELIRSTVU PRI STROŠKIH IN ODHODKIH Hotel mora zagotavljati podatke: z o neposrednih stroških posebej za vsako dejavnost (stroški prodaje, stroški dela in drugi stroški) z splošne spremenljive poslovne stroške (administrativni in drugi upravni stroški, splošni stroški dela. . . ) z stalne splošne stroške (nagrade poslovodstvu, najemnine, stroški zavarovanja, obresti, amortizacija. . . )
RAČUNOVODSKE REŠITVE V HOTELIRSTVU PRI POSLOVNEM IZIDU HOTELA: Čisti prihodki po poslovnih oddelkih - neposredni stroški po poslovnih oddelkih Prispevek I po poslovnih oddelkih - (obvladljivi) poslovni stroški Prispevek II (GOP hotela) - stalni stroški (neobvladljivi) Prispevek III (poslovni izid hotela pred obdavčitvijo)
USALI OMOGOČA ¢primerjanje dosežkov hotelov (mednarodna raven) ¢enotno opredeljevanje kazalcev in kazalnikov za hotele in za posamezne ravni odločanja ¢nagrajevanje poslovodstva in zaposlencev skladno z dosežki ¢podlago državnim inštitucijam za odločanje v turizmu
Temeljni odseki dejavnosti v hotelirstvu
Hiltonova veriga vrednosti
POSEBNOSTI RAČUNOVODENJA KAZALNIKI DENARNI (hotelirstvo - USALI) PRETEKLI DENARNI DOSEŽKI NEDENARNI RAZMERE ZA USPEŠNOST V PRIHODNOSTI - transparentnost - možnost napovedovanja - primerljivost - negativni trendi - kratkoročna naravnanost
Primer dobre prakse
Primer dobre prakse
Finančni učinki Primer: Hotel na letališču 2011 Zasedenost % Povprečna cena Rev. PAR 2012 65 % + 12 % 84, 5 € 83, 5 € -1% 49 € 55 € 58 % + 11 %
Finančni učinki Primer: Letoviški Hotel 2011 2012 Zasedenost % 70, 6 % 76, 1 % Povprečna cena 55 € 52, 5 € Rev. PAR 39 € 40 € +8% -5% +3%
Kdo uporablja YM ¢ letalska podjetja ¢ hotelska podjetja ¢ rent a car podjetja ¢ organizatorji potovanj ¢ organizatorji križarjenj ¢ možnosti bi bile še golf igrišča, gledališča, muzeji, turistične privlačnosti, zabaviščni parki…
Accor group Radisson SAS Forte - Le Meridien Savoy group Thistle group Southern sun group Scandic hotels Concorde group Holiday Inn Grand Hotel Holdings Jarvis Dorint Envergure group Oberoi group Best Western Sofitel Chateaux et hotels de France Sofitel Firenze Ibis Group Milano (7 hotels) Mercure Roma (3 hotels) Metha group (8 hotels) The Charming Group Roma Hotel Milano Eden Roma Barchetta Hotel Villa D’Este Hotel Advance Group Bertolio Hotels Hotel Enterprise Hotel Savoy Majestic Antares Group Ripa All Suites Roma Hotel Milano Bratto Boscolo Group (15 hotels) Gallia Milano. . .
Dejavniki uspeha pri YM ¢ Učinkovita komunikacija med porabnikom in ponudnikom ¢ Ustrezna organizacija poslovanja ¢ Integracija sistema YM z drugimi sistemi ¢ Prosti tok trženjskih informacij ¢ Splošno dinamičen trg
Povpraševanje: Mix elastičnosti Cenovna elastičnost = % ∆ povpraševanja % ∆ v ceni Prihodkovna elastičnost = % ∆ v povpraševanja % ∆ v prihodih Križna elastičnost = % ∆ v povpraševani količin. X % ∆ cene proizvoda Y
Potrebne sestavine YM ¢ Segmentacija trga ¢ Podatki o preteklem povpraševanju, gibanje rezervacij in gibanje povpraševanja po sobah za določeno obdobje ter napovedovanje povpraševanja ¢ Metode in načela oblikovanja cen ¢ Dobro oblikovanja načela prebukiranja ¢ razvit informacijski sistem
Kako se meri uspešnost YM? Yield = Prodane sobe Razpoložljive sobe Yield = Doseženi prihodki Potencialni prihodki x Povprečna cena Najvišja možna cena x 100
Implement objectives Pre-requisits implement Faze implementacije YM Za implementacijo tipičnega YM programa se potrebuje cca. od 2 do 3 leta Q 1 Q 2 Q 3 Q 4 Q 5 Q 6 Q 7 Q 8 Identifikacija potreb Implementacija informacijskega sistema Organizacija, izobraževanje, in nagrajevanja
Koraki YM 1. Analiza podatkov 4. Zbiranje povratnih informacij 2. Predvidevanje 3. Določanje strategij
Delež prihodka v potencialnem prihodku – Yield percentage Dejanski prihodek = Št. prodanih nočitev Potencialni prihodek Št. razpoložljivih noč. X Dejanska povprečna cena nočitve Potencialna cena nočitve
Kako? Na osnovi informacij, ki jih redno spremljamo, kot so: ò pretekle rezervacije in povpraševanja skupin, individualnih gostov , nepričakovanih (walk- in) gostov, slučajnih (chance arrivals) gostov ò pomembni dogodki v okolici ò aktivnosti konkurence ò promocijske akcije
ò ò politiko overbookinga poznavanje vedenjskih značilnosti potrošnikov vremenske razmere itd. . . Te informacije bodo dale prodajnemu timu osnovo za oblikovanje cen svojih storitev
STRATEGIJE YM Ko smo na podlagi informacij predvideli povpraševanje ciljnih skupin je potrebno izdelati marketing mix za te ciljne skupine in strategije pridobivanja teh strank
STRATEGIJE YM pa so: ¢ popusti ¢ segmentacija ¢ paketi ¢ diferenciacija na podlagi dodane vrednosti ¢ repozicioniranje ¢ kratki oddihi ¢ določitev časa bivanja
THE PRICING STRATEGY Strategije oblikovanja cen 34
THE PRICE: A DEFINITION ¢ Price is the sum of the value consumers exchange for the benefits of having or using the product or service. ¢ Further, prices are the only part of the marketing mix that directly create revenue. 35
THE PRICE: FIRST QUESTIONS ¢ 1. 2. 3. 4. 5. 6. 7. What is the price of a room and what is the value? It is very difficult to give an answer because, you need to answer to several other queries first: Where is the hotel? How far is from sea, motorways, the centre of the town? Which period of the year? Which kind of hotel (stars, services, etc. ); Which kind of service (B&B, HB, etc. ); Which kind of room (single, double, suite, etc. ); How many days do you live there? 36
The most common mistakes in Pricing ¢ Prices are too cost oriented. They are increased to cover increased costs and don’t allow for demand intensity and customer psychology; ¢ Price policies are not adapted to changing market conditions. ¢ Prices are set independent of all elements of the marketing mix. ¢ Prices ignore the peculiarities of the customers. ¢ Prices are a decision of management rather than marketing. ¢ Prices are set without to take into account the marketing objectives to achieve. 37
The Variables to make a Pricing Strategy ¢ 1. 2. The variables to create a pricing strategy are: Internal variables; External Variables. 38
Internal Factors ¢ Financial objectives; ¢ Marketing objectives, ¢ Volume objectives; ¢ Fixed and Variable costs. 39
¢ Financial objectives are probably the most dominant objectives in the hospitality industry. ¢ Profit is the one that usually comes to mind first, but built-in profit determination may be hard to achieve in the hospitality industry. ¢ Sometimes, thesis that the higher the price the greater the profit is not true. Infact, high prices alone will reduce volume in most cases. So the operators reduce the price to get the customers with the double effect to reduce the revenue and to depreciate the product. ¢ Another financial objective in pricing is target return on investment (ROI). 40
¢ Marketing Objectives objectives deal with the actions that a hotel must do to affect in a favourable way the demand by price. ¢ One of the marketing goals is to achieve the trust of the customer by clear and steady prices. This goal can be achieved by special rates for high spending costumers. (corporates). ¢ Another objective could be to cut market share from the competition by strong promotional efforts. If a hotel offers a Unique Selling Proposition (USP) can start with the highest price that a high spending segment of customers can bear. In this case, the hotel can avoid the initial discounts. ¢ Another objective could be to desensitize the customer to the price by all included price strategy. This is also called price bundling. 41
¢ Some Volume Objectives volume objectives are: to increase market share and /or customer base, occupancy or seat turnover, and contribution to fixed costs. ¢ In particular, occupancy objectives are very important in the hospitality industry, where fixed costs are high, whereas variable costs are low. Usually, they do not overcome 10 or 20% of revenue. As soon as fixed costs are covered a small earn can bring an important increase of the profit. ¢ The best thing to do to improve the occupancy is not to reduce the price. The best strategy is to use promotional efforts to attract particular segments of customers or to convince the actual customers to stay longer. 42
Fixed, Variable & Semi-Variable costs ¢ Fixed costs do not vary with changes in sales volume. Examples are rent, rates, salaries, insurances, depreciation; ¢ Variable costs vary in proportion to sales. Examples are: foods, beverages and laundry; ¢ Semi-variable: vary in sympathy with, but not in proportion to, sales volume. Examples are: power, telephone and wages. ¢ A hotel can reduce the prices to a certain extent depending on the quality and the amount of service offered. Infact, when the prices are too low the quality of service offered can be seriously affected. 43
External Variables ¢ The market, the actual and potential demand; ¢ The availability of rooms in the area; ¢ The prices and the offer of competitors; ¢ Variables like: inflation, devaluation, downturn, etc. 44
The Market Analysis ¢ A correct pricing strategy starts from a perfect knowledge of the hotel’s market and position in an area and finally, who the competition is. ¢ Who are potential customers and what do they look for? It is very important to know our customers and the potential of development. ¢ It would need to be always up-to-date on current occupancies and arrivals of the area. 45
Competition analysis ¢ It is very important to get the statistics of the competition on subjects such as: number of rooms available, prices, good quality information on products and services offered, types of customers and proposals offered There are some indexes that can help with this analysis. 46
The Fair Share ¢The Fair share is determined by dividing the number of rooms available at each property by the number of rooms available in the market as a whole. 47
The Market Share ¢The market share is determined by dividing the number of property room nights sold by the total market room nights sold. 48
The Fair Share and The Market Share: an example Number of Rooms Available Rooms Percentage Occupancy Rooms Nights Sold Our Hotel 300 109. 500 76. 5 83. 768 Hotel A 454 165. 710 70. 0 115. 997 Hotel B 400 146. 000 75. 0 109. 500 Total 1. 154 421. 210 73. 8 309. 265 06/20/13 49
The Fair Share: Calculations ¢ Fair Share = (Individual property available room nights/Total market available room nights). The amount must be multiplied x 100. ¢ Our example: Our hotel would have a fair share of 26% (109. 500 rooms divided by 421. 210); hotel A would have a fair share of 39% and hotel B 35%. 50
The Market Share: Calculations ¢ Market Share = (Individual property room nights sold/Total market room nights sold). The amount must be multiplied X 100. ¢ Our example: Our hotel would have a market share of 27% (83. 768 room night sold divided by 309. 265); hotel A would have a market share of 38% and hotel B 35%. 51
The Fair Share – The Market Share: Concluding Remarks ¢ According to the suggested example, our hotel’s market share is 1% more than its fair share; the hotel’s A market share is 1% less than its fair share while the hotel’s B fair share and market share the same. These figures show that our hotel is enjoying a small measure of success, while the hotel A is at a disadvantage in the market and the hotel B is just holding its own. ¢ This market analysis is helpful both in terms of tracking area market trends and in measuring the impact of various marketing strategies. 52
The Market Penetration Index ¢ It is the index (based on 100) that allows to verify what is the percentage of the hotel compared to that of the market. You can achieve that by: (Market Share/Fair Share). ¢ If the result is higher than 1 (or you sold more rooms than your fair share) your penetration index compared with that of the market will be growing, differently, will be falling. ¢ In particular, this easy ratio compares effectively the market share that one has to achieve – based on the number of rooms compared with those of the total market. 53
The Competitive Market Analysis Rooms available daily Rooms available yearly % Fair Share Rooms Sold % Occupancy % Market Share Market Penetration Index Our Hotel 85 31. 025 17. 8 20. 083 64. 7 17. 8 1. 00 Hotel 1 140 51. 100 29. 3 32. 748 68. 0 27. 9 0. 95 Hotel 2 69 25. 185 14. 4 13. 213 64. 1 11. 7 0. 92 Hotel 3 124 45. 260 25. 9 29. 814 65. 9 26. 5 1. 02 Hotel 4 60 21900 12. 6 16. 681 76. 2 14. 8 1. 17 Total 478 174. 470 100. 00 112. 538 64. 5 100. 00 06/20/13 54
Price methods ¢Mathematical methods (or costs oriented); ¢Empirical methods (or market and competitors oriented. 55
Mathematical Methods ¢ Cost – Plus Pricing; ¢ Mark-Up Pricing or Percentage Cost ¢ Break-Even Pricing; ¢ Contribution Margin Pricing; ¢ Building Cost Rate Pricing (or 1 X 1000 method); ¢ Method of Inflationary Calculation. 56
Cost- Plus Pricing ¢ This method involves establishing the total cost of a product, including a share of the overheads, plus a predetermined profit margin. A common use in pricing Food and Beverages is to relate the profit margin to the selling price. ¢ Thus if the desired profit is 20% of the selling price, an item that costs € 4, plus € 2 labor and 2 overhead, would be priced at € 10. This results in 2€ of profit for that specific item. ¢ Limitations: Cost plus pricing does not allow for flexibility in pricing decisions, nor does it take into consideration consumers’ perceptions of a product value. This method is totally cost oriented and ignores demand. Further, this method is also subject to mis-allocation of fixed and variable costs which needs to realise the hotel’s service product. 57
Mark-up Pricing or Cost Percentage ¢ This method is heavily used by the restaurant industry. The selling price can be achieved by multiplying the cost of the product by an extablished co-efficient, or a mark-up. If a restaurateur buys a bottle of wine for the price of € 10 and resells it at € 15, his gross margin is € 5. It means that he will have applied a mark-up of 50% of cost and of 33% of the selling price. ¢ Limitations: this strategy is totally cost-oriented; it ignores consumer perceptions of value, particularly in times of widely fluctuating costs; it tends to price high-cost items up to a level that customers are unwilling to pay. 58
Break-Even Pricing ¢ Break-even pricing is used to determine at what sales volume and price a product will break-even, where costs are equal to sales. ¢ It distinguishes between fixed and variable costs. ¢ The break-even point is graphically plotted for prices using the same fixed and variable costs. By plotting the revenue generated at various prices, a comprehensive picture of profit can be created if the demand is known at various levels. ¢ Break-even analysis is a fairly efficient method of determining profit margins at various price levels if sales volume can be accurately predicted at the different price levels. To predict this volume, knowledge of consumer perception and demand is still needed. 59
Break-Even Pricing: An Example 60
Contribution Margin Pricing ¢ This technique is very useful for hotels in soft periods of demand: Rooms prices can be discounted substantially, in order to have them occupied. Even though no profits are made, a portion of the fixed costs that would occur if the room was not occupied would be covered. ¢ The success of this technique must be assessed by examining the total revenues from the rooms sold. After all, selling more rooms at discounted prices may have the same effect as selling fewer rooms at higher prices. ¢ Limitations: this method looks for an increase of occupancy, but, can be very difficult in improving the overall profitability of the hotel. Furthermore, there is a risk is of depreciating the offers. 61
Building Cost Rate Pricing (or 1 X 1000 method) ¢ This is a unique method for establishing the selling price of hotel rooms. Although it should serve strictly as a rule of thumb, it is still widely used as a measure in the hotel industry. ¢ The rule is that the average room rate in a hotel should be € 1. 00 for every € 1. 000 of construction cost for room. Thus if a hotel cost € 80. 000 per room to construct and furnish, the average selling price of the room should be € 80. 00 ¢ Limitations: this rule of thumb is somewhat archaic in today’s world and totally ignores consumer perception and demand. It should be used more at starting point than anything else. 62
Method of Inflationary Calculation ¢ In this case the price is achieved by increasing the amount of the last year by some points of percentage according to the inflation. ¢ Limitations: It takes into account the increase of costs but, it doesn’t consider the market at all. ¢ Further, this method shows the customer only the increase in price, without verifing an improvement in the quality of service. 63
Empirical Methods (or market and competition oriented) ¢ Competitive Pricing; ¢ Perceived- Value Pricing; ¢ Expectation Pricing; ¢ Psychological Pricing. 64
Competitive Pricing ¢ This cannot be considered a real strategy but an habit of several hotelkeepers to set their prices at the same level of the competitors. Basically, prices are set to the level of the strongest competitor in order to defeat it on pricing. ¢ This strategy has been adopted from the firms that are not market leaders, but based just on the idea to offer lower prices than other competitors. ¢ Limitations: this method brings a levelling of prices and services and results in an impoverishment of overall offers available in the area. 65
Perceived- Value Pricing ¢ Perceived-value pricing uses the buyers’ perception of value, not the seller’s cost, as the key to pricicing. ¢ Researchers ask buyers how much they would pay for a hotel room with and without certain amenities. This information provides an idea of which features add more value than they cost. ¢ A successful guest price mix depends on careful study of the behavior profiles of major guest segments. For most hospitality companies, this begins with a separation of guests into leisure and business segments. ¢ Undoubtedly, the most important distinguishing profile characteristics of these two major segments is their relative degree of price elasticity. In general, business travelers exibit a inelastic price behavior and leisure travelers an elastic price response. ¢ Limitations. This method can set a price too high or too low according to the interpretation of demands made. 66
Expectation Pricing ¢ The reference or expected price is that consumers have in mind, is based on some kind of prior experience or knowledge. Reactions to prices will vary around this pricing. ¢ The research says that customers’ satisfaction occurs when the actual experience is equal or greater than that which is expected. ¢ Thus, contrarily, consumers would be also satisfied when the price paid is the same or less than that which he or she is expected to pay for what was received. ¢ Limitations: It is very difficult to understand in a correct way the right expectations of demand this brings the need for continues research of the different segments’ expectations. 67
Psychological Pricing Psychological pricing considers the psychology of prices, not simply the economics. There exists a relationship between price and quality, for this reason prestige can be created by selling products and services at a high price. ¢ Another aspect of psychological pricing is reference prices; these are prices that buyers carry in their minds and refer to when they look at a given product. ¢ Another psychological pricing technique is called price-lining. This technics groups prices togehter so that a perception of substantially increased quality is created. For example, a wine list might have a group of wines in the € 8 to € 10 range and have the next grouping in the € 14 to € 16 range. ¢ Still another version of psychological pricing is called odd numbered pricing. This is a familiar tactic. Items sell at € 6. 99 rather than € 7. 00 to create a perception of a lower price. This tactic is often used in menu and hotel room pricing. ¢ 68
The Hotel’s Rate: A Definition ¢A rate can be defined as the purchasing method of a service sold in a certain period of time; further, it defines the kind of customers that will use this service. 69
An efficient rates’ strategy In order to set a reliable rates’ strategy you need to attend to the following points: 1. What is the rack or standard price? 2. What discounts should be offered? 3. How will prices vary among different markets? 4. How often should prices be changed? 5. What impact should timing have on pricing? 6. What prices should be set for various facilities and services? 7. Should prices be unbundled for different parts of a service package? ¢ What prices should be charged to non guests? 1. Should each item cover costs or produce a profit? ¢ 70
1. The creation of a prices’ list ¢ 1. 2. 3. 4. 5. In order to create an efficient price list there are some rules to follow: It should have a graphics layout consistent with the image of the hotel, for this reason it must be realized from a graphic; The price list should be reprinted every year, so, one can change some photographs in order to present new services offered It should be printed in different languages, and should not be printed just as an edition in four languages; The photos must communicate the atmosphere of the hotel, in order to have a powerfull effect, for example – include people instead of showing just empty places; The paper should be heavy weight; preferably a good quality better cardboard; 71
6. 2. The Creation of a Prices’ List The price list should be easy to read and pleasant to see; 7. The special offers and discounts should be highlited using colors and graphic; 8. The prices’ list should be targeted to different segments of customers; in case the hotel has two different kind of customers, it would be better to prepare two different kinds of the price lists; 9. The prices list should be the same as the method of communication adopted; 10. The prices’ list should contain various methods to promote low season and difficult periods, with attractive phrases such as: (“a surprising stay”; "a golden autumn…” etc. ). 72
¢ 1. 2. 3. 4. The Prices’ List: Concluding Remarks It should be remembered that different types of rooms should be on the price list. They must be clearly highlited and to achieve this goal one can use different colours and symbols; One can use pleasant names, that refer to the identity of the hotel or that refer to items in the surrounding area; One can adopt names that reflect the level of quality offered; They should be well presented with indication of services and features offered at the hotel. 73
The Prices’ List: An Example Kind of Room Occupancy Single Occupancy Double Standard Superior De Luxe Junior Suite € 150 € 180 € 200 € 320 € 360 € 235 € 270 € 300 € 320 € 360 The different kind of rooms must be explained. The rates offered are inclusive of Room + Breakfast+VAT+Taxes and Services One should explain all the different services offered. Check-out time: at 12. 00. All different types of Credit Cards are accepted. 06/20/13 74
A Potential Pricing Strategy Two-tier Pricing Pricing Methods Decisions Cost-Plus Rate of Return Method Primary Pricing Going Rate Decisions Method Secondary Contribution Margin Pricing Method Decisions 75
¢Yield Management ¢Principles & Concepts
Summary ¢ General presentation of Yield Management ¢ The application to different industries ¢ The main concepts and techniques
Why use Yield Management ? ¢ Structural changes : More competition More capacity Market more sensitive to price and more segmented A trend towards deregulation ¢ Increasing load factors but decreasing yields. Results IATA for 1993 to 1999 : + 47, 3 % in traffic - 7, 0 % in yields Source : The Economist
A Definition Yield Management is the practice of maximizing profits from the sale of perishable assets, such as airline seats perishable assets, or hotel rooms, through a combination of pricing and inventory controls Revenue Management Synonyms of YM are : Real-Time Pricing and Inventory Management
YM is applicable in different industries ¢ Airline seats ¢ Hotel rooms ¢ Advertising space ¢ Railway seats ¢ Tour Operator packages ¢ Car rentals ¢ Utilities (electricity supply. . . ) ¢ Retail stores The resulting value of all these products will be zero if they are zero not sold on-time
A discipline poised to explode < 1% Distribution Power supply Automotive Installation Rate (estimate) Health ± 20% Freight Car rental ± 80% Airlines 1980 Transport 1985 Telcos Tour operators Financial services Hotels Media E-commerce 1990 1995 2000
YM involves both price and capacity ¢ Better match supply to demand Demand Scheduling Planning Overbooking Supply Price stimulation Fare differentiation
The Optimisation Cycle - 3 Years - 1 Year - 6 Months - 3 Months Check-in Strategy / Development • Fleet definition • Property acquisition Tactics / Scheduling and pricing • Flight schedule • Fares and conditions • Allotments Operations / Yield and capacity adjustment • Increase/decrease capacity • Close/open sales quota
YM Performance Indicator (Hotels) L. F. Load Factor REVPOR Revenue per Occupied Room REVPAR Revenue per Available Room Yield Management Optimizes REVPAR
YM Performance Indicator (Airline) Revenue per Available seat R / AS = LF (%) Load Factor x Revenue per Occupied Seat R / OS The same performance can be obtained through different load factors and fare policies ¢ A yield index can compare yield index actual result to maximum theorical result : 100 % LF x MAXIMUM FARE ¢ 350 $ 60 % 583 $ 350 $ 70 % 500 $ 350 $ 80 % 437 $
Each application of YM is unique ¢ The Concepts of Yield Management are identical for Concepts any service company ¢ Its Applications differ significantly between Applications companies ¢ The analysis of the Sales Cycle allows to point-out Sales Cycle key differentiation criteria between companies
Hospitality Characteristics ¢ The Market is Huge … ¢ …but fragmented ¢ 356 000 hotels 15 millions of rooms 3, 6 Billions of night stays 1, 6 Billions of reservations Independents : 85% of hotels for 65% of rooms Chains (300) : 15% of hotels for 35% of chambres …with a variety of management schemes Independents Management Contracts Franchised Associations : Best Western, relais du silence Chains
Market Size Hopitality has the strongest potential for growth
Distribution Channel Many Intermediaries Client Travel Agent Rate $100 Commission $10 GDSs Booking fee $3. 5 $20 Many systems, often not properly interfaced, and technologically obsolete Many « fees » affect Rev. PAr Switches Booking fee $2. 5 Call Center Hotel Management fee $4 Net Revenue $80
Customers Travel Agent GDSs Aggregators & Switches Hotel Chains Central Reservation Systems Direct (Phone, email, fax, hotel website, …) Regional/local On-line Aggregators Online Travel Agents Brick & Mortar Travel Agents Sabre Galileo Worldspan Direct (Phone, email, fax, hotel website, …) Switches CRO Call Center Property Management Systems
Hotel Specifics Hotel Chains Properties ¢ PMS’s are THE source of information for both fares and availability PMS CRS ¢ The CRS is the « marketing » center PMS ¢ CRO Call Center Several PMS’s may coexist for one given hotel chain Availability and fares may not be as accurate as in the PMS’s All distribution channels may not have access to the PMS’s and they may not have access to all available fares and to true availability Capacity control is decentralized
Few Standards q q 15 CRS : Rezsolution, Xenon… 60 PMS : Fidelio, Hogatex… A few « PRS » : Opera Switches (mere connections to GDS’s, with little added functional value) : Pegasus, Wizcom There is no IATA for the hospitality
Hotels versus Airlines ¢ Length of Stay Control versus O&D ¢ ¢ ¢ Hotels have yet to embrace the fencing concept ¢ ¢ O&D are more numerous than LOS, but… …Early departure and unexpected stay overs during a flight are not recommended Few Apex or senior/youth fares Bargaining skills of guests can make a big difference Hotels communicate on highest rates…not on lowest Airlines are more flexible in adjusting capacity ¢ ¢ Hotels can’t fly to where customers are waiting A new hotel cannot open suddenly to cope with excess demand
Preconceived ideas. . . ¢ Assume an hotelier wants to improve the yield of a standard room which usually sells at 80 € the night … § His first idea will be to improve the comfort of this room… After W orks. . . 80 € 200 €
And reality. . . ¢ However, if this hotelier cannot sell this room anymore, because it is too expensive for his usual guests, the investment made has served nothing …. …but make him bankrupt !!
How to sell hotel rooms. . . ¢ The basic principle is to sell rooms according to demand not according to the level of comfort Comfort Demand
Facts … 1. The Hotel management makes more or less realistic rolling forecasts, under the pressure of the owner or the headquarter… 2. The marketing people like innovation : new markets, new products, new fares, marketing campaigns… all the better if it serves the revenue optimisation objective… 1. The reservation office answers all reservation requests and try to accomodate them, without necessarily applying all restriction rules … 1. The "corporate" department will try to negotiate as many room nights as possible
And Problems ¢ Conflicting objectives ¢ The human factor A clever reservation manager can A marketing campaign is have a good picture of his hotel launched when the hotel has no business for the next two months room available Group bookings produce high spill of individual demand The front desk is faced up with high walk out rates due to excessive overbooking … But he certainly cannot consider all parameters for the whole year to come Besides, making a good forecast is dependent on the « living memory » of the hotel
How to do well ? ¢ A good forecast must integrate two things Environment Analysis History Analysis Data must be relevant to the hotel and to its environment
Concepts * A good optimisation must produce recommendations based on : Hotel Strategy A good Forecast Intuition is replaced by a scientific blend of probability calculation and capacity optimisation
Concepts * Accepting or denying a group business can be made after an economic trade off between group requests and future individual bookings : A group Materialization analysis Forecast of Incremental Demand
A three part play Optimization Revenue What guest will book when? Forecast Capacity What capacity for a given price? What price for a given capacity? Revenue Management Demand Price
The different controls used in YM ¢ Pricing ¢ Fare/Rate availability control ¢ for multileg flights or hubs or hotel stays Reservations Control ¢ If capacity is limited and reservations cancel or do not show-up Origin and Destination Control or Length of stay ¢ if multiple flights serve the market or if alternative dates/accomodations are possible Overbooking - Capacity management ¢ If multiple fares are offered Open/close or booking limits (sale quotas) Alternate availability ¢ If price is flexible 80 % of the time of yield analysts. . . Group Quotations
Components Data Analyzer • Reservations • occupied rooms • Revenues • denials Models & forecast • Time series • Long term • Dynamic forecast Front-Office Daily capture Centralised Reservation. System Optimisation Recommendations • Booking limits • Overbooking • length of stay Deal Quotation
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