Revenue Management Procedure in the Hotel Industry

Question: Discuss about the case study Revenue Management for Procedure in the Hotel Industry. Answer: Introduction: The report is prepared to demonstrate the daily room-rate ascertainment procedure in the hotel industry. As other product and service industries, the room rate of any hotel is calculated on the basis of the total operating cost of the hotel. In addition to the operating cost, there are some important factors, such as competitors pricing, which are also taken into consideration for ascertaining the room rate (Noone et al. 2013, pp 207-220). Newcastle is one of the famous sea-sight tourist spot in Australia. Hotel industry is one of the major revenue-generating sectors for this city. Therefore, in this report Newcastle has been selected as the place of operation. Selection of Time-Period: In the hotel business, the volume of revenue greatly depends on the weekends and holidays. It has been observed, especially in the tourist spots, like Newcastle, that demands of the rooms use to be higher in the weekends and holidays as more tourists like to visit in the tourist spots on these periods (Legohrel 2013, p 236). Therefore, the hotels charge higher rates and try to earn high volume revenue as much as possible in these periods and reduce the rates on weekends or in the weekdays or the off-periods by offering different forms of discounts and schemes to attract the tourists (Kimes 2016, pp.247-251). The three weeks period for the demonstration is from 25th September, 2016 to 15th October, 2016. This period has been selected as there are two holidays on 26th September as Family Community Days and on 3rd October as Labor Day. Moreover, in most of the provinces of Australia, from last week of September to first week of October, there will be school holidays. Hence, in this period the daily rates of the hotels in Newcastle are expected to fluctuate greatly (Australia.gov.au, 2016) Selection of Competitors: There are many categories of hotels in Newcastle, which differs from each other in terms of service and quality. As specified in the case study, the hotel belongs to 5-star category. Therefore, it would be better to compare it with either 4-star or 5-star category hotels. Amongst many such hotels, Travelodge Newcastle, Noahs On the Beach and The Gateway Inn are selected for the comparison. Rack Rate Projected Rooms Sold: Rack rate is the maximum rate of the rooms, determined on the basis of costs, additional benefits and competitors rates. It is the rate, which is offered to the customers without any discount (Croes and Semrad 2012, pp 769-779). In most of the cases, the hotels do not charge the rack rate. They rather use it as the maximum price range of its service (Liu et al. 2014, pp 148-157). The highest room rate is $256, charged by Noahs On the Beach (Beach, 2016), while the highest prices of Travelodge and The Gateway Inn are $189 (Newcastle, 2016) and $230 (Gatewayinn.net.au, 2016) respectively. Therefore, it can be assumed that the average rack rate of the 5-star hotels in that area would be average of the highest rates, plus, 10% minimum discount, offered normally by the hotels (Enz et al. 2012, p 8). The calculations are shown below: Particulars Amount Highest Rate: Travelodge Newcastle 189 Noah's On the Beach 256 The Gateway Inn 230 Average of Highest Rate 225 Add : 10% Discount on Rack Rate 25 Potential Rack Rate 250 The projected numbers of rooms sold are determined on the basis on assumptions. Revenue Grid Forecasted Average Rate:- Own Hotel Competitor's Rate Average Rate per Day Projected Revenue Date No. of Rooms Available Projected Nos. of Room Sold Occupancy Percentage Rack Rate Potential Average Rate Travelodge Newcastle Noah's On the Beach The Gateway Inn A B C=B/A D E=DxC F G H I = (E+F+G+H)/4 J = I x B 25th September 200 180 90.00% $250.00 $225.00 $139.00 $152.00 $170.00 $171.50 $30,870.00 26th September 185 92.50% $231.25 $112.00 $190.00 $190.00 $180.81 $33,450.31 27th September 175 87.50% $218.75 $136.00 $190.00 $190.00 $183.69 $32,145.31 28th September 120 60.00% $150.00 $136.00 $190.00 $190.00 $166.50 $19,980.00 29th September 100 50.00% $125.00 $128.00 $190.00 $190.00 $158.25 $15,825.00 30th September 115 57.50% $143.75 $152.00 $218.00 $230.00 $185.94 $21,382.81 1st October 175 87.50% $218.75 $189.00 $218.00 $230.00 $213.94 $37,439.06 2nd October 200 100.00% $250.00 $189.00 $218.00 $230.00 $221.75 $44,350.00 3rd October 195 97.50% $243.75 $112.00 $171.00 $170.00 $174.19 $33,966.56 4th October 120 60.00% $150.00 $120.00 $180.00 $170.00 $155.00 $18,600.00 5th October 120 60.00% $150.00 $120.00 $180.00 $170.00 $155.00 $18,600.00 6th October 100 50.00% $125.00 $120.00 $180.00 $170.00 $148.75 $14,875.00 7th October 100 50.00% $125.00 $120.00 $237.00 $195.00 $169.25 $16,925.00 8th October 175 87.50% $218.75 $169.00 $256.00 $195.00 $209.69 $36,695.31 9th October 180 90.00% $225.00 $139.00 $171.00 $170.00 $176.25 $31,725.00 10th October 120 60.00% $150.00 $139.00 $180.00 $170.00 $159.75 $19,170.00 11th October 110 55.00% $137.50 $169.00 $180.00 $170.00 $164.13 $18,053.75 12th October 100 50.00% $125.00 $169.00 $180.00 $170.00 $161.00 $16,100.00 13th October 100 50.00% $125.00 $159.00 $199.00 $170.00 $163.25 $16,325.00 14th October 100 50.00% $125.00 $149.00 $209.00 $195.00 $169.50 $16,950.00 15th October 175 87.50% $218.75 $169.00 $228.00 $195.00 $202.69 $35,470.31 Total $528,898.44 Conclusion: From the above discussion and demonstration, it can be stated that as per the market trend the projected room rates are quite higher in the weekends and holidays than in compared to weekdays. It should be noted that the forecasting procedure is being based on the assumptions and competitors future rates. The room rates can be forecasted more accurately if the actual costs of the hotel and the historical figures regarding occupancy percentage are incorporated in the calculation process also. Reference List: Australia.gov.au. (2016).Public holidays | australia.gov.au. [online] Available at: https://www.australia.gov.au/about-australia/special-dates-and-events/public-holidays [Accessed 20 Jul. 2016]. Beach, Q. (2016).Quality Hotel NOAH'S On the Beach Newcastle Australia. [online] Noahsonthebeach.com.au. Available at: https://www.noahsonthebeach.com.au/ [Accessed 20 Jul. 2016]. Croes, R. and Semrad, K.J., 2012. Discounting works in the hotel industry: a structural approach to understanding why.Tourism Economics,18(4), pp.769-779 Enz, C.A., Canina, L. and Noone, B., 2012. Strategic revenue management and the role of competitive price shifting, p 8 Gatewayinn.net.au. 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