Rooms Division Operations

•TV, Radio, Phone. The housekeeper should test the radio and TV and telephone while wiping them off.

•Lighting. The room mustn’t be too dark, the housekeeper should notice all burned-out bulbs.

•Door. Door hardware which does not work properly irritates everyone and is a potential security issue. The room can’t be “vacant and ready” till the time the door is repaired.

•Toilet. If the water continually runs after the flush the problem should be reported to maintenance immediately.

•Vanity and Tub. Sparkling porcelain can make the customer feel the room is extra clean, especially if the faucets are shiny. It is also necessary to watch for stains, drips, or corroded hardware.

•Bathroom Walls. Wall vinyl gets dated quickly, when it begins peeling or wearing out, a guest does not like the hotel. Privacy is important to many guests, so bathroom door must work properly.

The Housekeeping Department often takes the first steps to maintenance functions for which engineering is ultimately responsible. There are 3 kinds of maintenance activities: routine maintenance, preventive maintenance, and scheduled maintenance.

Routine maintenance is the general upkeep of the property, occur on a regular basis. Examples include sweeping carpets, replacing light bulbs, cutting grass, shoveling snow and other activities. Many of these routine maintenance activities are carried out by the Housekeeping Department.

Preventive maintenance is ongoing repairs to a facility’s buildings and equipment that prevent breakdowns, slow deterioration, and maintain the quality of the facility. For many areas within the hotel, inspections are performed by housekeeping personnel in the normal course of their duties. Room attendants may regularly check guestrooms for leaking faucets and other items that may call for action by engineering staff.

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Scheduled maintenance is an upkeep of the property based on a formal work order or similar document. Work orders are a key element in the communication between housekeeping and engineering. When preventive maintenance identifies problems beyond the scope of a minor correction such work orders are filled out and brought to the attention of Engineering Department.

In hotels Maintenance Department is responsible for the following systems:

•Heating

•Air conditioning

•Ventilation

•Electrical systems

•Water systems

•Transportation

•Waste

•Fire safety

•Energy control system

•Communication system.

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Chapter IV

Learning objectives

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1.Explain how yield management assists in maximizing occupancy and room revenue.

2.Appraise the importance of projecting hotel occupancy.

3.Identify the main selling strategies when it comes to reservation sales.

4.Describe the widespread techniques of increasing room rates in hospitality.

5.Review the purposes of installation PMS in modern hotels.

Terms to learn

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Yield management, RM, ADR, stabilized occupancy, noshow, GNS, guaranteed reservation, non-guaranteed reservation, authorization, overbooking, fair market share, bottom line, CAS, market penetration, RevPAR, ROP

1. Yield Management

Traditionally, the hotel industry looked at occupancy as a measure of success.

Demand for hotel rooms is erratic. It means hotels experience significant fluctuations in demand. During the week some hotels achieve high occupancies from business clients, but may be empty at weekends.

In periods of low demand a hotel can reduce some labour costs, but the large majority of other expenses such as administration, energy, maintainance, rent, interest and depreciation are still present. Thus, the need for accurate forecasting and effective marketing to generate revenue is paramount in maintaining and improving profits.

Another indicator of operational success is the average rate per rented room (the average daily rate, or ADR). Yield management puts occupancy and ADR together and, using forcasting based on

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the history of past sales, sets out to get the best combination of occupancy and ADR.

Yield Management, or Revenue Management (RM) involves varying room rates according to the demand for rooms in any given time period, or it is defined as the art of selling the right room to the right customer at the right time and for the right price.

It looks like it makes no sense to sell any rooms at special discount prices. On the other hand, on a night when the hotel is definitely not going to fill, selling a room at a discounted price is better that not selling it at all. Hotels use yield management to take more multiple-night (instead of single-night) reservations during busy periods because multiple-night reservation offers less risk of a vacant room following check-out.

Although yield management is relatively new to lodging, it has been used in other industries: in the airline, car rental, theme parks, cruises.

Why Revenue Management?

•Segmented Market. Hotels typically segment their market (customer base) into a set of categories based on the price each category is willing to pay. Typical categories include the business traveler and the vacation traveler. The time-conscious business executive is willing to pay a higher price in exchange for flexibility of being able to book a room at the last minute while the price-sensitive vacation customer is willing to give up some flexibility for the sake of a more inexpensive room. RM tries to maximize revenues by managing the tradeoff between a low occupancy and higher room rate scenario (business customer) versus a high occupancy and lower room rate (vacation customers).

•Fixed Capacity. A hotel’s capacity is relatively fixed – it is nearly impossible to add or remove rooms based on fluctuation in demand.

•Perishable Inventory. In the hotel industry, hotel rooms are the inventory. A hotel room that remains unoccupied for a night loses all its value for that night. This inventory cannot

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be stored and is lost forever. Because RM tries to manage demand instead of supply, it proves to be good business sense for the hotel.

•Low Marginal Cost. The fixed cost of adding a room in a hotel is heavily capital intensive. However, once the hotel manages to cover its initial fixed costs, the cost of serving an additional customer is low enough that the hotel can sell the room at a lower margin if it wishes. Such a strategy will obviously need to be balanced by one that also seeks to sell the room(s) at higher margins. Thus, the high fixed cost/low marginal cost nature of the business makes price differentiation a necessity – something that is made possible by application of RM.

•Advanced Sales. Usually requests for bookings start early. Therefore, hotels have enough leeway to adjust room prices based on the variation between realized bookings and expected demand. If all hotel rooms are sold at the same time, the hotel does not have the flexibility to adjust prices upward if demand picks up later. The tradeoff occurs when a manager is faced with the option of accepting an early reservation from a customer who wants a low price, or waiting to see if a higher paying customer will eventually show up.

•Demand Fluctuations. Demand for hotel rooms is characterized by crests and troughs, which the hotel factors in during the room pricing process. In peak season, the hotel can increase its revenues by raising room prices, while during lean seasons it can increase its utilization rate by lowering prices. Past data will offer the manager a way to forecast when these periods of high and low demand may occur.

Therefore, the most critical challenge facing the hotel industry is predicting potential capacity, and developing a pricing strategy that will encourage maximum capacity and revenue. Many RM managers prefer to breakdown the actual business scenario into four sub-problems, and then identify and individual solution to some or all of these sub-problems. This would significantly reduce the number of potential non-optimal decisions thereby providing fewer choices, leading to quicker results. These four sub-problems are:

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1.Market Segment Identification

2.Forecasting and Pricing

3.Inventory Allocation

4.Overbooking

Market Segment Identification. The identification of the various market segments for the hotel room is followed by implementation of a different pricing scheme. An RM system helps hotel create additional price-points by building physical and logical fences around the different market segments, for example:

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Demand Forecasting. The next step is forecasting demand and pricing of the different market segments. Pricing and demand are inter-related and need to be coordinated. In the hotel industry, demand for a room is cyclic in nature (day of a week, months of a year) and follows a trend (demand growth due to economic growth). These forecasts are seldom precise but provide the decision-maker with an approximate set of inputs that are used in the planning process. RM models help pinpoint demand by minimizing uncertainty and producing the best possible forecast.

Allocation. The next step is the allocation of hotel rooms among different market segments. The ratio of discounted versus full priced rooms is not fixed during the reservation period; it is tweaked appropriately as the date of stay approaches. Thus, when a customer approaches the hotel for a discounted price, the manager needs to evaluate this scenario with the expected revenue from another customer who might come at a later date, willing to pay a higher price for the same price.

The manager would accept the request only if the discounted price now is more than the expected price at which the room might be booked by the second customer. The key word here is expected.

Overbooking. It is the practice of intentionally selling more rooms that are available in order to offset the effect of cancellations and no-shows. Studies estimate that although a hotel is fully booked, about 5–8% of the rooms are vacant on any given date. Poor overbooking decisions can prove to be very expensive for the hotel. In the short run, it is only a loss of room revenue, but over the longterm, casualties may include decreased customer loyalty, loss of hotel reputation, etc.

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2. Projecting Hotel Occupancy

Stabilized Occupancy

New hotels have an assumed two-to-five-year buildup in occupancy. After that period, occupancy is considered stabilized. Stabilized occupancy refers to the level that a hotel must achieve to be profitable over the economic life, including any stages of buildup, plateau, or decline. For example, a hotel generates 100% occupancy from business travelers Monday through Thursday, and 30%, 35%, and 45% occupancy on Friday, Saturday, and Sunday, respectively. So the approximate occupancy of the hotel is 73%.

Historical Factors

One of the best ways to predict future outcomes is to look to the past. History is defined as the documented record of historical data. Looking at how a hotel performed in the past is a good way of predicting how it may perform on a given night in the future. History can apply to many things. The group salespeople look to a group’s history in determining how many rooms will actually be used in relation to how many they have committed to. With determining availability, history can guide decision-makers in limiting the pure guesswork. Sometimes referred to as “wash factors”, historical factors are vital to an accurate determination of availability. Without history, the following historical factors would be unsubstantiated guesses.

1.Early arrivals. Making an allowance for guests who check in before they are due helps ensure that availability is as accurate as it can be.

2.Early departures. Along the same lines as early arrivals, allowing for a certain number of guests who check out earlier than expected is important in determining accurate availability.

3.Cancellations. Guests may cancel a reservation for many reasons. No hotel can say with absolute certainty how many reservations will be cancelled, but a good historical record of past years can give a fairly good determination.

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4. No-shows. Within transient room sales, there are two types of ways a reservation is held for a guest. (1) Non-guaranteed reservation is a lodging reservation for which the guest has not offered guaranteed payment, usually held until some set time in the evening, and then given to someone else if needed. A reservation can be held on an arrival-time basis. This means that the hotel and guest have agreed that if after a certain time the guest has not arrived, the reservation is released. Typically, these types of reservations are held until 4:00 to 6:00 p.m. Once that reservation is cancelled, the guest assumes no liability. The hotel is then free to sell that room to another guest. (2) A guaranteed reservation is held for a guest the entire night. The guest will guarantee arrival by providing a credit card number when the reservation is made. Both the hotel and guest understand that the credit card will be charged, whether it is occupied or not. A guaranteed reservation that is not occupied is called a guaranteed no-show (GNS). Because these reservations actually charge the guest, they are counted as occupied rooms even though no one slept in the room. Whatever type of reservation it is, availability is affected by these no-shows.

5. Stayovers. Guests who stay longer than planned must be accounted for in some way. History is the only good way of predicting how many may do so.

6.Out of order rooms. Rooms that are held out of inventory for any reason diminish the number of rooms available for sale. Again, they do not affect occupancy calculations because no guests actually stay in them.

7.Walk-ins. At any given time, a guest may arrive unannounced looking for a room. Although history can shed some light on how many walk-ins to expect, the many variables that affect this number make their prediction difficult. Market factors such as compression of demand, weather, transportation disruptions, and others can affect the number of walk-ins.

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Fair Market Share

Fair market share is the ratio of a hotel’s available rooms and the total number on the market. For example, if there are 1,600 rooms in the market , with 300 belonging to the Stutts Hotel, the fair market share would be 300 divided by 1,600, or approximately 19%.

The actual market share is calculated by multiplying the number of rooms by the occupancy percentage and then dividing the number of occupied rooms by the total number of occupied in the competitive room set. For example, if the Stutts Hotel achieved an 80% occupancy, it would have 240 occupied rooms. If the total competitive room set of 1,600 was averaging 1,200 occupied rooms, the hotel would have an actual market share of 20% (240 divided by 1200).

Market Penetration and Competitive Indexing

Market penetration is a growth strategy to boost sales of current products by more aggressively permitting the organization’s current markets. Market penetration is calculated by dividing the hotel’s actual market share by its fair market share. If the hotel has an actual market share of 20 percent and a fair market share of 20% it means that the market penetration is of 1.0.

Competitive indexing reflects the number of days per year that a single room in a hotel is occupied. For example, if the occupancy rate of hotel A is 80%, Hotel B is 70% and Hotel C is 81%, the three hotels can be ranked by multiplying their respective percentages by 365 days (number of days in an operating year). In the above example, the competitive index is as follows:

•Hotel A – 292

•Hotel B- 255

•Hotel C – 295

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