basic introduction of yield management and how to measure it

1. PRESENTATION
ON
YIELD
MANAGEMEN
SUBMITTED TO :- SUBMITTED BY :-
Dr. SANJEEV KUMAR MOHIT KHATRII (5308)
T
MHM 3RD SEM

2. INTRODUCTION
Yield management is the technique which is used to increase the
room revenue. In hotel industry yield management is also sometimes
called revenue management. Hotel’s daily performance like most of
other industries is evaluated on the basis of either occupancy
percentage or average daily revenue. The tariff may be reduced or
discount percentage may be increased to increase the occupancy but
it may not increase the revenue in the same proportion.
Some hotels prefer to keep the tariff low in order to increase the
occupancy percentage and on the contrary some hotels prefer to
increase the tariff in spite of low occupancy percentage.
The most appropriate room tariff will be which gets the maximum
possible revenue and maximum possible occupancy percentage and
this is called yield management.

3. Concept of yield management
Airlines were the first industry where the yield management concept
used. In face any industry which deals in perishable product the
yield management concept is very useful. Like airlines, this concept
is more popular in hotels, restaurants, car rental, bus rental, cruises,
railways etc.
Yield management is based on supply and demand formula. As and
when the demand increases the supply the price increases and on the
contrary if demand is less then the supply then the price decreases.
During off season low price booking is accepted but during peak
season only high price booking are taken. In peak season even up
selling is recommended.

4. The demand forecast assists front office manager whether the price
should be lowered or increased, and whether a reservation request
should be accepted or refused in order to maximize the revenue.
Hotel’s manager biggest problem is that neither they can increases
the supply of rooms in case of more demand nor they can store it and
sell on the following days in case of rooms left unsold on a
particular day.
Yield management control forecast information in three ways to
maximize revenue and these are:
1. Capacity management
2. Discount allocation
3. Duration control

5. Capacity Management: Cancellation at last moment and no-shows
can never be eliminated. Capacity management means over booking.
With experience front office decides that how much over booking
should be done so that cent percent or more than cent percent
booking may be achieved.
In case of over booking, it is always safe to request the similar hotels
near by to hold few rooms in case of emergency and overflow of
guests holding guaranteed/confirmed booking can be diverted to the
other hotels and hotel can pay for their cab fare and even difference
in room tariff.
Capacity management also include determining how many walk-ins
should be accepted on the day of arrival based on expected
cancellations, no-shows, late arrival and early morning departure.

6. Discount Allocation: Discounting means selling rooms at a price
lower then rack rates. Room is a perishable product. It is better to sell
it at discount then to keep it vacant. Moreover a room sale will also
increase the food sale. If possible hotel can offer high value rooms at
the single or double room rack rate instead of giving discount on
single or double room.
Duration Control: in case on certain date say 10th October only a
few rooms are available but on the dates before say 7th, 8th, 9th and
after that date say 11th, 12th, 13th rooms are available then hotel may
refuse a booking request for 10th October only. Hotel will prefer to
sell rooms for 10th October if there is a demand for some other days
as well either before 10th or after 10th October. This will help hotel in
optimizing room revenue. But if all the dated from 7th October to 12th
October most of the rooms are sold and there is a reservation request
for 10th October only then hotel may accept it as other dates are
already booked.

7. MEASURING YEILD
Example :
Objective: Yield Calculation
Rooms – 300
ARR – 2000
100 single rooms sold as single @ 3000/-
100 single rooms sold as double @ 4000/-
200 double rooms sold as single @ 3500/-
200 double rooms sold as double @ 4500/-

8. FORMULA-1
Potential average single rate (PASR)
Revenue at 100% single occupancy
PASR = ---------------------------------------------
Number of room sold as single
3,00,000+7,00,000
PASR = -------------------------------
300
PASR = 3,333.33

9. FORMULA – 2
Potential average double rate (PADR)
Revenue of 100% double occupancy
PADR = -----------------------------------------------
Number of room sold as double
4,00,000+9,00,000
PADR = ---------------------------------
300
PADR= 4,333.33

10. FORMULA- 3
Double occupancy percentage/ Multiple occupancy percentage
Number of room sold as double
Multiple occupancy percentage= ------------------------------------------
Number of rooms sold
If occupancy is 70 %
105
Multiple occupancy percentage = ---------- x 100
210
= 50%

11. FORMULA- 4
Rate spread
Rate spread = potential average double rate – potential average single
rate
Rate spread = 4,333.33 - 3,333.33
= 1,000

12. FORMULA- 5
Potential average rate
Potential average rate = (multiple occupancy percentage x rate spread)
+ potential average single rate
Potential average rate = (50/100 x 1000) + 3,333.33
= 3,833.33

13. FORMULA – 6
Room rate achievement factor
Average daily rate
Achievement factor = -----------------------------
Potential average rate
2,000
Achievement factor = ----------- x100
3,833.33
= 52.2%

14. FORMULA – 7
Yield
Yield = occupancy percentage x achievement factor
Room night sold actual average room rate
Yield = ------------------------ x --------------------------
Room night available potential average rate
Yield = 70/100 x 52.2/100
= 0.3654
= 36.54%

15. THANK
YOU