The term “Yield Management” was first coined in the airline industry and with the objective to manage the product inventory (seats on a given flight, rooms for a given night), in such a way as to maximise revenue.
In the airline context, “Yield” is expressed in cents per passenger mile, which is not an appropriate definition to be used for non-airline marketeers.
Translated into he hotel situation, “Yield” would be defined by $s per guest room rental time (night, hours) by room type, quite comparable to the retail definition of $s per square metre per time period.
Preferably Yield Management should be called Revenue Management or Inventory control, since it is revenue, not (airline) yield to be maximised. Yield or Revenue Management is not new to Hoteliers, since identical rooms have been sold for premium prices during the high and peak season and for lower prices during low season and weekends. This was done by more or less experienced staff with varying talent to anticipate overall demand at certain days, weeks or periods of the year for a limited supply of rooms.
Yield Management (or Revenue Management) is a discipline appropriate specifically to hotels, but also to many other sectors of the service industry, -such as condominiums and mixed use estates- operated as hotels.
“Market Segment Pricing” (price differentiation) is combined with statistical analyses to expand the market for the service and increase the revenue “yield” per available unit of capacity.
It is a set of demand-forecasting techniques, optimisation models, and implementation procedures which together determine which reservation requests to accept and which to reject in order to maximise revenue.
A number of academics define “Yield” as the product of occupancy and “Price Efficiency”. Price Efficiency is defined by dividing the average rate sold by the rack rate.
Example:
Rack rate: $ 200
Occupancy: % 50
Achieved average rate: $ 100
YIELD = OCCUPANCY RATE X PRICE EFFICIENCY
Y = 50/100 x 100/200 = 25%
Maximum Yield is achieved when 100% of capacity is sold at rack rate:
Y – 100/100 x 200/200 = 100%
In view of Yield Management objectives, hotels, condominiums and mixed use estates should not focus on occupancy versus ADR, but rather look at the “real” YIELD, i.e.
REVENUE PER AVAILABLE ROOM (REVPAR):
ROOM REVENUE PER DAY OR PERIOD OF STAY
NUMBER OF ROOMS AVAILABLE PER DAY OR PERIOD
Average revenue per room sold neither takes unsold rooms into account nor changes in room supply (renovations, new construction) nor does it tell management, whether it is making or loosing money.
Average cost per available room per period can then easily be compared with average yield per room (REVPAR) per period and thus profit (margin) or loss per available room per period.
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ASEAN HOTELWORKS operates across the ASEAN region, and specializes in resort and asset management, pre-opening services for hotels, condominiums and mixed-use estates. These services include structuring, setting up of rental pools, M&M and sinking fund management and administration. FF&E (Fixtures, furniture & fittings) sourcing and purchasing, SOE (Standard Operating Equipment) sourcing and purchasing. Design input for both front and back of the house, feasibility studies, marketing & business plans, budgetting, recruitment.
www.asean-hotelworks.com
Twenty years of Hotel Management experience mostly in the Kingdom of Thailand.
