33 terms

HBM 491 Exam 1

HBM 491 Exam 1

Terms in this set (...)

size of hotel
# of rooms in hotel
for annual (x 365)
percentage occupancy
rooms sold / rooms avail OR RevPAR / ADR
percentage multiple occupancy
(# guests - # rooms sold) / rooms sold
average room rate (ADR)
total room rev / rooms sold OR RevPAR/occ % OR or Occupancy %/ADR
average rate per guest
room rev / guests
room rev / rooms avail OR ADR x occ %, usually on daily basis
total rev / size of hotel (annual), total rev / annual rooms avail (daily), usually on annual basis
GOP / size of hotel (annual), usually on annual basis OR =GOP/Available (Daily)
3 KPIs (key performance Indicators)
occupancy, ADR, RevPAR
occupancy index
(propety occupancy / comp set occupancy) x 100
ADR index
(property ADR / comp set ADR) x100
RevPAR index
(property RevPAR / comp set RevPAR) x 100, this is the ultimate measure of revenue management
occ index < 100%
management ineffective, evaluate sales team efforts
occ index > 100%
evaluate ADR index, consider eliminating discounts to increase rates
ADR index < 100%
management ineffective, evaluate rate structure
ADR index > 100%
evaluate occupancy index, consider offering discounts if necessary to increase occupancy
RevPAR index < 100%
evaluate ADR and occupancy indexes
RevPAR index >= 100%
management effective, outperforming competitive set
traditional room pricing strategies
rule-of-thumb method, Hubbart room rate formula, square foot calculation. focus on the needs of the enterprises not on the needs of the guests
Modern room pricing strategies
Competitive pricing: Charge what the competition charges
Follow the Leader Pricing: Charge what the dominant hotel in the area charges
Prestige Pricing: Charge Premium price, justify it w/ better product and service levels
Discount pricing: reduce rates below those of competitors w/o considering operating costs
shortcomings of rule-of-thumb method
considers only historic construction cost, not current operating expenses; assumes 70% occupancy
shortcomings of Hubbart formula/square foot calculation
ignores operating cost and net income projections; inward-looking, ignores current market conditions; assumes a certain occ %; makes assumptions about other depts; only calculates ADR but not rate for specific room types. • It is inward looking at what the hoteliers need, rather than outward looking at market conditions (what the customers need)
• Many assumptions are problematic
Law of supply
when demand is held constant, increase in supply leads to decrease in price
Importance of operating statistics
Ratio results can be compared to budgeted or planned ratio goals
Purpose of comparative analysis
- Determine the subject hotel's market position
-Increase the hotel's profitability
Criteria for selecting competitive set
-A group/set of competing hotels whose performance serves as a standard of comparison
-Physical location, characteristics, ADR, Franchise, Market Segment
Fair market share (FMS)
rooms available/total rooms available
Actual market share (AMS)
rooms occupied/total rooms occupied
Market share in revenue (RMS)
total hotel revenue/(competitive set rev/hotel rev)
Rule-of-thumb method
The average room rate should equal $1 per $1,000 of construction cost
• $14 million / 200 rooms / $1,000 = $70
Hubbart room rate formula
Net Income + operating expenses + taxes, insurance and leases + depreciation= Total (NI + costs) - less income from other sources other than rooms = room revenue needed to meet goal(a)
--> (a)/annual rooms available/occupancy %=ADR required to meet goal
Square foot calculation
Room Revenue / Square footage x occupancy % = daily required revenue per square footage
Limitations of Square foot Calculation