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Revenue Management at Front Desk

Blog by Divya Thakur connectclue-author-image

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Revenue Management is the procedure of considerate, anticipating and influencing consumer activities in order to make the most of yield or profits from a fixed and a perishable resource. It  was Airline Industry who initiated the concept of Revenue Management. Nowadays revenue management has taken hold widely throughout the rest of the Travel industry as well. More or less all major Hotel, Car Rental Agencies, Cruise Lines and Airlines have developed or are developing revenue management systems.

 Supplementary industries that appears ripe for the application of revenue management concepts includes Golf Courses, Freight Transportation, Health Care, Utilities, Television Broadcast, Spa Resorts, Advertising, Telecommunications, Ticketing, Restaurants and Web Conferencing.

As we know that Airline passengers on the same flight shell out different fares. Post departure of the aircraft, the seats which are not sold cannot engender any revenue and thus can be said to have perished. 

Consequently Airlines industry adopts various strategies to overcome its loss toward unsold seats. For example, airlines can proffer discounts on low- demand flights, Saturday night packages. The contrary, selling more expensive seats when there is excess Demand.

To be more precise, inventory-focused branch of revenue management, yield management involves strategies in order be in command of of inventory to sell it to the right customer at the right time for the right price.

Most of the Hotels have a familiar problem mainly they generate a fixed inventory of perishable products that cannot be stored if unsold by a specific time. For example, if a hotel room is not able to sell by the night of arrival, then that room for that night will not be able to source revenue. 

Occasionally, if reserved guest did not turn up to occupy the room, the blocked room for the guest will not generate revenue and thereby hotel has to incur loss. Therefore hotel's management also espouses various strategies to overcome its loss toward unsold rooms.

In order to shun the risk of cancellations and no-shows, overbooking is very glowing way to follow in hotels. Overbooking is a necessity for any business that accepts reservations. In hotels, the method to put into practice of overbooking requires a fine balance between guest service, operational procedure, and revenue optimization. In favor of hotels with multiple room types, the complexity is multiplied.

 Managers need to anticipate and need to consider the competitive market, future events, previous year's revenue, guaranteed reservation guests, seasonal rate, activities in the city, business guests, Long stay guests etc. The aspiration is to identify the high yield guest- the one who will pay the most and stay the longest, to achieve the highest possible profit.

The front office manager must resolve what rates will be used on a given day. Hotel rooms are sold for not to be trusted prices which depends on the time of the booking of the room. One of the major tactics is to organize Hurdle rate. We all recognize that Rack rate is the highest rate to be given for a guest room, which moreover changes from day to day.
Whichever room price we offer to our clientele cannot exceed its Rack Rate. Usually Rack rates are presented to walk in guests, other than Front office manager must set the lowest rate for a given date based upon the demand. This lowest rate is called as Hurdle Rate. A few rooms can be sold at a price above than its hurdle rate. It might vary from day to day depending upon the hotel?s desired yield and market conditions.

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