Room Division in Hotel Industry
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Division of room is one of the most important task that is performed in hotel industry because at operational level significance of this task is very high. Current report explains about the various tools such as revenue management, forecasting and statistical tool, which can include occupancy percentage, average daily rate etc. Five season hotel is a company operating in hospitality industry (Bennett and et. al., 2011).
They have large number of customer database in many countries. They are known for quality service and different variety of rooms that are available in their hotels. Their mission is to provide proper facilities to the customers who book and reside in their hotel and they want to expand their business in many countries. They believe in offering competitive price, so every class of customer can afford their services and memorable experience can be given to them (Hall, Timothy and Duval, 2012).
It is essential for hotel business organizations to sell their room to customers and charging a right price. This is one of the complex and competitive tasks to set a price which can provide desired profits and revenue. Therefore, the company is required to use various tools and approaches in order to manage their revenue and profitability in an effective manner (Yoshioka and et. al., 2012).
It is a technique which used to increase revenue in various sectors such as hotels, airlines etc. In the context of given case, the firm can use this method in order to increase maximum revenue by selling their room to its customers. In hotel industry, daily room performance is based on occupancy percentage or average daily revenue. For this, company can use various strategies like discounting in order to increase occupancy rate and revenue (Fortier and et. al., 2011). This process is known as revenue and yield management.
Potential Average Single Rate
PASR formula = Revenue at 100% single occupancy/ Number of room sold
PASR= 55*3000/180 = 2062 (Approx.)
Potential Average Twin Rate
PASR formula = Revenue at 100% Twin occupancy/ Number of room sold
PASR= 55*2800/180 = 850 (Approx.)
Potential Average Double Rate
PASR formula = Revenue at 100% Double occupancy/ Number of room sold
PASR= 70*4000/180 = 1555 (Approx.)
It is related with the price discrimination strategy where cited business organization can charge different rates from its customers for the same category of rooms. These prices can be set according to the customer needs and their behaviour as well as they provide discounting rate for advanced booking (Kuninobu and et. al., 2013).
This is another strategy which can be used at the time of overbooking by hotel manager in an effective manner. In the peak season; number of customers is too high due to which it is required to cancel advanced bookings.
In the hotel industry, customers can be divided into different classes according to their needs and behaviour. For example, the business entity can divide their rooms in to economic, corporate and luxurious class. It will help to generate maximum revenue and profitability which is the common goal and objective for each and every firm (Koc and et. al., 2014). Apart from that, there are various sales approaches which can be used by business corporation which are given as below:
It is a situation where the total number of rooms are reserved in the peak season. In this situation, it is essential for hotel businesses to use revenue management schemes in order to increase firm’s sales and profitability (Shekelle and et. al., 2011). Therefore, this is the responsibility of hotel manager to analyse historical data and calculate maximum overbooking level in the hotel.
With the help of such tool, they can attain 100% occupancy rate which is too significant in the accommodation service sector. Overbooking practices also help to increase the efficiency which can lead to earn higher profits and overcome the potential risks on their business (Law, Buhalis and Cobanoglu, 2014).
This is another approach which can be used by the company in order to increase their revenue and sales. In this tool, manager can provide reward system to its customers. With the help of such program, they can influence buying behaviour and purchasing decision of its customers. Apart from that, they can also provide discount or pre-booking services in the peak season (Landgraf and et. al., 2012).
Forecasting can be defined as a tool of management which helps the organisation to make an attempt to cope up with the uncertainty that can arise in the future. This is to plan in advance from the data available from past records and in the present context. Forecasting starts with some basic assumptions on the basis of company's experience, judgement and knowledge (Fortier and et. al., 2011).
This can be for short or long term both. Some of the techniques that are being used in analysing the trends of forecasting are Delphi method, exponential smoothing, moving average, regression analysis and so on. Statistical data in context of literal meaning can be understood as the area of mathematics which focuses on collection, organization, analysis and interpretation of numeric data.
Statistical analysis is the major parameter of data interpretation (Huang and et.al., 2013). Comparison of both the aspects that are comparing actual performance with projected one is given below as the performance indicators for last three years:
From the above presented data, it can be seen that there is an adequate percentage of increment in the performance. In the year 2014, occupancy percentage was 70%, in 2015, it was 75% and in 2016, it is recorded to be 80%. Talking about the project sale and revenue; given below is the table representing entire data of 2015 and 2016.
|Sales||192 rooms||180 rooms|
After analysing the above data, it is found that the projected target of the firm. But, there is gradually a good attempt of it.
It is used for measuring the performance of an organisation. To achieve long term success, continuous evaluation of performance is needed so that mistakes can be checked at the point of their generation. There are four performance indicators included in this file which are as follows:
Occupancy percentage = Units Rented Out/Total Units
= 84% (Approx.)
It is one of most important ratios which reveal success or failure of a hotel. It shows the number of rooms that are filled and vacant in the hotel. In general, 75% is considered to be good performance but there is no fixed rate to decide good or bad ...because of different size and structure of hotel and their policies.
Out of 215 rooms available in hotel, 180 are occupied which means occupancy ratio is approximately 84% which is good as the majority of rooms have customers. This will also assist company in gaining a strong market position in industry and they will have sound base for the future operations of business (Yoshioka and et. al., 2012). These data show that Company occupancy percentage is quite good which can provide a good opportunity in the near future.
Average Room Rate (ARR)
ARR= Total Room Revenue/ Total Room occupied
= £3327 approximately
Single room rate = 3000 per room
Twin room rate = 2800 per room
Double room rate = 4000 per room
Calculation of total revenue:
Single room = 3000*55 = 165000
Twin room = 2800*55 = 154000
Double room = 4000*70 = 280000
Total revenue = £599000
It is not necessary that a hotel which has more rooms will earn high revenue because in hospitality industry, rooms have different prices according to their location and facilities provided. ARR is calculated by many hotels so that they can find average revenue that they have earned from total rooms occupied by customers. Five season hotel has earned £599000 as total revenue from 180 rooms that are occupied by consumers. This means that they have earned £3327.77 from every room.
Average Daily Rate
ADR= Room Revenue/Room Sold
= ££3327 (approximately)
Rates of room changes according to their demand and supply because in favourable season, company charges more price for a particular room as compared to off season price. This rate is related to the price of room on daily basis. To calculate ADR, cited firm needed to consider total revenue and rooms sold (Bennett and et. al., 2011). £599000 is the amount that is earned by hotel from selling 180 rooms for a particular period of time.
This means that they have earned approximately £3327 per room for a selected period of time. This shows that revenue management of the company is quite good where they can earn maximum revenue by using appropriate strategy in an effective manner.
Revenue per Available Room
RPAR= Average Daily room rate*occupied rate
= £2795 (Approx.)
This performance metric assists in calculating revenue that can be earned from vacant rooms. To calculate this figure, cited firm needs to consider average daily room and occupancy rate. £3327.77 is approximately an average daily room rate of hotel and its occupancy rate is 84 which means that they have 2794.68 as their RAR.
From the above report, it can be concluded that room allotment is essential to provide quality services to customers. There are various ratios and techniques through which decision regarding price of room can be taken. There are many types of rooms that are available in a hotel as well as their prices are decided according to the facility offered in that room. Also, it has been assessed that price of room changes time to time because of favourable and off season in hotel.
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