Pearson New International Edition International pcl tp indd 1

FRONT OFFICE SEMANTICS
ADR index:
Ratio measure computed as
In an evaluation of an ADR index, it is especially important that a hotel’s com-
petitive set is truly competitive. If, instead, a hotel’s competitive set comprises
hotels that are inferior to the hotel being evaluated, the resulting ADR index will
be artificially inflated. Similarly, a hotel whose competitive set consists of properties
REVENUE MANAGEMENT
Occupancy index
Assessment and recommended action
Far below 100%
Management is ineffective. ADR is excessive for the market. Action:
Reduce rack rate.
Below 100%
Management is less than effective. Actions: Evaluate weekday and week-
end ADR index; closely examine sales efforts.
At (near) 100%
Management is effective. Action: Consider eliminating discounts for most
popular room types during high-demand periods to test the hotel’s ability
to maintain the index.
Above 100%
Management is less than effective. Action: Immediately eliminate dis-
counts for most popular room types during high-demand periods.
Far above 100%
Management is ineffective. ADR is too low. Action: Increase rack rates on
all room types at all times.
FIGURE 10
Occupancy index evaluation.
ADR of sele
cted hotel
ADR of that hotel
's competitive set
=
ADR index
299

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that are in a significantly higher market segment (with higher average selling rates)
will find that achieving an ADR index of 100 percent or higher may be very difficult
or even completely unrealistic. Figure 11 details the evaluations typically made 
when examining a hotel’s ADR index.
In addition to helping revenue managers evaluate the effectiveness of rate strate-
gies, the ADR index can help them know when to modify rack rates. Consider the
data from the Altoona Hotel in Figure 12. A review of the ADR indexes reveals 
that, recently, the Altoona has not increased its rates at the same pace as has its com-
petitive set. In fact, the hotel has seen its ADR index slip from a three-month ending
high of 102.52 in 200X (column G, line 14) to just 98.52 in 200Z (column G, line
16). From reading the report, it is not possible to determine precisely why the
Altoona has, for only 4 of the past 13 months, been able to retain its rate premium
and/or improve its ADR index (see column H, lines 1, 2, 5, and 10) The hotel’s rev-
enue manager can determine, however, that revenue managers in the competitive set
hotels have been more aggressive in increasing rates. Note also that the rate decrease
relative to competitive hotels has occurred despite the fact that, for the three months
of August, September, and October of 200Z, the Altoona did show a positive ADR
increase from the prior year (see column D, line 16). Therefore, although the Altoona
has been somewhat effective in increasing its ADR from levels of prior years, it is los-
ing ground to its competitive set. The overall trend in the Altoona’s ADR index is a
downward one, and this deserves management’s careful attention.