Pearson New International Edition International pcl tp indd 1

RevPar_Rooms_Total'>Hotel
RevPar
Rooms
Total
Noel’s
$109.96
1,250
$137,450
JeAnna’s
$ 76.62
1,250
$ 95,775
Total revenue difference
$ 41,675
($109.96
-
$76.62)
,
$76.62
=
43.5
%
REVENUE MANAGEMENT
Noel’s hotel 
JeAnna’s hotel
(250 rooms)
(250 rooms)
Rooms
Occ.
Rooms
Occ. 
sold ADR 
percentage
RevPar
Sold 
ADR 
percentage 
RevPar
Meeting date
(1)
(2)
(3)
(4)
(1)
(2)
(3)
(4)
Day before
205
117.21
82.0%
$ 96.11
158
99.11
63.2%
$62.64
Meeting Day 1
230
135.45
92.0%
$124.61
249
89.53
99.6%
$89.17
Meeting Day 2
226
131.25
90.4%
$118.65
230
91.14
92.0%
$83.85
Meeting Day 3
228
132.22
91.2%
$120.58
248
92.15
99.2%
$91.41
Day after
195
115.21
78.0%
$ 89.86
138
101.51
55.2%
$56.03
Five-day total
Rooms sold
1,084
(sum of column 1)
1,023
(sum of column 1)
ADR
$126.80
(sum of column 2 ÷ 5 days) 
$93.62
(sum of column 2 ÷ 5 days)
Occupancy
86.7%
(column 1 ÷ 250 rooms)
81.8%
(column 1 ÷ 250 rooms)
RevPar
$109.96
(sum of column 4 ÷ 5 days)
$76.62
(sum of column 4 ÷ 5 days)
Rev Par Difference 
ⴝ
($109.96 
⫺
76.62)/ 76.62 
ⴝ
43.5%
FIGURE 1
Two hotels: two strategies—two RevPars.
264

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This chapter will examine the strategies and tactics JeAnna should have used to
achieve Noel’s results. By the end of the chapter, the revenue manager’s value to a suc-
cessful hotel will be unquestionable.
Revenue Management
Some hotel observers believe that the terms, room rate management and revenue man-
agement are synonymous. They are not. In many cases, revenue managers establish
room rates, but in many other hotels they do not. For example, the hotel’s owners, the
general manager, or the DOSM may dictate the rack rate to be charged at a specific
time or on a specific date. The revenue manager, however, must still “manage” that
rate. In a properly managed hotel, even with an established rack rate, there is no such
thing as a single, inflexible rate for a guestroom. For most revenue managers, the cor-
rect reply to the common question, “How much are your rooms?” is based on responses
to these questions: “Who are you? How many rooms do you want? When do you
want them?”
To illustrate, assume that the FOM (who is also the revenue manager) of the
300-room Altoona Hotel desires a $100 per night ADR and sets the rack rate for the
hotel’s standard room type at $100 nightly. A potential guest wishes to purchase 50
rooms per night for each of the next three Sunday nights. The Altoona traditionally
achieves a 20 percent to 25 percent occupancy level on Sunday nights, so the FOM
wants this business. The guest, however, has a budget of only $80 per night. Should
the hotel accept the business? In the overwhelming majority of cases, the answer
would be yes. Why? The hotel will have the rooms available and can generate an
additional $4,000 each night ($12,000 for the three nights) with the only direct costs
being those required for housekeeping staff to clean the rooms.
Now assume that the Altoona has, for the past five years, experienced a sellout
during the weekend that the state’s girls’ high school softball championships are held
in the city. For that weekend, a potential guest has requested five rooms for two days
(10 room nights) but has a budget of only $80 per night. Normally, the revenue man-
ager would not recommend that the hotel extend a discount, even though the poten-
tial guest will go elsewhere. Why? The hotel will, based on historical data, sell these
rooms to other guests who will pay the $100 rack rate (or more) for them.
Another reason that a revenue manager’s job is complex is because hotels rou-
tinely offer discounts off the rack rates to a variety of entities. For example, to attract
more mature leisure travelers, discounts may be offered to guests who are members of
the American Association of Retired Persons (AARP). Similarly, some hotels identify
other large groups and offer their members specific discounts. One group offered dis-
counts by many hotels is the American Automobile Association (AAA), whose
members merely verify their membership at time of check-in to receive the discount.
AAA uses these discounts to solicit new members on its Web site. (To review cur-
rent discount information, go to www.autoclubgroup.com.) As part of their overall
marketing strategy, Choice Hotels executives have determined that the advantages
gained from offering the AAA discount will more than offset the resulting 10 per-
cent decline in ADR that their hotels will experience by participating in the program.
Other large groups that have traditionally received significant discounts off a hotel’s
rack rates include local, state, and federal government employees, members of the
military, and the clergy.
In addition to discounts for large groups and nonprofit entities, most hotels
empower the revenue manager to approve exclusive rates for select hotel guests.