Pearson New International Edition International pcl tp indd 1

REVENUE MANAGEMENT
FIGURE 6
ADR by market code for the Altoona Hotel (300 rooms) for January 200X.
Feature
Examples
Location
Near convenient parking
Beachfront
Bayfront
Secluded area
Newly renovated area
Restricted floor or area
Lower floor
Upper floor
View
Sunrise
Sunset
Beach
Bay
Other desirable view
Amenities
Larger square footage
Unique square footage configuration
Special room amenities
Corner rooms
All inclusive rates
Other
Special decor
In-room spa
Hospitality package (including robe, slippers, complimentary in-room movies,
and newspaper)
Market code
Rooms sold
ADR
Total revenue
Transient
3,000
$125
$375,000
Group
1,000
$ 85
$ 85,000
Contract
2,000
$ 70
$140,000
Property total
6,000
$100
$600,000
Total rooms available 
9,300 (31 
×
300)
Occupancy % 
64.5 % (6,000 rooms 
9,300 rooms)
RevPar 
$64.52 ($600,000 
9,300 rooms)
FIGURE 5
Typical room features used to create alternative room types.
287

---

RevPar is computed by dividing the total number of rooms available for a select-
ed time period into the total room revenue achieved during that same
period.
Therefore,
the computation in Figure 6
is shown to 
be $600,000 
9,300 
$64.52. (Note that mathematically the same result is
achieved by multiplying ADR times occupancy rate; in this example, $100 
×
64.52
percent 
$64.52.)
As can be seen in Figure 6, the proportion of rooms sold to various market codes
significantly affects total RevPar. Group rooms and specially contracted rooms are
typically sold at a rate lower than the hotel’s overall ADR. This can be a good strat-
egy when the additional occupancy levels gained (rooms sold) offset any negative
effects of reduced overall ADR. When, however, lower-rated rooms are sold instead of
higher-rated rooms that could have been sold, RevPar is affected negatively.
To illustrate, assume that the Altoona is located near a professional baseball
stadium. The hotel typically sells out ($150 rack rate) during the professional
team’s Saturday night home games. A representative of a visiting baseball team
inquires about renting 50 rooms at a reduced group rate to house the team during
its next Saturday night game. If the Altoona agreed to do this, it would no doubt
depress the ADR at a time (Saturday night) when the hotel could normally sell
out at full rack rate. The revenue manager will likely decline this business based
on the impact the market code ADR (group) will have on total RevPar: The sale
of the lower-rated group rooms would simply displace the sale of higher-rated
transient rooms.
As more rooms are sold at rates below the hotel’s overall ADR, more rooms must
be sold to maintain or improve total RevPar. As a result, the proper proportion of a
hotel’s rooms to be set aside for sale to transient guests and group guests or by spe-
cial contract should be the subject of serious discussion in regular meetings between
the DOSM, FOM, revenue manager, and general manager. In many cases, DOSMs
are rewarded for increased group sales. Therefore, they often seek additional room
allotments for groups. Conversely, FOMs are most often rewarded for their efforts in
selling transient rooms, so they want as many rooms for this market code as possible.
In these cases, the revenue manager must remain objective. Four principles will help
revenue managers in allocation discussion of market codes:
•
Maximize room sales whenever possible to the market code that will generate
the greatest RevPar not the highest ADR or occupancy rate.
•
Allocate rooms to heavily discounted groups or contract clients only when
those rooms would likely go unsold.
•
Consider the impact that market allocation decisions will have on all of the
hotel’s revenue generators.
•
Consider the long- and short-term impact of market allocation decisions.
To illustrate these principles, let’s return to the example of the visiting baseball
team. First, make these assumptions:
•
The team is seeking the hotel’s $85 group rate.
•
The visiting team will arrive on Friday night (the day before the game) and will
depart on Monday morning (the second day after the game).
•
The team will consume all meals (Friday night through Monday morning) in
the hotel’s banquet facilities.
•
The team plays 15 games per year in the city, and only 3 of them are on weekends.