ALLOCATION CONTROLSThe availability

ALLOCATION CONTROLS
The availability controls method, which can be run on computer or manually, takes into account certain availability controls such as minimum and maximum length of stay and closed to arrivals. Of concern here is that overly strict controls will unnecessarily restrict demand while overly lenient controls will result in lost revenue due to low rates.
When Houston hosted the Super Bowl and demand was high, many hotels placed minimum length of stay conditions when quoting rates. This not only helped ensure high occupancy during the event but led to higher occupancy on day leading up to and immediately following the event. The approach also helped ensure that higher-rated business (corporations, teams, celebrities) was not displaced by lower-rated discount-seeking business.
Closed to arrivals business is normally used when the hotel is oversold. People in rooms may be allowed to stay overnight. This eliminates late-night reservations which might be booked at a higher rate; and people with guaranteed reservations are walked to another hotel. This could lead to a significant loss in revenue if the closed to arrival controls are applied too tightly.
AVAILABILITY CONTROLS
This approach is used primarily by the airlines for seat allocation. It basically sets limits on seats in each rate category. The same approach is possible for hotel room. Full-price rooms are always available, but discounted rooms are sold until they run out. For example: If the full-price rate is $225, some rooms would be available at $150, some at $175, and still others at $200. Once the $175 (20 rooms) were booked, the only available prices would be $150, $200, and $225. The less expensive rooms are those that are normally difficult to sell: those across the hall from the elevators, the farthest from elevators, those near the access/egress doors, etc. This method attempts to maximize revenue based on room capacity and demand


SUMMARY
Yield management is typically used in service industries that offer perishable goods such as hotel rooms and airline seats. Yield management was first used by the airline industry after deregulation. Through yield management, a lodging business tries to leverage selling all the available inventory and making the maximum profit possible. If a room is not sold, the lodging business can never make a profit on that room on that night again. Yield management attempts to sell all the rooms at the highest price possible. However, it is not always possible to sell all of the rooms in the hotel at the same price. Using yield management techniques, room price may be discounted to entice people to buy room for a night or multiple nights. A lodging business may also be overbooked to assure that all the rooms are filled even if some people do not show up or cancel their reservation. Yield management systems attempt to use historical data and specialized algorithms to determine the optimal price at which to sell the room inventory. These systems can work in real time and change prices based on demand.
There are some disadvantages to using these systems. The yield management system cannot discriminate. A frequent customer is not given preference, for example. Also, if the system cannot forecast well it will not help maximize revenue. Finally, the historical data needed for forecasting may not be available. Despite these disadvantages, yield management systems are popular in the lodging industry. They have been shown to provide large cost savings and improve revenue.
REVIEW QUESTIONS
What are REVPAR, ADR, Occupancy Rate? What role do they have in determining Revenue Management Formulas?
What three different individuals may be given responsibility for Revenue Management? What are the benefits and disadvantages of each?
What are Allocation Controls? What are Availability Controls? What are the benefits and disadvantages of each?
What type of information must a Revenue Manager have in order to successfully forecast pricing and revenue flow? How is this information collected and over what period of time?
How important is revenue management to the overall financial success of the hotel operation? What departments are usually involved in the revenue management process?
ACTIVITIES
Make an appointment with the Revenue Manager of a full service hotel; ask about the generics of the system that they use. In some cases this may be considered proprietary information, in which case ask questions concerning reports, importance of revenue management, departments involved, and frequency of submitting reports and price changes.
Find out the names of automated hotel revenue management systems (Google). Join www.hotelon-line.com (Free subscription) which is used by many hoteliers. Once online, go to “archives” and type in Revenue Management and hit, “Enter”. This will give the latest articles on Revenue Management.
Make a list of when you should raise prices and a list of when you should lower prices. Remember, you are a manager who is trying to make the property profitable, not just give discounts to make your price-sensitive customers happy.
REERENCES
Ian Yeoman, Anthony Ingold, and Una McMahon, Yield Management: Strategies for the Service Industries (London: Continuum, 2011).
W. Adams, “Hotel Yield Management: New Tools Bring New Opportunities,” horner Technology Report 1 (4): 11-12.
Kent Farrell, Yield Management Bibliography (United Kingdom: International Yield Management Research Society, London, 2004).
J. Caneen, Yield Management and Its Practical application in Hotel (Las Vegas: University of Nevada, William Harrah, 1997).
Kent Farrell, “Yield Management: Strategies for the Service Industries,” International Journal of Hospitality Management 21 (4): 469-471.