Hotel Revenue Management

Hotel sector attracts scholars to study the revenue management program. The industry sells perishable goods to meet the change in customer preferences and tastes. Scholars, managers and business owners strive to establish optimal revenue management programs to achieve optimal customer satisfaction and rooms occupancy. Industry competition is high inducing creative, innovate and technology-driven yield management strategies the necessity of business continuity. InterContinental Hotel in Adelaide, Australia, from the assignment one is the suitable selection for the report. This report develops a revenue yield strategy for the entity. It discusses the firm’s target markets, factors, optimal strategies, and recommendations to achieve optimal revenues through maximum customer satisfaction. Yield strategies incorporate six important components of revenue optimization: pricing policy, room inventory control, computerize revenue management system, optimal decision-making, market segment revenue contribution analysis, and performance evaluation in terms of the research progress, popular theme, shortcoming, and trends (Huang, 2005).

InterContinental Hotel in Adelaide, Australia

            It was incorporated in 1985 and currently serves the luxurious class of customers in Australia. It is one of the largest hotels in the city offering accommodation, beverages, and entertainment services. Its stable internet connection, ample parking space, and lucrative swimming pool are the tourist attraction points to the country.

Business Description

            Industry

            The last two decades was the boom period for the hotel operators in Australia. In 2025, the industry analyst estimates tourist spending will reach $165billion. The Australian cultural and heritage sites increased tourists form 45% in 2017 to 55% in 2018. The industry annual growth rate from 2014-2018 was 2.4% and industry revenues reported was $8billion. It also reported 3865-star hotels in 2017 and greatly increased competition. Loyalty customers, flexible workforce and access to highly skilled employees are factors contributing to the improved industry performance.

            The recruiting, talent retention and a high cost of operations are the main challenges facing the industries from studies conducted. Change in customer preferences and tastes, increase in competition and wastages contribute to industry revenue losses. It faced challenges from the increased penalties, increased credit card commissions and tax compliance cost. Overall, the majority of industry players were satisfied with the Australian industry laws and regulations with positive confidence in the direction of the sector in the country.

            Products

            InterContinental Hotel provides accommodation services, food and drinks, and catering services as its main products. Premier rooms, club rooms, and type of foods are product brands for attracting and retaining the customers to the hotel. Teleconferencing and seminar services conducive environment creation is anchored on stable and reliable internet connectivity of the place. It conforms to the Australian health standards by providing baby care, smoke-free property, and an outdoor pool. Domestic and foreign tourists are attracted by the mini-bar and coffee rooms availability. In addition, it offers cocktail parties, entertainment services, and private lounges as auxiliary products.

            Size

            Riverside, Japanese Cuisine situated at Shiki and Adelaide Wines is one the four signature restaurants of the hotel. Each restaurant has about 370 rooms with high-speed internet connectivity and a beautiful décor. It is the biggest subsidiary of the InterContinetal Group Australia with 15,000 employees.

            Revenue and Yield Management

Earnings Before Tax  Interest  (EBIT) of the industry was at $648million and  $720.5milion was the hotel’s target.  The actual EBIT reported was $760million which was above the targets and indicates the firm ’s progress in achieving profit. In terms of revenue, the InterContinental Group reported a total of $1.784billion in 2017 against $1.715billion in 2016. This shows that the organization is very efficient as there is a positive growth rate over the years (Datamonitor 2017). The InterContinental Adelaide revenue was 30% of the InterContinental revenue and the hotel reported a revenue of 1.784=$0.5352billion in 2017, 0.31.715=0.5145billion in 2016. This demonstrates that the hotel is a steady growth in revenue collection and performance. Yields differed depending on the seasons such as holidays and non-holidays. For example, during holidays, it is peak season for InterContinental as the customer traffic doubles.

During peak seasons, the organization hires part-time workers who supplement the full-time employees so as to reduce the cost of production and maximize yields. For example, dry seasons begin in March and ends in August are characterized by many festivals and travels, the hotels experience high customer traffic and demand (Datamonitor 2017). The low seasons are witnessed during winter which is experienced between December and March. During this time, Australia is generally cold and the hotel experience low customer traffic and there are relatively low yields. The hotel ensures that it breaks-even by retrenching part-time workers so that the wage bill can be sustainable.

Capacity, utilization of capacity and cost structure

            The hotel grows and its capacity increases yearly. For example, it has four affiliated restaurants and each restaurant has about 370 rooms plus other facilities such as ample parking space, coffee cafes and nightclubs (Datamonitor 2017). The organization employed 67% of its staff on a full-time basis while 33% are on part-time that are based on the demand which changes from time to time. The costs structure of the organization consists of both fixed and variable costs. The fixed costs are not associated with the sales volume or the increase in the size of the organization. Examples are wages to employees, corporate tax to the government, land, building, sales and marketing costs, interest on loans. Variable costs are associated with the sales volume and the growth of the business. For example, InterContinental hotel experiences the has the following variable costs food, beverages, and house supply, guests supply, printing supply, laundry, and transportation among others.

Analysis of the direct competitors

The hotel forces stiff competition from well-established hotels in Australia and other countries around the globe. For example, the direct competitors are Wyndham Worldwide, Marriott, Belmond and Hyatt Hotels (Emerald Group 2012). These Hotels have ample parking space, spacious nightclubs and they have adopted the cost-cutting strategy through the use of advanced in technology and this competition has made InterContinental Hotel come up with competition strategies such as intensive advertising and use of the online platform to reach more customer and solve customer issues in real-time.

Market segment

            The Hotel targets market segments such as the International tourists that come to Adelaide and other parties of Australia. The organization gets 45% of the revenue from international tourists (Datamonitor 2017). The organization also targets domestic travels especially on the youth which accounts for 50% of the organization’s revenue. Other market segments are international students, nature tourists, and culture and heritage tourism.

Analysis

Market

            The competitiveness in the market drives the use of information technology to determine the market trends. Its customers change in preference and taste has made the organizations use the data analytical tools. The organization spends a huge amount of money in the marketing of its products. Marketing is different from closing sales. Ineffective in marketing strategies ensure low revenues an organization achieves.  Marketing strategies for the organization are in-house marketing and online marketing.

            In-house marketing involves the advertising of the products to in-house guests. In-house guests are first customers to a business. Using television advertisement in rooms to promote other products than accommodation increases revenues. Television adverts to run for a period of 30seconds to ensure a customer is not inconvenienced in the stay. The placing of postcards in rooms promoting superior rooms, coffee rooms, restaurant happy hours and entertainment services increases revenues. Front office team and service team proactiveness in upselling the hotel products. Upselling skills increases revenues of beverages, selling above the room rack rate, promoting laundering services and attaining customer retention.

Information Collection

            The information is collected through questionnaires. Questionnaires are filled the industry players to determine the level of competition. In addition, the provide the benchmark for the company to evaluate its performance. Interviews to collect data is minimal. From the data collected it was found that 73% of the respondents had the view that competition has greatly increased over the last two decades. The reason for the increased competition was highlighted as a growing foodie culture which accounts at a rate of 31.3%, many people wanted to own the business and this contributed to the increase in competition by 30.3%, population increase accounts for 19.7%, higher consumer demand also resulted in the increase in competition by 7.6%. There were also other factors that led to increases in a competition such as an increase in consumer income that caused the increase in purchasing power. On business growth, 67% of the respondents expected their business to grow over the next five years while 53% of the respondents expect to increase their number of staff in the coming years (Datamonitor 2017). Among the respondents interviewed, 98% of the respondents expected their business to grow or to remain the same of the years. Generally, there is an increase in business performance in the hotel industry in Australia. The top three investment plan in the industry is marketing, people, and furniture at 65%, 72%, and 56% respectively.

            Strategies

            Price discrimination among the various guests achieves optimal revenues. It is applied to customers through inventory control to rooms. Amenities such as mini-bars availability in rooms, contents of minibars, air conditioners, direct check-in, and room service facilities are used. Guests have different financial positions. The financial capacity of guests is determined easily by the room type and stay duration. The guests who stay for longer periods in superior rooms is advisable to sell the rooms at the rack rate. The discount rate is also applicable to frequent customers.  In addition, allowing guests to pay for their stay after stay is a privilege advanced to financially able guests.

            Guest special days such as birthday and anniversary recognition ensures follow up by the sales team. Entertainment of them during their special days fosters good relationships. The business of the hotel is to ensure that the customers are satisfied. In addition, it creates a good image to in their minds. The image improves brand reputation creating repeat business. They spread the message to others via online platforms. The word of mouth of customers achieves a higher market impact than marketing by the marketing team.

Accountabilities

            The marketing and sales department are accountable in ensuring effective implementation of the strategies. It facilitates through data analysis of the customers’ preferences and tastes. These results are shared to the front office and service teams to ensure they meet the specific needs. The identification of the specific needs of each guest ensures optimal customer satisfaction. The department is responsible to develop the key performance indicators of the guests day duration. Revenue managers are accountable for the online optimal room rates. They study the trends of the market to ensure the rates reflect the market demand. When the demand is high, the use of high room rates to attract profitable guests. High demand implies guests are willing to pay premiums for available rooms. They need to take advantage of this to ensure an optimal revenue yield.

Conclusion

            The industry is very competitive for the firm. The implementation of the strategies achieves more revenues. Implementing the strategies with departmental heads held responsibly ensures its success. The finance department is involved in the development of performance measures such as revenue per available room, consumption per guest, average room rate, and guest per room ratio. It plays the role of monitoring, controlling and taking corrective action needed in a timely manner. The front office teams maintain the guest satisfaction index report to elaborate the utile of the property. The guest feedback complaints reports are also maintained to achieve a proactive response mechanism.

            Hotel is recommended to adopt technology to drive its forecast in markets. Systems such as Opera, Fidelios from Novacom have improved the operations of hotels. In addition, they ensured the hotels remained competitive in the long run.

References

Datamonitor.2017. InterContinental Hotels Group PLC. New York, NY: Datamonitor.

Emerald Group. 2012. Building better business practices at InterContinental: Using music to

            improve core brand positioning.2010. Strategic Direction, 26, 10, 9-11.

Huang, Y.H., 2005. The Latest Study and Analysis of Hotel Revenue Management. Tourism

            Tribune, 5.