Function Space Revenue Management
Cornell Hotel and Restaurant Administration Quarterly Dec. 2001 : Ms Sheryl E. Kimes; Kelly A McGuire Simen A. Kooi 2012
Function Space
Fairly new in comparision to RM in the Rooms Division May account for substantial revenues
Objectives
Optimize the revenue of each time period that the meeting room is available Optimize the contribution per available space per available time RevPASM (revenue per available square meters) ConPAST (contribution per available space time)
RevPASM ConPASM
i.e. F&B contribution margin may be around 25% whereas for function room rental it may be 75%
RevPASM
Euro 5.000 Rev. Euro 5.000 Rev.
in a 100m2 bqt rm in a 125m2 bqt rm
RevPASM Euro 50 RevPASM Euro 40
ConPAST
Euro 2.000 room rent Euro 3.000 F&B Euro 5.000 Revenue X 0,75 = 1.500 X 0,25 = 750 Contribution 2.250
Euro 4.000 room rent Euro 1.000 F&B Euro 5.000 Revenue
X 0,75 = 3.000 X 0,25 = 250 Contribution 3.250
Attributes of RM
Relative xed capacity Demand is variable and uncertain Perishable inventory appropriate cost and pricing structure varying customer price sensitivity
Price
Fixed
Quadrant 1
Variable
Quadrant 2
Duration
Predictable
Movies Stadiums Convention Centre
Hotel rooms Airline seats Rental Cars
Function Space
Unpredictable
Restaurants Golf Courses
Quadrant 3
Continueing care Hospitals
Quadrant 4
Function Space RM
Challenge due to interaction with F&B, Hotel rooms and incremental sales Variable pricing is opportunity, however duration control is equally important
Duration Control
Dening of duration Arrival uncertainty Duration uncertainty Turnaround time
Denition of Duration
Day part (Morning All day - 24 hours
Afternoon - Evening )
Hours
Arrival Uncertainty
Timing and quantity of requests
Forecasting leadtime and booking pace is difcult for function space.
Why is it important? You need to know how much demand there is When there is demand Who is in need of function space
So that you know when to release the space / sell it to a particular market segment.
Arrival Uncertainty
No-shows and Cancellation of bookings Bookings may not materialize Roomblock / pick-up Washfasctor
Nonrefundable deposits & prepayments
Ensures revenue
How to decrease Duration Uncertainty
Displacement of high paying transient business Loss of potential revenue
Good contracting: Room block allocation Non refundable deposits Early Departures (gtd stay) Minimum length of stay (MLS)
Types of events / Setup
Conference Symposium Seminar Workshop Forum Panel Meeting Course
Presentation Sit-down dinner Served buffet Standing Lunch Breaks Carre open/closed Cabaret
Rectangular U-shape Chevron / Fishbone Theatre Classroom Cocktail Boardroom Rounds
Stage Combination of the above
Room set-up / Capacity
Turnaroundtime
Time needed for Setup / breakdown Fewer available staff results longer turnaroundtime Does your sales manager know ?
Pricing - Expected Revenue
Function room Hotel rooms F&B Incremental Total Revenue High Medium Low Complicated due to its effect on Rooms, F&B and incremental revenues Only focus on Banquet i.s.o. total revenue
Flexible Pricing - What to charge?
Which days and dayparts are requested How many function rooms required How many guests and F&B requirements How many roomnights needed Incremental revenues The amount of publicity Regular account - short term vs long term Competition Seasonality Leadtime
Justication of Price
Rate fences - Rate hurdles
Physical rate fence
Presence of certain amenities or location i.e.
Non Physical rate fence Customer characteristics (repeat guests i.e. Transaction characteristics (when and how is the booking made)
RM Program Function Space
Establish Baseline / Starting point Understand the drivers of that performance Develop a RM strategy Implement the strategy Monitor the strategy outcome
Establish Baseline
Performance characteristics of the meeting space Each function room Occupancy Per month, day, daypart, etc ConPAST Demand behaviour of the specic market segment Demand patterns Each marketsegment Booking patterns Per month, day of the week
Occupancy
Challenge:
Rooms may be split up / combined Variation in time unit (day, daypart , hour etc)
Fri 89 33 56 59 89 Sat 100 33 44 33 133 Tot 69 44 49 53 91
Function room Sun Mon Tue Wed Thu Ballroom Tulip room Rose room Daphodil room Carnation room 52 33 44 56 111 38 38 63 50 63 71 50 44 54 56 48 56 39 48 72 81 67 56 70 106
3 day parts => 90 day parts per month available 45 day parts sold = 50% occupancy of the function room
(Un)Constrained demand
Constrained demand = functions that were booked Unconstrained demand = functions that were turned down. or accepted when the hotel had unlimited space
Denials: Capacity constrained or restrictions. [you can not take the booking] Regrets: Client not willing to pay the set price [you do not want to take them]
Booking behaviour
Lead time: When does a particular segment start to book How long to keep the space, When to release it for others ? Booking Curve / booking pace Your most important / protable clients may not be the rst ones to book
Displacement in 100 # Hotel
Denial of special rates
Questions ?
