HOTEL YIELD MANAGEMENT

Through a long time in the war and over one-decade thereafter under the policy of central planning, the tourism industry in Vietnam was almost completely stagnant.

Acknowledgement First and foremost, I would like to express my deepest gratitude and sincere appreciation to Dr. Do Ba Khang, research advisor and chairman of the research committee, who patiently gave his continuos guidance, construction suggestion and enthusiastic help during the research period. His concern, consideration and understanding deserve a special note of thanks and appreciation. I am also indebted to Prof. John. C. S. Tang and Dr. Hans Stoessel for serving as committee members. Their comments and suggestions have substantially improved this work. Moreover, special and unlimited gratitude is also expressed to the Government of Switzerland who provide the author scholarship to do MBA at the SAV program and AIT Special thanks to Mr. Nguyen Duy Bot who is kindly enthusiastic about writing an introduction letter to help me more easily to access to Huunghi Hotel. I also would like to express my thanks to those who provided data for the completion of this study such as Mr. Mai Xuan Thang, Manager of Huunghi hotel, Mr. Dung - Manager of Dienluc hotel, who spend their precious times for lengthy interview sessions and company visit. No words could possible to express deepest gratitude to my beloved parents, brother for their inspirational and moral support. Last but not least, sincere thanks to all the faculty members at AIT and SAV and friends for their help and boundless inspiration. i Abstract While Vietnamese hotel companies are looking for solutions for the current stagnation, managing revenue is one area that has been paid less attention. The purpose of this study is to explore possibility of appropriately using Yield Management technique to help a domestic hotel increase revenue. Huu nghi hotel, the best hotel in Haiphong has been chosen as a case for the study. First, through a review of literature on the Yield Management and its practical implementation, benefits, conditions and limitations when the techniques are applied in the hotel industry are highlighted. Second, through a problem solving approach involving: (1) understanding the context in which the hotel is operated, goals and constraints (2) investigating of practices relevant to managing and improving revenue in the hotel (3) analyzing the hotel’s demand, difficulties in the operating process are pointed out. Finally, a more appropriate segmentation scheme and a pricing proposal are given to help the hotel overcome the difficulties in boosting its revenue. ii Table of Contents Chapter Title Acknowledgement i Abstract ii Table of contents iii List of tables v List of figures vi 1 Introduction .1 1.1 Background 1 1.3 Objectives of the study .1 1.4 Research framework .3 1.5 Research methodology .4 Data collection 4 Method of analysis 4 1.6 Scope and limitations of the research 5 1.8 Organisation of the study .5 2 Hotel Yield Management 6 2.2 General issues in managing revenue in hotel 6 Main operating activities directly affect revenue management 6 The nature of problems in managing revenue in hotel .7 2.4 Basic concepts of yield management .9 Concepts of Yield management 9 Appropriate situation for effective yield management application 10 Main Components of yield management system 10 Hotel industry applications .11 Managerial implications of yield management systems .13 2.6 Yield management solutions for hotel problems .14 The overbooking problems .15 The pricing problems 16 Capacity allocation problems .16 Segmentation problems 17 Conclusion 17 3 Overview of the Huu Nghi hotel 18 3.2 Overview of hotel industry in HaiPhong city .18 HaiPhong City 18 The hotel industry .18 3.4 The HuuNghi hotel: 19 General description .19 Analysis of revenue performance: 29 Evaluation of current operating practices .29 Identification of areas for improvement 31 4 Demand analysis for the hotel .32 iii 4.1 Customer profile 32 Segmentation .32 Average rate and contribution of each segment .33 Guest Characteristics 33 4.2 Effects of the current segmentation practice on operational decisions 35 4.3 A modified segmentation scheme .35 4.4 Demand pattern .36 Seasonal pattern 36 Daily pattern 39 4.5 Conclusion .40 5 Proposed yield management applications for hotel 41 5.1 Assess conditions for applying Yield management .41 Favourable conditions: 41 Constraints: .41 How should yield management be applied in the hotel? 42 5.2 A pricing policy proposal .42 General issues .42 Pricing policies: 43 5.3 Managerial implications 44 Group room sales 44 Transient room sales: 45 6 Conclusions and Recommendations .46 iv List of Tables Table 3-1: List of international standard hotels in Haiphong 20 Table 3-2: Comparison of forecasting and real demand (number of room sold) 25 Table 3-3: Current rack rate of the hotel 26 Table 3-4: Performance results in the last three years 29 Table 4-1: Average room rate and contribution by segments (1998) 33 Table 4-2: Demand by segments v List of Figures Figure 1-1: Research framework 3 Figure 3-1: Organizational chart 23 Figure 4-1: Monthly room sold over three years. 38 Figure 4-2: Monthly revenue over three years 38 Figure 4-3: Demand pattern of vacation travelers vs. business travelers 39 Figure 4-4: Daily aggregate demand 39 Figure 4-5: Daily demand of group tours, transient vacationers and business segments 40 vi Chapter 1 1 Introduction 1.1 Background Through a long time in the war and over one-decade thereafter under the policy of central planning, the tourism industry in Vietnam was almost completely stagnant. Tourism as well as hotel industry was marginalized in the national economy because it was considered by the government as no-producing material for the society. Moreover, Vietnamese people were too poor to think of travelling for leisure. At the same time foreign tourists hesitated to visit the war-torn Vietnam. As the result, demand for tourism and hotel was very low. The economic reform launched in 1986 initiated fast and radical changes in the country’s business environment. The changes have in turn created great opportunities for hotel industry when many foreign companies came to look for business opportunities. Development of tourism industry several years later also attracts more foreign visitors. Demand for hotel services, especially for hotels of international standard, significantly increased, leading to a shortage in both quantity and quality of hotel rooms. In response to the demand surplus situation as well as optimistic prospect of tourism industry, investors rushed to enter the hotel industry. In a short time many new hotels were built with various kinds from very big and luxury hotels with hundreds of rooms, to mini hotels with a small number of room tens of rooms. In an attempt to meet the demand as soon as possible, investors mostly emphasized on physical aspect of the service, they try to build nice building with comfortable rooms that meet international standard. After 1995, the number of hotel rooms still strongly increased while the growth in tourist arrivals has significantly slowed down. Surplus in hotel supply has started, and competition becomes more and more fierce. Operational inefficiency and service quality problems at the majority of hotel, especially domestic ones, just aggravate the struggle for survival and development. Occupancy rates at most hotels keep on decreasing, despite the effort by the hotels to reduce, often indiscriminately and without a clear strategy, the room rate to attract guests. The revenue of these hotels decreased drastically, putting the payback on investments and survival of the hotels at risk. At the same time, a quick look out side of the country of reveals a new approach to improve hotel productivity and increase revenue, has been adopted rather successfully by large international hotel chains. This approach commonly called Yield Management or Revenue management consists of a range of several techniques and strategies, from single to intuitive one to sophisticated mathematical models to an integrative computer-assisted revenue management system. It is therefore desirable to explore possibility of applying such approach to the hotel industry in Vietnam to help improving its competitiveness, at least through operational efficiency. 1.2 1.3 Objectives of the study The main objective is to find an operational solution to increase revenue for the hotel. To achieve the main objective, the following objectives will be reached: 1 - To review the various concepts and techniques for improving hotel revenues commonly known as yield management techniques. Benefits, conditions and limitations are highlighted when the techniques are implemented in the hotel industry. - To explore possibilities of appropriately using yield management techniques in setting pricing policies to help an actual domestic hotel in Vietnam to overcome its difficulties in boosting its revenue in increasingly competitive market. The first objective will be achieved through a thorough review of literature on the yield management and its practical implementation. However, sophisticated mathematical modeling will not be covered. Instead, the general issues and approaches, as the actual problems and difficulties will be presented. The second objective is achieved through a problem solving approach involving several stages: - Understanding the hotel’s operating practice, goals and constraints. - Analysis of the demand for the hotel’s room - Developing and analyzing alternative solutions. 2 1.4 Research framework Figure 1-1: Research framework CONCLUTION CURRENT PRACTICE OBJECTIVES LITERATURE REVIEW MARKET SEGMENTATION DEMAND FORECASTING INFORMATION SYSTEM PRICING POLICY BOOKING POLICY EVALUATION OF THE CURRENT PRACTICE DEMAND ANALYSIS YM APPLICATION FOR THE HOTEL 3 1.5 Research methodology With problem solving approach, the aim of the study is to identify problems in Yield management practice at actual hotels under study and suggest a way to solve them. The analysis will be both qualitative and quantitative. Data collection Getting required data for the research is very difficult because of two reasons: (1) hoteliers are not willing to provide information on their demand and daily operating, which may be used by their competitors for competition. (2) Hotels did not keep necessary information for yield management system. Therefore, hotels are chosen that selecting criteria are available and valuable of historical data. Six hotels were approached; they are allocated in Hanoi, Hochiminh City, Vungtau, and Haiphong. Of which two are joint-ventured hotels, the others are state-owned. Hanoi hotel, Amara hotel and Rex hotel refused to provide information because of disclosure information. Kimlien hotel and Dienluc hotel has not done any thing remotely related to yield management. Finally, thanks to the author’s relationship with the hotel, Huunghi hotel agrees to cooperate. Therefore, this research will concentrate only on investigating the problems and possible solutions at Huunghi hotel. In depth interviews are conducted with the general manager, front office manager and receptionists to get information and understand policies of the hotel, system and procedures. Difficulties in managing revenue are determined here. The management have no ideas specifically to improvement of revenue management activities. Hence, instead of asking focusly on yield management practice, the questions are expanded to include some other managing issues such as marketing, accounting. Personal observation is carried out to get more understanding of procedures and policies of the hotel. It helps to define and confirm the real problems. By observation, information of guests: characteristics and behaviors can be obtained. Historical data are collected from several sources: receptionists’ notebook, accounting book and daily reports. The data helps to determine demand pattern of the hotel, characteristic of groups of customers and their behavior. The data also helps to confirm the determined problems and new problems may be found. Solutions can be derives and tested on the data. Secondary data were collected through Vietnamese tourist magazines, annual report of Haiphong Tourist Company, Internet. Method of analysis The research starts by reviewing of literatures on issues related to revenue managing in hotel, concepts of yield management, frequent problems of hotels, and yield management solutions. Search will be made to provide a base for approaching the hotel, to expose problems, and find direction for possible solutions. The current yield management practices are qualitatively investigated based on information from the interviews and observation. The market and demand pattern was analyzed by quantitative and qualitative methods. The analysis bases mostly on historical data. 4 [...]... revenue management in hotels, main operating activities that affect revenue management with problems often arise - Part II deals with the literature review of Yield Management Concepts of yield management, conditions for implementing yield management, components of yield management, hotel applications, and managerial implications of yield management - Part III is overview of solutions for hotel problems... 2.4.1.13 Top management commitment Without commitment from top management, yield management systems may be doomed to failure Unless all employees know that the yield management system is considered essential to the success of the success of the firm, they may be inclined to treat it less seriously than top management may prefer 2.5 2.6 Yield management solutions for hotel problems Yield management has... employees must clearly understand the purpose of yield management system, essentially how it works, and how it affects their jobs Top management can not assume that yield management will just happen: it requires careful planing and training 2.4.1.12 Organization of yield management function One of the major problems confronting most firms adopting yield management system is degree of centralization of... management Concepts of Yield management Yield management, a method for managing capacity profitably, has gained widespread acceptance in the airline and hotel industries Yield management is a method, which can help a firm sell the right inventory unit to the right type of customer, at the right time, and for the right price with the purpose of maximizing revenue to the firm Yield management guides the... find that yield management works against them In a similar vein, managers are often rewarded on the basis of capacity utilization or average rate With a yield management system, the manager needs to be concerned with both of these factors Unless incentive system is changed to reflect this, managers may resent using yield management 2.4.1.11 Employee training As with any new systems, a yield management. .. necessary conditions for applying yield management, and it considers the current condition on components of Yield management system, an assess of those conditions will be carried out This chapter also answers for the question how should YM be applied in the hotel A pricing proposal will be suggested with managerial implication Chapter 6 will be conclusions 5 Chapter 2 2 Hotel Yield Management This chapter discusses... situations in which yield management is practiced and showed characteristics are necessary conditions for the proper adoption of yield management Relatively fixed capacity: The focus of yield management is efficient allocation of shared fixed capacity, it is only appropriate for firms which can not quickly adapt available capacity to available demand Ability to segment markets: Yield management aims at... property’s revenues It’s important that every one in hotel understand what yield management is and process of implementing yield 11 management Procedure in operating activities must support to make easier for managing yield by providing information like price-value relationship, demand pattern and so on To be assured of systems and procedures that encourage yield maximization, that purpose must be designed... is an investigation of revenue management practice in the hotel An over view of the hotel industry, company profile will be mentioned in order to state the context in which the hotel was run Analysis of yield management practice will focus on pricing, booking practice; segmenting, demand forecasting and information system Chapter 4 will analyze the demand pattern of the hotel, how demand pattern and... concept of yield management originated in the airline industry Most travelers know that passengers on the same flight often pay different fares Super-saver discounts, three-day advance-purchase plans, stay-over-Saturday-night packages, and so fourth have become the norm for airline pricing What is not as widely known is the potential application of yield management to other service industries Yield management . literature review of Yield Management. Concepts of yield management, conditions for implementing yield management, components of yield management, hotel applications,. issues related to revenue managing in hotel, concepts of yield management, frequent problems of hotels, and yield management solutions. Search will be