HOSPITALITY OPERATIONS MANAGEMENT SAMPLE

Introduction

In the age of globalisation, there is rising competition in the hotel industry and different incidents such as a sudden outbreak of a pandemic, and other geopolitical tensions adversely affect the operations of budget hotels.

Along with that, the implementation of revenue management provides immense support to improve performance through understanding the customer’s expectation, effective segmentation and many more which positively influence yield management in the future. In this report, the significance of revenue management and the way it influences yield management in the future will be discussed in a constructive way to boost the understanding of the readers.

Literature review

Evaluating hospitality as a system and role of operation management in revenue management concerning the future of yield management

The hospitality industry is widely distributed to accommodate the public quest for tours, adventures and sightseeing throughout the corners of the globe and to accomplish efficient operations in budget hotels it acts as a whole according to general system theory.

General system theory states that in managing the operation budget hotels are considered as a whole and open system combined through closed and open subsystems. Ruben (2018) mentioned that general system theory is the science of organising a system or organisation concerning system structure and communication perspective in between. The hospitality industry comprises several different units and subunits to accommodate the customer during leisure hours and generate high customer satisfaction.

Revenue management in budget hotels is a significant subsystem of operation management according to general system theory which helps the budget hotel to keep progressing through earning revenue in response to yield management. Yield management is the technique of pricing strategy which varies in terms of customer interaction and footfall in the budget hotel in distributing resources such as inventory of rooms. Viglia and Abrate (2019) mentioned that dynamic pricing and distribution channels are well related to intertemporal pricing discrimination and controls of inventory.

It may be argued that the adoption of a yield management strategy allows the hoteliers to maximise the revenue earned from a finite number of hotel rooms with a dynamic pricing strategy to sell it at different times. Yield management theory is the variable pricing strategy that encompasses the identification, anticipation and understanding of consumer behaviour and sets the price of fixed and time-limited resources for generating optimised revenue by balancing between occupancy and rate.

Mitra (2020) pointed out that the hospitality industry is well known for its characteristics of heterogeneity, intangibility, concurrent production and consumption, shared experience, seasonality of demand and multiple market segments which made it difficult to actualise the market competition. Further, budget hotels are dependent upon the strategic variables of product and pricing in order to maximise the profit where the arrival of tourists is quite unpredictable and the demand and price relation followed for better yield management to practise.

Price charges per room, occupancy rate and revenue per available room are major components of revenue management in budget hotels which ensure through capacity planning and demand forecasting for proper and authentic yield management practices.

Revenue management in the budget hotel is the combination of inventory control, optimization, forecasting, nesting, pricing, overbooking and market segmentation (Refer to Appendix 1). The revenue management for the budget hotel comprises the sales of rooms to the right client at the right price and moment with the best offer through the right channel and maximises the profit percentage in revenue.

The incorporation of technology may mediate with data-driven tactics to optimise revenue through strategic ways in terms of yield management. Khan et al (2020) reflected in the article that revenue management operation also aligned with the loyalty programs to accelerate customer satisfaction which is used to make a balance between the customer’s requirements and offer service by the hotel. Yield management is also highly dependent upon the organisational culture, vision and practice to deliver high efficiency in dynamically pricing the resources of budget hotels.

Identification of issues related to hospitality industry operations in revenue management

Revenue management in the hospitality industry for budget hotels is distributed in terms of total sales and price volume encompassing all the channels of revenue generation whereas yield management is only focused on demand, occupancy rate and pricing strategy to yield the highest revenue.

Binesh et al (2021) demonstrated that revenue management is the practice of demand modelling and forecasting, optimisation of inventory and pricing per room, controlling the booking system, performance analysis and the management of distribution channels which are important for business consistency and contingency.

The issues related to revenue management as the future of yield management are the incompatibility of different technological tools and artefacts in collaborating with the revenue management strategies such as demand and forecasting errors, and lack of booking control. In addition to that, environmental shifts, lack of coordination and communication for managing and offering different departments for consumption and delivery of resources as well as services to the customer are also issues in the revenue management practices in the budget hotel.

Lack of skilled personnel, weak technological interfaces, measuring the cost of distribution, online booking and perceived services to the customer, pricing factors such as the outbreak of pandemic, terrorism, violence, and political agitations also haunted the practice of revenue management.

Budget hotels are the provider of basic amenities and services to the customers at a lower rate in comparison with regular hotels where revenue management only depends upon the customer’s staying with the basic facilities for living around.

The issues of revenue management in the budget hotel depend on the variables of pricing, marketing, inventory and channels which might be affected by the demand, submarket supply, seasonality, events, local laws and customer segmentation. Ampountolas (2018) depicted in the article that uncertainty of demand is the fact close to the hospitality industry where the inventory of rooms is fixed and has an influence on revenue management.

Furthermore, demand forecasting for budget hotels is quite challenging for assessing demand forecasting which has relation to revenue earning through incremental pricing strategy or yield management practice. The managers of the budget hotel would require to develop strategies and planning for the distribution of fixed assets in a time-limited means where the rate calculation is quite dependent on probability.

The rate calculation for the rooms is challenging for online booking and booking where the arrival time is long. It may be stated that the main pillars of revenue management are business analytics, market automation, as well as the effectiveness of the sale, where to keep tracking the benchmark for changing market trends, is quite impossible and an issue for hotel management in revenue operations.

Lei et al (2019) presented in the article the impact of managing distribution channels in delivering the optimum revenue by balancing the market exposure in offline channels as well as online channels. It is challenging for budget hotels to keep tracking the synchronisation of booking and offer pricing for the different distribution channels as offline and online channels for booking and control of booking.

Evaluation of Impact made by performance and productivity on the quality of products and services through revenue management

Performance and productivity are the evident components of business operation which ensure business consistency in delivering quality products and services to the customer for perceived value and satisfaction which positively drives loyalty. The revenue management for budget hotels in the international hospitality industry is driven by competitive advantages while offering basic amenities for the customers.

Employee performance and productivity in budget hotels may be experienced in terms of housekeeping, food and beverages, basic amenities of availability of digital and print media as well as customer engagements and addressing customer queries. On a different note, the revenue management practice in the budget hotel may engage with forecasting demands, yield management, allocating money for food and beverages for each customer and other obligatory tax and payments.

Organisational culture and practice of human resource management are behind organisational performance and productivity which has helped deliver quality services and products to the customer with better training and development, motivation, empathy and organisational support. Kumar et al (2018) expressed that quality management has a positive influence to endorse quality services and products through employee performance and productivity through total quality management and total productive maintenance.

Revenue management practice in the hospitality industry has almost become data-driven with the advancement of technological emergence around the globe which has to go through recording, reporting, and analysing the sales item and cost regularly. The revenue management techniques are also associated with market segmentation, close working with different departments, use of SEO, developing the strategy of demand forecasting and pricing, and incentives on distribution channels.

The profit returns through sales by sensing the consumer behaviour and patterns of the sale in a season flexible manner enables the development of strategic revenue management through yield management practice. Xu et al (2019) mentioned that revenue management enables the financial success of the budget hotel through capturing data, data foundation, analysing data, determining product configuration for pricing, inventory allocation the use of word of mouth.

Analytical content

Revenue management refers to the process of distribution of pricing based on strategies and pricing techniques to manage the pricing strategy for the potential consumers based on the time which boosts the revenue growth of the company. Revenue management effectively provides an opportunity for budget hotels to manage different factors such as price, time, accommodation and so on which enhances the profit margin for the companies.

The introduction of rental systems in budget hotels provides a better way of earning and revenue management helps in optimising the demand in the market based on the prior forecast. Klein et al (2020) stated in the research that incorporation of a revenue management system provides support to enhance the revenue from new rentals by 9%.

In revenue management, for budget hotels, professional knowledge is highly important because managing revenue budget hotels face real challenges in recent times. Demirciftci et al (2017) articulated in the research that according to 4% of respondents within the research it is the most challenging task to find qualified revenue staff and the challenges related to revenue management are political instability, owner’s pressure on setting budget prices, brand image product positioning and so on.

During the Covid-19 pandemic budget, hotels along with the entire hotel industry faced a real challenge and the market size dropped due to stringent restrictions in the worldwide range. Zervas et al (2017) depicted in the research that the entry of Airbnb affects the supply chain of budget or lower-priced hotels in Austin and the causal impact on the earning of hotel revenue is 8%-10%.

According to a report, budget hotels have 45% occupancy in December 2020 with the help of revenue management which is 35% lower in comparison to 2019 (Refer to Appendix 2). Murimi and Wadongo (2021) stated in the research that 76.5 % of hotels have adopted revenue management software that provides facilities for developing business, improving yields, generating revenue, reducing costs and so on. On the contrary, it may be said that a lack of revenue management affects the factors of yield management such as demand, room occupancy, and pricing strategy.

Revenue management effectively supports in implementation of pricing strategies for the hotel and also the prior predictions and digital technologies provide immense opportunities to analyse the current trends in the contemporary time. It may be argued that a lack of revenue management may affect the decision-making process of the budget hotel and it affects the yield management within the business.

From the above discussion, it may be stated that revenue management boosts the operation of budget hotels because in recent times after the pandemic the management of revenue is highly crucial for retaining growth and development.

The managers of budget hotels need to focus on two factors such as pricing and current demands of the market and it effectively helps in revenue management for the budget hotels during a crisis. It may be argued that cost management along with revenue management together provide better prospects for budget hotels to improve the growth and development of the hotels which affects yield management in the future.

Application

Revenue management defines the process of predicting the demand of the consumers and setting strategies related to pricing to boost yield management in the future. Yield management needs to focus on different aspects such as understanding booking patterns, segment-specific buying patterns, price change impact and so on. Revenue management provides immense support in customer segmentation through analysis of different factors such as age, gender, marital status and so on.

Additionally, revenue management aids in analysing the staying duration of the consumers, travellers’ status such as returning, regular and new along with the purpose of the travelling. Effective analysis of the market trends offers for budget hotels to implement required marketing strategies and assessment of booking channels such as direct walk-in and so on helps in identifying buying patterns of the consumers.

Hayes et al (2021) demonstrated in the research that revenue managers with the help of revenue management are working in the lodging industry to provide in-depth notions regarding the demand of the consumers and strengthen the demand forecasting process. Along with that, the demand of the consumers is not static and the demand of the consumers is depending on affordability, season, region and other macroeconomic conditions.

Yield management also requires distribution channel management strategy, understanding the changing impact of price and many more which needs effective revenue management. For this reason, revenue management provides support to decrease error and it facilitates both credibility and forecasts results and actions.

On the other hand, a robust revenue management system helps to implement a competitive pricing strategy and it helps to attract the attention of the consumers. In the future, revenue management helps in yield management along with getting better profit and retaining the growth and development of budget hotels in the highly competitive market. According to the revenue management theory revenue management comprises revenue forecasting, reporting or tracking KPIs, pricing and inventory management (Refers to Appendix 3).

Wittman (2018) stated in the research that revenue management helps to implement a dynamic pricing strategy that boosts the purchasing intention of the consumers and the application of revenue management is relevant in recent times to improve the operational strategies in the hospitality industry. Therefore, revenue management effectively helps to bring success in the future to focus on yield management in an effective manner and lack of revenue management may worsen the conditions of the budget hotels.

Conclusion

From the above analysis, it may be concluded that revenue management is the crucial aspect of operation management in the hospitality industry for budget hotels to achieve financial gain through engagement with competitive yield management practices. Several issues are hindering the revenue management practices in the hospitality industry such as technical cooperation and collaboration, error in demand forecasting, coordinating with other departments, defining pricing rates for offline and online booking channels and lack of skilled personnel.

The revenue techniques are associated with market segmentation, data capture, data analysis, and the development of a strategy for pricing and controlling inventory to maximise the revenue return.

References

Ampountolas, A., 2019. Forecasting hotel demand uncertainty using time series Bayesian VAR models. Tourism Economics, 25(5), pp.734-756.

Binesh, F., Belarmino, A. and Raab, C., 2021. A meta-analysis of hotel revenue management. Journal of Revenue and Pricing Management, 20(5), pp.546-558.

Demirciftci, T., Cetin, G. and Bilgihan, A., 2017. Coping with RM challenges in hospitality education. Journal of Revenue and Pricing Management, 16(5), pp.499-512.

Hayes, D.K., Hayes, J.D. and Hayes, P.A., 2021. Revenue management for the hospitality industry. John Wiley & Sons.

Khan, M.Y.H., Islam, S.T. and Hassan, A., 2020. Revenue management in the tourism and hospitality industry with special reference to Bangladesh. In Tourism Marketing in Bangladesh (pp. 257-270). Routledge.

Klein, R., Koch, S., Steinhardt, C. and Strauss, A.K., 2020. A review of revenue management: Recent generalizations and advances in industry applications. European journal of operational research, 284(2), pp.397-412.

Kumar, P., Maiti, J. and Gunasekaran, A., 2018. Impact of quality management systems on firm performance. International Journal of Quality & Reliability Management.

Lei, S.S.I., Nicolau, J.L. and Wang, D., 2019. The impact of distribution channels on budget hotel performance. International Journal of Hospitality Management, 81, pp.141-149.

Mitra, S.K., 2020. An analysis of asymmetry in dynamic pricing of hospitality industry. International Journal of Hospitality Management, 89, p.102406.

Murimi, M. and Wadongo, B., 2021. Application of revenue management practices in star-rated hotels in Kenya. African Journal of Hospitality, Tourism and Leisure, 10(2), pp.559-574.

Ruben, B.D., 2018. General system theory. In Interdisciplinary approaches to human communication (pp. 95-118). Routledge.

Viglia, G. and Abrate, G., 2019. Revenue and yield management: a perspective article. Tourism Review.

Wittman, M.D., 2018. Dynamic pricing mechanisms for airline revenue management: theory, heuristics, and implications (Doctoral dissertation, Massachusetts Institute of Technology).

Xu, X., Zhang, L., Baker, T., Harrington, R.J. and Marlowe, B., 2019. Drivers of degree of sophistication in hotel revenue management decision support systems. International Journal of Hospitality Management, 79, pp.123-139.

Zervas, G., Proserpio, D. and Byers, J.W., 2017. The rise of the sharing economy: Estimating the impact of Airbnb on the hotel industry. Journal of marketing research, 54(5), pp.687-705.