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 ?