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Rooms Division
Sem 2, 2015

Week 2
The Rooms Division: Structures
and Analytics

Hotel Characteristics,
Classifications and Concepts
Hotel Characteristics
 Perishability
 Rooms not sold tonight cannot be sold
 Location
 Fixed, changes value
 Fixed supply, but varying demand
 High fixed costs but low marginal sales costs
 Capital / labour intensive
 High fixed costs / low operating costs
 Seasonality
 Within year/month/week
 Solutions to seasonality?
Hotel Classifications

 Many different ways to classify/categorise hotels

 No universally agreed approach
 Types of facilities
 Hotels, motels, all-suites, select service hotels,
extended-stay hotels
 Also, resort, B&B, convention hotel, casino
hotels, etc.
 Market orientation and location
 Residential vs. commercial
 CBD (urban), suburban, airport, highway, etc.

 Levels of service
 Full-service, select-service, all-suites, extended-
Hotel Classifications

 Size
 The number of available rooms

 Class
 Different“star” ratings systems in different
 By ADR / by level of amenities
 Luxury,
Upper Upscale, Upscale, Upper Midscale,
Midscale, Economy, etc.

 Plan
 European Plan, Continental Plan, American
Plan, etc.
Demand Elasticity

Elastic demand:
 Change prices – demand changes (dynamic)
 As prices drop, demand rises
 As prices rise, demand falls
Fewer people can afford it
Fewer people think it is worth it, even if
they can afford it!
 True for most products and services
 Certainly true for leisure travel
Demand Elasticity

Inelastic demand
 Change prices – demand stays the same
 Price goes up, demand stays the same
 True only for a limited range of products
True for business travel to a large extent
to finalize a million dollar deal will not
be dropped if airfare rises by $1,000
True for medicines or surgery
Demand Elasticity

To find out how “elastic” demand is for each
of your market segments
How much can you increase prices before
the demand drops off?
As you will see in upcoming lectures, there is
a trade-off between occupancy (quantity)
and ADR (quality)
 Youcould sell 100 rooms at $50 (=$5000) or you
could sell 50 rooms at $100 (=$5000)
 Which is more profitable?
Demand Elasticity

There is always a limit to price increases!
Thereis no such thing as a “captive”
Increasesdrive customers to use substitutes or
do without!!

 Question:
 What is a substitute product for commercial
hotel accommodation?