Case Study 1. Revenue Management and Performance of Hotel Departments (related to Lesson 1)

"So Damario, what do you think now?" asked Sofia Davidson, the GM at the Barcena Resort. Damario was the newly hired revenue manager at the 480-room Barcena Resort, a five-year-old, Four-Star vacation property located on a pristine Caribbean beach. The physical setting was stunning. To date, the resort's financial results had also stunned its owners, but not in a good way.

Sofia Davidson, the resort's GM, was also new. She had only recently been selected by the property's owners and had arrived at the resort just eight weeks earlier. Damario was one of her first hires and was the first individual at the resort to hold the title of revenue manager. He had just completed his first week on the job.

"Well, here's what I have learned so far," replied Damario. "The resort opened five years ago, had decent volume, but didn't perform as well financially as the owners planned. Two years later, there was a new GM, a reorganization of the staff, and some strategic cost cutting. Revenues improve some. But profits not so much. So another new GM is brought in. This one was a real efficiency expert. Big on cost control. Reorganizes again, downsizes the staff, changes some department heads, cuts budgets, reduced costs must have been the type that really excels at financial controls.

The problem was, revenues declined along with the costs, and as a result, the profits declined as well. The owners liked the operating ratios, but were even more upset with the results than beforeand then you were brought in."

"We do have some real challenges," replied Sofia.

Sofia had just finished her weekly staff meeting with the hotel's executive operating committee. As the property's newly appointed revenue manager, Damario had attended and been introduced. As Sofia and Damario walked back to her office, they were discussing the highlights of that meeting.

"I think you did a good job explaining our owner's disappointment over the current performance of the property and how that could affect all of our hotel departments' operating budgets next year," said Damario.

"Thanks," replied Sofia. "I knew the managers wouldn't be happy about it. But here's what I have observed so far in the eight weeks I've been on site. On the food side, our food and beverage product cost percentages are right where they should be."

"So Sam's department is doing great?" asked Damario, referring to the hotel's food and beverage director.

"Not really," replied Sofia, "It's operating break-even at best. The food quality and service is outstanding, but his labor cost is so high it eats up all of his departmental profit. It's the same thing on the rooms' side," continued Sofia. "Beverly has her amenities costs per occupied room right on target and room cleanliness inspection scores are superb.

"So Bev's area is O.K.?" asked Damario, referring to the resort's very experienced executive housekeeper.

"Well, there are problems in that area, too. Bev's cleaning times per occupied room are great35 minutes per room; right at her targeted budget. But you know how we sell out nearly every weekend? Well, Bev often has to pay her employees overtime on Saturday, Sunday, and Monday to take care of the weekend stayovers and then get the rooms back in shape for the coming week. That really drives up our cleaning costs per occupied room. In that area, we are way over budget.

"Why doesn't she just hire more staff" asked Damario, "that would eliminate the weekend overtime."

"What would she do with them through the week?" replied Sofia. "In the eight weeks I have been here, we have only had two weeks where our Monday through Thursday occupancy exceeded 55 percent."

"Hire them part-time?" asked Damario.

"Good luck in this labor market," said Sofia. "Besides, I have real concerns about our ability to maintain high-quality room cleanliness standards with large numbers of part-time room attendants. Especially when we are extremely busy."

"So, do I hear you saying that those two departments are doing a good job?" said Damario. "Or a bad job?"

"They are controlling what they can with what they have. And remember, between them they employ over 80 percent of the resort's entire staff," said Sofia. "And account for most of the property's operating budget."

"And that's why they reacted like they did when you told them the owner's were considering asking you to submit operating budgets for next year that reflected 10 percent across-the-board cuts in all department budgets?" asked Damario.

"Right," replied Sofia. "No one likes budget cuts. And from what I can see, this group has been downsized, reorged, and outsourced to the point that there is not much fat left to cut. I think we are already down to muscle.

And bone. I'm concerned that more budget cuts will have a really negative effect on our guests' experience. I don't know of any hotel that has had great success expanding its market share by reducing the quality of its guest services. Our problem isn't inefficiency, its insufficient income."

"So what do we do now?" asked Damario.

"Now that you have met the executive committee, that's where you and the entire revenue management task force I want you to assemble comes in," said Sofia.

Question:

Analysis - Analyze the main problem/s and their impact on the revenue management. Analyze how revenue managers should approach solving the problem/s (2 slides, 1 person)