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Revenue management ± the contribution of the finance function to profitability

Cathy Burgess School of Hotel and Restaurant Management, Oxford Brookes University, Oxford, UK Keith Bryant Conrad International Hotels, London, UK

Keywords
Hotels, Revenue, Profitability , Financia l information, Activity-base d costing

Introduction

Revenue management tends to be addressed from amarketing or operational perspective Abstract with few businesses considering the true effect Literature in the area of revenue on the ``bottom line’’ of their yield management (or yield) management decisions. There have been attempts by concentrate s largely on the writers to suggest a cost-oriented approach but operationa l issues of maximising revenues. The issues of this has been addressed from atechnical, profitabilit y have been considere d rather than a functional perspective. Most of in recent years but practical the literature concentrates on operational attempts to implemen t an decisions and does not address the supply of approach which recognises the profitabilit y of different market information to support these. segments have been problematic. This article seeks to identify some ofthe This article consider s the factors used in applying a cost-centred literature in the area of approach to revenue management and then profitabilit y and revenue to discuss the factors affecting this approach management and then addresses the issues regarding its for managers from a financial management implementation . The need for perspective. It is not the intention to look accurate financial information is extensively at the marketing aspects which crucial and the provisio n of this have been discussed exhaustively by relies on sophisticate d systems which will analyse and predict previous authors, and so only a brief appropriat e data. Development s in overview of the topic is given. Literature in technolog y are progressing rapidly the area of cost analysis and the provision ofand will provide the opportunit y to management information will be reviewed expand the use of information for managers. Given the involvemen t and consideration will also be given to the of the finance function in the impact of technological change on the design and use of information financial functions of the hotel business. systems their contribution to this The data presented will then bereviewed developmen t is now emerging as from a financial management perspective in crucial to this process and the resultant increase in hotel order to discuss the implications for both profitability. operational and financial managers at the current time. Predictions for the impact of technological change on both revenue and financial management will also be presented to assist in identifying someof the challenges for the future in this area.

Definitions of revenue management
International Journal of Contemporary Hospitality Management 13/3 [2001 ] 144±150 # MCB University Press [ISSN 0959-6119]

There have been many definitions of revenue management (RM). Many writers use the
The current issue and full text archive of this journal is available at http://www.emerald-library.com/ftterm interchangeably with yield management (YM) although some consider this relates to accommodation only whereas RM may encompass all areas of hotel revenue. Jauncey et al. (1995) define YM as being an ``integrated, continuous and systematic approach to maximising rooms revenue’’. Early approaches to YM addressed only rooms revenue overall and it was only later that segmentation factors wereincluded. This approach was informal and fairly unscientific but ``almost always practiced by managers’’ (Bryant, 2000). The ``father of Yield Management’’ (Bryant, 2000), Eric Orkin, first formally demonstrated in 1988 how calculations of the yield and a review of displacement could identify where gaps could be filled to increase occupancy. He then developed his arguments to lead to staff...