Operations Management for the Hospitality Industry

Operations Management for the Hospitality Industry

Balancing Supply and Demand in Luxury Hotels

Abstract

Capacity management is an important issue relating to operations management in the hotel industry. The gaps in demand and supply of hotel rooms result in revenue losses. Consequently the profits of a hotel are lowered. Because hotel space is something of perishable nature, hotel managers face the challenge of effectively monitoring demand and supply of hotel rooms keeping in view a range of seasonal, economic and business factors. Effective occupancy managing strategies are therefore indispensable for growth and profits. This paper explores the strategic alternatives of capacity management in luxury hotels using evidence from a wide literature on hospitality management. Capacity management dilemmas are discussed in detail drawing on diverse situations that is tactfully dealt with by the hotel management. Furthermore, marketing strategies that focus on dealing with idle hotel capacity are also presented, as these strategies could be applied in hospitality operations with a greater ease.

Aims and Methodology

The aim of this paper is to identify the best strategy for managing idle capacities of luxury hotels. For the purpose, the researcher provides evidence from literary academic and professional journals and books on subjects of hospitality management and operations management. Of the six visitor segments, only the first group pays the full rack rate, comprising only 20 per cent by volume of the hotel's business. The second segment is composed of business visitors paying a corporate rate that is 15 percent below' the rack rate; some of them are conference visitors, who also receive an average discount of 15 per cent off the rack rate.

Of the vacationer groups, it would not be possible to achieve targeted levels of business at the lull rack rate. Accordingly most hotels of this type offer a special rate for leisure products, usually built into a product with a minimum length of stay and perhaps meals and other services to reduce the possibility that this tariff will be used by business visitors. If the individual vacation business is projected on the evidence of recent years to leave many rooms unoccupied, the hotelier will normally have no alternative but to approach tour operators, in this case coach operators. Such operators will, if the hotel suits their own product range, take allocations of rooms. If they do, it will normally be at a large discount in order to cover their own costs of administration and marketing, including distribution (Sinclair 351).

Achieving an ideal occupancy rate is the basic task for hotel managers. They need to define occupancy percentage and average daily rate regularly. Although these concepts are important to the long range potential financial picture, they take on a new meaning with revenue management (Noriega 74). Optimal occupancy, that is, achieving a 100 percent occupancy with room sales, which will yeild the highest room rate, and optimal room rate, a room rate that approaches the rack rate, work together to produce the yield (Modica et al ...