Tourism

CHATER 1

1.1 Introduction
Nagle and Holden (1995) claimed revenue management to be a discriminatory pricing procedure which involves setting different prices for different segments of the market so as to maximize revenue gained. The future studies have proven the fact that the definition of revenue management could vary according to the kind of service industry it is used (Yousef  2007). The use of revenue management has a number of advantageous. The aim of this proposed study will be to explore and review the key theoretical issues of revenue management as well as to discuss and analyse revenue management according to Lisboa Central Park Hotel. In order to make a credible study on the scope of maximum profitability impacted with proper revenue management in Lisbo Central Park Hotel, it is important have a glance at the socio-economic and political scenario of Portugal at the moment. Before the purpose of this study develops a brief discussion on the above said aspects are as follows
 
Tourism is an especially important sector, accounting for 10 of employment. Tourism receipts reached a record high in 2008. Receipts are expected to fall in 2009 but experts still predict that Portugal could become the worlds 10th largest market by 2020. To achieve this goal, the industry is planning to diversify into new regions and create new attractions. Tourism in Portugal is somewhat cheaper than most of West Europe, a fact that should help it thrive in the near future.
   
Highly competitive prices, high quality support services for investors, a high quality of life, a favourable climate and a very low crime rate make Portugal a huge potential for a booming residential tourism market.
-Economic Prospects
Portugals economy will probably remain in recession in 2010 before beginning a modest recovery in 2011.

Unemployment is expected to exceed 8.5 during 2009. An economic stimulus package valued at  2 billion (approximately 1.3 of GDP) is being implemented. Private consumption is expected to rise by less than 1 in 2009. Consumer spending is held back by the rising indebtedness of households and only modest gains in employment. Labour productivity has long lagged behind that of other EU countries and is only around half that in the five largest EU economies. Part of the problem is poor training and education. Only 12 of the population has a university education   compared with an EU average of 24.

-Labour
Labour in Portugal is mainly regulated by the Working Code and by many collective agreements established between the employers and employees representative organizations.
Labour matters have a close connection with social security, which in Portugal is obligatory.
   
Labour mobility is low due to restrictive employment protection legislation. The labour market is also segmented. Established workers, who enjoy a high level of protection, coexist with self employed and workers on fixed-term contracts. A shortage of skilled labour handicaps many businesses. Employment conditions in the public sector are also somewhat more generous than in the private sector and need to be re-aligned.

-Social Security
All employees and self employed persons must be covered by Social Security. Employers must withhold 11 of gross salary of the employee and they are required to pay a further 23.75.

Innovation Scoring
The purpose of the Innovation Scoring System is to provide companies or organizations operating in Portugal with a tool for self-testing their capabilities and performance concerning innovation. Using this system, the organizations will be able to adequately diagnose measure and question their innovation performance and potential, which is of undeniable value for the organizations that will lead our economic future  that is, those which are more aware of the issues of competitiveness in a knowledge-based global economy.
   
Portugal National Tourism Authority has been created. There is a strategic plan in place  PENT (Plano Estrategico National do Turismo) with value proposals for climate and light, History, culture and tradition , Hospitality and Concentrated diversity. Portugal ranks world-wide No. 25 in receiving the most foreign tourists.
   
A Quality Portugal program aims at the implementation of a quality system of tourism training and enhancement of human recourses. Environment enhancement of natural and landscape heritage will be fostered together with bio-diversity, including nature conservation policies and sustainability.
Most tourists are coming from Europe (UK 33 , Germany 28 , France 5 , and Spain 5 ). Eastern European countries such as Poland, Russia, and Hungary had the largest increase in the past years (AICEP Portugal Global, 2007).

1.2 The Background of the Study
Lisbon Central Park Yield Management Objectives, Segmentation and Pricing Strategies
   
RevenueManagement, also known as yield management, is a process for capacity-constrained industries to maximize profitability by allocating the right inventory to the right customers at the right price at the right time. As far as the Lisbo Central Park Hotel is concerned, the restraints are 38 Suites, with 40 Squares meters composed by four categories Standard Room, Deluxe Room, Suite Jr., and Suite Senior 120 m2. Over the past decade, revenue management techniques have been extensively developed in all the service industries including the airline and hotel industries. Much of the research has been on the optimisation front, which focuses on finding the optimal seat allocation policy to maximise revenue. This study will, therefore, provide a frame work for forecasting and optimization in the revenue management system that will in turn be applied to the current functioning of the Hotel.
     
The hotel management system used by Lisboa Central Park Hotel is SIHOT, which incorporates different modules of all the operation hotel reservations, housekeeping, management department, and sales module.   Lisbon Central Park successfully completed its re-branding as a middle market, three star family owned Hotel catering mostly to the family and corporate segments in 2007 without losing key emerging markets such as Brazil. The Hotel was refurbished, the investments passed satisfaction ratings, and the standards were raised making Lisbon Central Park eligible to compete in the new Hospitality Supplies in the City. The company focused on more creative sales channels such as tour operators, online operators, the corporate and leisure segments. Wireless and personal direct lines are now available for Corporate. Tailor made, personalized service and other features have made Word of Mouth the Hotels main marketing communication channel. The majority of customers are return guests, satisfaction is high, and the majority of new guests had the Hotel recommended to them by return guests. Guest satisfaction and loyalty are high.    
     
The objectives for 2009 were to increase RevPar, reach good financial results with consistently higher performance of the EBITDA, achieve higher returns, widen the market with higher performances in different alternative markets portfolio, promote the quality of the Hotel, and improve the investments in the Hotel.  Lisbon Central Park Hotel has a 13,870 total capacity with 7600 beds already occupied, or a 72 occupancy rate, for year 2009. The target of 15,000 guests for 2009 was reached within ten months (with 6000 guests coming from the  individuals and leisure segment, 5000 guests confirming reservations from tour operators, 2000 from the corporate segment , and 2000 from the family segment). Rooms occupied represent 1200 for corporate clients, 700 for groups, 3200 for individuals, and 2400 for tour operators.
       
REVPAR increased to 67Euros, a 7Euro increase. Lisbon Central Park Hotel has managed the downturn by changing the company sales policy of focusing on the family and corporate segments. The Hotel has focused on groups, who are targeted through tour operators and agencies with a particular emphasis on emerging markets, and on domestic visitors segment to whom cultural weekends are offered. Lisbon Central Park has established different segments and correspondent pricing strategies based on price sensitivity. Clients in the main business segment come from the Nordic countries, Spain, France, UK, Germany, Brazil, Angola, Italy, and Portugal. The majority of guests are from Spain. Currently 80 of the market is foreign visitors with Spain representing the bulk of that market and 20 are domestic travellers. The new emerging markets the firm wishes to target are Russia, Poland, Czech Republic, Japan, and Brazil.
       
Rates were five Euros less for 2008. The rack rate is the same as the corporate rate for Standard rooms, single rooms, double twins, triple, and for four pax. Rates are set according to events, seasons, and bank holidays. One strategy applied in yield management is to optimize the last 25 or rooms not occupied. Through tour operators, Lisbon Central Park will offer one euro less than the market as offered by competitors.

1.2.1 Lisbon Central Park Hotel Segments and Consumer Behaviour
The family segment represents 30 and the families usually book for 2 to 3 days a year. Their recreational activities include the Lisbon Oceanarium, musicals for children, visits to the zoo, City tours, Fado performances, and a vast choice of restaurants. This segment is the least elastic segment and prices change both daily and monthly. The Groups and Individual leisure segments, which represent more than 50 of the target market, are elastic but less than Corporate. Centrality and bus parking space are key factors in attracting Groups and the Leisure segments. Familiar 40sqm rooms, triples, and four pax rooms are essential for groups.     Groups normally stay three days.
     
Cultural weekend offers target the national markets from the North of Portugal. The 120  promotion offering two nights at Lisboa Central Park, two dinners with beverage included, and two tickets for the shows is from October to March. The business segment represents 20 of the total revenue per month. Lisbon Central Park offers a fixed price all year long for the corporate market Corporates have maintained their one month in advance booking custom. We believe the segment is price sensitive and so demand from this segment is price elastic. The other segments that represent 80 of the market are not as price sensitive.

Ron Marriot (2007) suggests that Effective segmentation allows your company to select those groups that can be served most profitably and positions your firm to effectively service the need of those groups. Therefore, the market structure of the present segmentation is as follows

Market structure
1. Geographical Segmentation
Domestic tourists
Europe English, France, German, Holland, Spain, Italia
America USA, Canada
2. Demographic Segment
Based on hotel room rate, location, facility, LCP Hotel focuses on
Family
Couple from 30 to 50 years old.
Enterprisers
Backpacker clients
Local Market
3. How client can book the room
Internet Distribution System (IDS) such as www.booking.com
Hotel web site (www.lisboacentralpark.com) through SIHOT Web
Direct contact by phone, email
Travel agency
4. Segment market booking characters

Family clients books via hotel web site, travel agencies, because the clients travel with children, parents prefer to book in advance, and only during on school holidays. They always plan a long time in advance to match with their children vacation.

The hotel has rate for this market segment at the moment at 20  per person, per person period the parents and their children over more 4 year old, are given a rate 60 .

Central location, makes hotel preferable to family
Young Couple Normally they have active life, so time is sensitive for this market segment they do not book in advance. They book the room via internet and travel agencies.

Backpacker clients they are young and more familiar with technology than old generation. They book accommodation via internet facilities or contact direct to the hotel.

Domestic guest reserve rooms via hotel web site, direct contact by phone, email, agencies travel.
Enterprise clients they do often travel by group and organise by the company via an agency travel or direct contact with the hotel. They do plan long time before the departure
Considering the above factors, this study will address the needs and possibilities of making revenue management as business process, impacting in maximum profitability for the organization. The proposed research will also go further to investigate the importance of such an investigation and the challenges, advantages and disadvantages of making such a business process. The following literature review will bring forth the significance of such an investigative study to maximise the profitability for organizations in the service industry, in the light of the existing literature.

CHAPTER 2

2.1 The Literature Review
Revenue management or revenue optimization has been used in the western world since 1970s. Since then it has gained a lot of interest within the service industry especially in the western world. In fact revenue management system has gained the due attention from the scholars around. Most of this consideration was from the service industry, while a few adapted the prows to different fields such as Internet service provision (Nair et al, 1990) broadcasting (Cross, 1998) and etc
     
The Revenue Management (RM) facilitates the decisions regarding the allocation of units which are not categorised other ways in such a way that such capacities of an organization is distributed and utilized bringing in the maximum profit (Larsen 1988). RM also increases the revenue, states Larsen (1998), through price discrimination, while increasing productivity by demanding much improved performance along with much better competitive advantage through capacity utilization and revenue generation. While RM has many advantages, Marmorstein, Rossomme, and Sarel (2003) reflected up on the other side of the coin saying the customers may feel as the firm behaves to them unfairly, it may also make customers a kind of opportunists as RM increases customers price awareness and sensitivity and in turn not willing to purchase at normal prices and moreover, it may negatively affect the goodwill of the firm as the repeated price reductions and variations will provide a bad image of the firm and its services.

2.2 Requirements and Obstacles to make RM a Business Process that Make an Impact
The capacity of the firm providing the service or the product needs to be constrained, there needs to predictable, perishable and time variable demand for the product or service with a possibility of an intact and appropriate pricing and cost structure. These are some of the characteristics, according to Yousef (2007), necessary to make an impact with the RM adaptation. Yousef further explains the needs of certain conditions in the organisations essential for successful RM adaptation such as segmented demand, perishable inventory, advance sale of the product or service, demand fluctuation, low marginal sales costs and production costs, and high capacity changes costs. Not very far from this when Marmorstein, Rossomme, and Sarel (2003) claims that to gaining an impact from the RM heavily depends on the quality of the information and the speed with which that information can be translated into appropriate offers for specific customers.
     
At the same time, if the above said conditions or the characteristics are not met the successful adaptation of RM may not be realized. Yousef (2007) mainly discusses about two potential forms of conflicts such as customer conflicts which are generated from customer who perceived negatively feeling that the prices in the firm are not stable and therefore not reliable and fair and employee conflict. Lack of top management support, adapting system which not conducive to the industry and taking insufficient account of revenue maximising process can all be factors which stop a firm from successfully adapting the RM (Jarvis 2002).

2.3 Understanding Revenue Management Better
Revenue Management can be a skill to maximum increase the profit from limited perishable supply. The challenge in the system is to decide the right customer to be served with right product at right pricing on right time. Thus the revenue management is applicable only when there is certain fixed amount of resources available for sale, or there has to be a limited time so that it remains of any value during this period of time, or when the different customers are ready to pay different prices for use of same service.
   
In order to understand the revenue of a hotel it is vital to have glances at the normal rates in a hotel. First of all, based on the type of the room and number of beds and possible occupancy the customers are quoted a price and charged. Secondly, a group rates, offered to an organization or a tour operator who has promised to purchase certain number of rooms over a particular period of time. These rates are usually extended to trade sections, firms needing to conduct seminars or training sections, tour operators and so on. It would mostly be discounted prices. Then, the special prices given to regular customers such as corporate travellers, representatives, airline staff and military personals etc such prices are generally a part of promotional programs. Finally hotels need to offer package prices to the public. The package prices are for accommodation along with other services such as banquet or a ticket to any of the concerned sports, cultural or social events, transportation to the venues and other recreational programs. These types of package rates are recurrent in every hotel round the year and they are much lower than the rack rates.
   
Kamath (2008) believes that the hotels, which are functioning at the large scale, are good in revenue management and they apply most advanced techniques to manage their revenues. At the same time, it is amazing to see that in occupancy rate measures economy hotels always do exceptionally well with the help of the tourists. While both economy and high level operating hotels follow the concept of overbooking, the market segmentation is less practised and more importantly revenue management technology is least used in economy hotels.

2.4 The Research Questions
The revenue management techniques applied aptly will definitely make a positive impact in profit generation in the hospitality industry. There can be potential challenges in making revenue management a business process. Those challenges can be analysed and dwelt with in three phases. As far as the Lisbao Cntral Park hotel is concerned, this study will investigate, Firstly from the perspective of the firm and secondly from the perspective of the employees and then from the perspective of the customers. Therefore, this study will address the following questions to prove beyond doubt that making revenue management a business process at Lisbao Cntral Park hotel would make an impact in the maximization of profitability. A) Does the hotel segment the market and fix the prices, measuring the occupancy rate and revenue accurately with an awareness of the external competition B) Do the employees have a positive exposition towards working within the business running on a revenue management process C) Does the short term profits generated with the revenue management process, at the same time, helps help to sustain the long term customer loyalty in terms of attracting customers with a varied pricing and so on

CHAPTER 3

3.1 Data collection
This study will conduct various forecasting and comparison of performance utilising the historical booking data of the hotel. The goal of forecasting in this study will be to get an estimate of the future demand for rooms, based on past and current customer bookings. It is a crucial step to set bookings limits for a particular class of customers (e.g in our case accepting or rejecting a hotel reservation). By analysing the period between June 2008  June 2009, this study will observe how the capacity constrains were managed by allocating the available space to different distributors channels. These reservation modules will be comparatively evaluated through three revenue management performance measures over a period from June 2008 - June 2009. Each segment would generate additional services required and also associates revenues that bring an optimisation as a keyword to the success of the hotel.

In order to assess the above data with accurate revenue management measures the following segmentation criteria will be used in the study and later on these criteria will be recommended to the firm for segmenting its demand and selecting its market segment.

a. Family market segment
Hotel has spacious connecting rooms of 2 pieces differ from 40 m2 to suite junior of 120 m2 for family where it is fixed for a family need. However, we like to recommend hotel offer a place reserve for child with games.

Hotel offers only breakfast. This point is an inconvenient for this segment.

b. Middle, young Couple
Room facilities are quite limited they have cable TV, bath, telephone, and toilet. Moreover, middleyoung couple segment market has high requirement for the comfort, relative to income (US travel association).
Breakfast opens only at 7.30 am, it is inconvenient for people who have to leave hotel early.

Internet Free of charge for guests that is good point for the hotel, because for this Market segment, people travel with the business. That means client needs to keep contact with business through internet. For them, internet is one of raison to choosing the hotel.

Good hotel location.

Fact does not have restaurant service can loss high revenue from this kind of clients.

c. Backpacker and walk in
Hotel rate and central location in the city are good for backpacker and walk in guests.

d. Local Enterprise  conference
They will have success when hotel can operate full services of FB restaurant and meeting room. Because the character of Guest comes from enterprise is having meal and sleeping and conference in the same place.
Hotel management could develop this market in the future.

Data will also be collected from the customers and employees of the hotel during a six months period, a duration in which this study will be conducted. The study may not design specific questionnaires, but the data collection from the customers and the employees will be done through in formal interviews and the data will be recorded in excel template especially designed to note the trends. The final analysis of such data will reveal the customers and employees overall attitudes towards the changes of making revenue management as a business process.

A PEST analysis on the current affaires of Portugal and SWOT analysis on the Lisboa Central Park Hotel will be conducted to establish the priorities and business environment conducive for the application of the Revenue Management system in the hotel. This would also address the question of accurately measuring the different process of functioning in the firm.
   
Secondly, the data collected from the informal meetings with customers and the employees will be analysed and, with a vivid discussion by the authorauthors, given to a selected group of experts from the senior management of the hotel. Their experience and observation will be highly depended before a conclusion is made.

CONCLUSION
Lisbon Central Park applies yield management through price policies for each segment using a variety of distribution channels and offering different products. The hotel has segmented its demand, and intends to concentrate on emerging markets, especially focusing on the family segment. The proposed study would enable the firm to make this Yield Management program a business process in order to maximize the profitability. The proposed study will provide the firm with necessary advice, suggestions, plans and guidelines to apply the system to a credible, positive impact.