Unit I Tariff Structure
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Hotel room rates are difficult to determine as they are both qualifiable and quantifiable. Many factors are considered when setting rates, including competition, customer profiles, amenities, location, publicity efforts, and costs. Rates must be competitive with similar hotels while also accounting for customer paying capacity. Additional factors that influence rates are standards of service, room location, and individual hotel characteristics. Rates can be set using different structures and bases including check-in/check-out times, nights spent, meals included, and formulas related to costs and projected occupancy. A hotel's rate card publishes room prices under various categories and meal plans.
Unit I Tariff Structure
- 3. Tariff means rate and when applied to rooms of a hotel it means room rate. Hotel room rate fixation is a difficult task. They are both qualifiable and quantifiable. The quantifiable aspect is that they can be measured and structed to meet certain criteria. The qualifiable aspect is that large amount of discretion are allowed in which rates are implemented. The combination of all the rates offered at a hotel is called “Rate Structure.
- 4. Competition Customer’s profile Standards of service Locality Various amenities Room location Publicity Price cuts for special business The Surroundings, cost of land & Building architecture, Construction
- 5. Rates must be competitive with other hotels of the same standard and providing almost similar services and facilities as provided by other hotels situated in the same vicinity of the city.
- 6. The category of customers coming to the hotel must also be considered. Their social status and financial status. Example. Paying capacity , should be kept in mind.
- 7. Standards of services provided by the hotel are also important while fixing room tariff. The U.S.P. of hotel should be kept in mind while deciding the room tariff. More the amenities, higher the standard, so also higher the room rate.
- 8. The locality in which the hotel is situated gains prominence while fixing room rates. If the hotel is situated in a posh locality where all the shopping malls and other facilities, approaches to airports are worthy. room rate would be comparably higher . The guest would not mind paying more if he get amenities and facilities to his taste and likings.
- 9. Various amenities the hotel is going to provide to the guests such as air –conditioning in all the rooms , carpeting, swimming pool & tennis court equipment , conference halls , lobbies. Special aspects of continental and Indian cuisine , cutlery and crockery , modern equipments and machinery. These things do count when factors of room – rates are considered.
- 11. The location of the room also matters a lot. Front rooms and rooms opening to better views would cost more than dark rooms , corner rooms or opening to indifferent chambers.
- 12. The amount of publicity done by a hotel and special budgets prescribed for hotel publicity also matters in deciding the room rates. This type of expense has to be adjusted somehow as it has no source of return but is a must in popularizing the various services of a hotel.
- 13. Check-in and check-out basis Twenty-four hour basis On the basis of Competitor’s rate Night basis Day basis Inclusive and non inclusive rates Rule of thumb Upside down method Hubbart’s formula
- 14. It is the most common way of fixation of tariff The hotel fixes a specific time usually 12.00 noon as check-out time which means the guest charging cycle begins from 12.00 noon and finishes at 12.00 noon on the next day. For a guest staying in a hotel after 12.00 noon , next day’s charge may be levied. Accounting keeping is simple in this system.
- 15. In this system the charges of room starts from the time when the guest checks in and he has to pay for one day up to 24 hours from the time of arrival. This system is good for small and budget hotels only.
- 16. In this system the guest is charged on the basis of number of nights that he spend in the hotel he irrespective of time of arrival. If he spends two nights he will be charged for two nights with a minimum of one day charges.
- 17. Sometimes a guest may stay in the hotel for few hours only and may not spend the night in the hotel at all. In such cases where he stays only for six hours maximum hotels may charge special discounted rate and the rate is called “day rate or day use rate”.
- 18. Hotels also charge room rates on the basis of meals provided or not provided along with room to the guest. European plan: where the tariff of room includes only the room rate and for meals charged extra rate. Continental plan: where the room tariff includes room rate and continental breakfast. American plan: where the room tariff includes room rates, the English breakfast, lunch and dinner. Modified American plan : where the room tariff along with room rates include English breakfast and one of the two major meals either lunch or dinner. Bermuda plan: where the room tariff includes room rate and American breakfast
- 19. Another very traditional way of charging room rate is rule of thumb. In this system “one Rupee” rate is fixed for every Rs1000/- spent on room construction cost. This is also called as ‘cost rate formula’.
- 20. Hubbart Formula approach considers operating costs, desired profits and expected number of rooms sold. In other words, this approach starts with desired profit, adds income taxes, then adds fixed charges and management fee, followed by operating overhead expenses and direct operating expenses. It is consider a Bottom-up approach. Copyright. Eugene Win CRDE 2009
- 21. Total Operational cost or Expenditures + ROI- Income received through food & Beverage sales+ Rentals+ other miscellaneous sales Divide the remaining amount by projected number of rooms occupied.
- 22. Step 1: We calculate The operational cost (expenditure) i.e. the cost of land, interiors, furniture, fixtures, other expenses to provide services to guests, licences, HLP (Heat, Light, Power), Salaries etc. Step 2: R.O.I- Return on Investment: Whatever investment is done on the hotel building and services, the owners wants some profit in return, that’s why they add some amount to operational cost so that they can earn some profit.
- 23. Step 3: Step 1 + Step 2 (we add Operational cost and ROI). Step 4: We add income received through food and beverage sales, Rentals (shops, salon, etc) and other miscellaneous sales (telephone, laundry, etc.) Step 5: Step 3- Step 4 Step 6: Divide the remaining amount (that is received through step 5) by projected number of rooms occupied.
- 24. ARR (Average room rate) = Total room revenue Total no. of rooms sold/Occupied REV PAR (Revenue Per Available Room)= Total room revenue Total no. Of rooms available for sale
- 25. Room tariff is a document published by the hotel for use by the travel trade, organization and individual guest. The list includes prices of rooms classified into different categories , such as single room , double room , twin room , suites , etc. and meal plans such as American , European and Continental etc.
- 26. Rack Rate Group Promotional Incentive Family Package Hotel website Airline Complimentary CVGR House Use BAR Adhoc Rate Travel Agent Rate
- 27. Any Questions??