Question

Shawn, a Revenue Manager of 500-room Hotel CUHK, would like to compare two approaches (single vs. three-price) of hotel room pricing. ADR RexPAR GOPPAR Room Sold 200 Room Revenue Pricing Price Level Strategy Single HK$4,000 Price Three Low - HK$2000 Price Regular - HK$4,000 High - HK$5,000 (Total) % change between the two approaches (use Single-Price Approach as the base) 100 100 | 100 300 a) Assume management controllable expense is HK$150 per room and non-rooms operating revenue is HK$500 per room. Calculate room revenue, ADR, RevRAR and GOPPAR and discuss which pricing approach would be a better choice for Shawn to maximize revenue. Round your answers to two decimal places for revenue, ADR, RevRAR (e.g., 12.34) and GOPPR and four decimal places for percentage changes (e.g., 12.34%).

Answer 1

ADR=(Total room revenue/Total no.of rooms available for sale

Where,

Total room revenue= Price*No.of rooms sold

Total no.of rooms available for sale =500

RevPAR=Revenue per available room=

Total Room revenue-Expenses for all the rooms available

Total room revenue= Price*No.of rooms sold

Expenses for all the rooms available=150*500=75000

GOPPAR= Gross Operating Profit Per Available Room=

Total Room revenue-Expenses for all the rooms available+Total Non-room operating revenues

Total room revenue= Price*No.of rooms sold

Expenses for all the rooms available=150*500=75000

Total Non-room operating revenues=500*500=250000

1	2	3	4	5=Col.4/500	6=(Col.4-$150*500)/500	7=(Col.4-($150*500)+($500*500))/500
Pricing Strategy	Price level/room	No.of Rooms sold	Room Revenue	ADR=(Total room revenue/Total no.of rooms available for sale	RevPAR	GOPPAR
Single- price	4000	200	800000	1600	1450	1950
Three-price	Low-2000	100	200000	400	250	750
	Regular-4000	100	400000	800	650	1150
	High-5000	100	500000	1000	850	1350
	Total	300	1100000	2200	1750	3250
We need to take weighted averages to calculate per available room metrics for the three-price strategy:
Wt.Av. ADR--(33.33%*400)+(33.33%*800)+(33.33%*1000)=				733.26
Wt. Av. RevPAR--(33.33%*250)+(33.33%*650)+(33.33%*850)=					583.28
Wt. Av. GOPPAR--(33.33%*750)+(33.33%*1150)+(33.33%*1350)=						1083.23
% change between the 2 approaches(1083.23-1950)/1950=						-44.4497%
Further to the above calculations, it can be seen that
Single-price approach will be a better choice for Shawn to maximise revenue
as all the Per Available Room metrics are lower with the three-price strategy.