‘One of the fundamental business concepts is that a company is in business to make money’ (Hales, 15:2005). Revenue is the monetary amount that customers pay to receive a product or service and is the first aspect considered when conducting financial analysis as it starts the cash flow process of a company (Hales and Van Hoof, 2010). Moyer et al (1995) explain that companies compare their financial situation to their past performances and competitors through revenue by financial ratios.
Hales (2005) notes the formula to calculate revenue is Rate x Volume = Revenue, the volume is the number of units sold and the rate is the price paid for the product or service. After revenue is calculated it’s shown on an income statement, which reflects the operations of a company on a monthly, quarterly or annual basis, also known as a profit and loss statement (Gowthorpe, 2005). The benefits from income statements are that several departments are included for companies to see where there revenue is being generated (Coltman and Jagels, 2001).
In such statements hotels often refer to their revenue per available room as RevPAR; this assesses the overall earning power of the rooms available for sale and as a key measure for evaluating the usage of accommodation letting spaces (Adams, 2006; Barrows and Powers, 2009). Walker (2007) notes that yield management, also referred to as revenue management is used to maximise room revenue at hotels. It is based on the economics of supply and demand, which means that prices rise when demand is strong and drop when demand is weak (Harris, 1999).
Heller (2011) describes January as a quiet month for the hotel industry and by implementing yield management strategies such as decreasing prices during this time, this has increased overall occupancy. Knowles (1998) believes that the three main sources of revenue areas are rooms, restaurants and bars. Andrew et al (2007) shows the main three areas that bring in the most revenue are firstly, sales of rooms, secondly food and beverage (combining restaurant and bar) and additionally telecommunications.
Angelo and Vladimir (1994) and Lewis (2008) agree that the rooms division is a major department and the central reason for the business entity, not only do rooms occupy the most space in a hotel and produce the most revenue; they generate the most profit. Fenton et al (1989) state that rooms sales is the prominent area of a hotels revenue and also suggests that ‘other operating departments’ i. e. banquets and conferences, room bars, telephones, coffee shops all greatly contribute to a hotels revenue.
However a recent study has shown that such amenities for example telephones and in-room movies are now ‘dry’ sources of revenue due to new technologies such as mobile phones and laptops becoming more common (Hospitality Portal, 2010). Following on from Fenton, (1989) Felton (2005) explains how hotel markets mirror political, sporting and economic events when revenue is concerned, for example if there is a popular event going on in the area the hotels RevPAR will be increased, also if something were to disrupt the area the revPAR would decline.
Felton mentions the devastating impact on London’s hotel occupancy after the July bombings, the BBC (2006) also comment on this and note that there was a 2% instant fall in tourism to London in the following months after the bombings, with a further 11% fall towards the end of the year in 2005. The Mail Online (2008) also mention the impacts that events have on hotel revenue, the Bejing Olympics in 2008 encouraged hotels to have high predictions for room occupancy, unfortunately this was not the case and also mentioned in Nicholls (2012) hotels had to ‘slash’ their prices nearer the games to fill their available rooms.
It was believed that spa facilities in resorts were considered a luxury in the 1980-90s, according to Foster and Mandelbaum (2005) the spa experience moves beyond being a luxury commodity. Resort operators are now realising that having a spa is necessary not only to meet guest expectations but also to enable maximum revenue. Kimes and Singh (2009) and O’Fallon and Rutherford (2011) explain that spas are currently considered the fastest growing sector in the tourism industry, creating many opportunities for hotel revenue.
Madanoglu (2008) also shows that spas are important generators of additional revenue as they contribute, at times, over 20% to room revenue by using considerably less space than hotel rooms do. Knowles (1994) also states that increasing leisure facilities not only to hotel guests, but the local communities can also generate another source of revenue. Hyatt Hotels (2012) are now recognising the important role in building brand awareness through revenue centres such as restaurants and bars to gain repeat business not only from hotel room guests, but from customers wanting this service hat aren’t staying in the hotel. Intercontinental (2012) explain that by encouraging guests returns through positive brand awareness and customer service you can improve hotel revenue. Reid and Bojanic (2009) and Budie (2012) further mention brand awareness and how the exploding growth of the web, new medias and the rapid strengthening of third party intermediaries such as online booking sites has increased hotel revenue from making booking more accessible and through advertising on said websites.
It is clear that there is conflicting evidence to show that rooms sales, restaurants and bars are the main revenue sources of hotels. Theorists such as Felton (2005) suggest that there is a direct link between the local event calendar and revenue for hotels after mentioning Londons’ revPAR downturn after the July 2005 bombings. Foster and Mandelbaum (2005) mention spas facilities as another revenue source and how these are now expected facilities within hotels.
In addition to this within recent years changes to new media technologies, such as the growth of the Internet has increasingly had affect upon hotels by making them more accessible to customers, increasing brand awareness and allowing hotels to have up to date websites all contribute to hotels revenue (Reid and Bojanic, 2009; Budie, 2012). From looking at media articles as well as theory based research it is apparent that revenue sources are continually changing and adapting to the hospitality industry.
References:
Adams, D. (2006). Management Accounting for the Hospitality, Tourism and Leisure Industries: A Strategic Approach. Second Edition. London: Thompson Learning. Andrew, W. P. , Damitio, J. W. and Schmidgall, R. S. (2007) Financial Management for the Hospitality Industry. New Jersey: Pearson Education Limited. Angelo, R. M. and Vladimir, A. N. (1996) Hospitality Today: An introduction. Second edition. USA: The Educational Institute of the American Hotel and Motel Association. Barrows, C. W. and Powers, T. (2009). Introduction to Management in the Hospitality Industry. Ninth Edition. New Jersey: John Wiley and Sons Inc. BBC (2006). London bombs take toll on tourism. Available at: http://news. bbc. co. k/1/hi/business/4602564. stm. Accessed on: 13th Nov 2012. Budie, M. (2012). Revenue from streaming. Hospitality. 25. p48. Coltman, M. M and Jagels, M. G. (2001). Hospitality Management Accounting. Seventh Edition. Canada: John Wiley and Sons Inc. Felton, J. (2006). European Hotel Performance 2005. The Hospitality Review . 8 (1), p5-10. Fenton, L. S. , Fowler, N. A. and Parkinson, G. S. (1989).
Hotel Accounts and their audit. Oxford: Alden press. Gowthorpe, C. (2005) Business Accounting and Finance for non-specialists. Second Edition. London: Thompson. Hales, J. A. and Van Hoof, H. B. (2010). Accounting and Financial Analysis in the Hospitality Industry, Hospitality Management Essentials. New Jersey: Pearson Education Limited. Hales, J. A. (2005). Accounting and Financial Analysis in the Hospitality Industry. Oxford: Butterworth Heinemann. Harris, P. (1999). Profit Planning. Second Edition. Oxford: Butterworth-Heinemann. Heller, L. (2011). Hotel room rates push up yield, PKF date confirms. Available at: http://www. bighospitality. co. uk/Trends-Reports/Hotel-room-rates-push-up-yield-PKF-data-confirms. Accessed on: 12th Nov 2012. Hospitality Portal (2010)
Hotel Revenue from phone calls, in-room movies drying up. Available at: http://hotelier. typepad. com/hotelier/2010/09/hotel-revenue-from-phone-calls-in-room-movies-drying-up. html. Accessed on: 13th November 2012. Hyatt Hotels. (2012). Competitive Strengths. Available: http://www. hyattdevelopment. com/competitive_strengths/sales_and_marketing. html. Last accessed 13th Nov 2012. Intercontinental (2012). About Us. Available at: http://www. ihgplc. com/index. asp? pageid=16. Last accessed on 13th November 2012. Kimes, S. E and Singh, S. (2009) Spa Revenue Management.
Cornell Hospitality Quarterly. 50 (1). p82-95 Knowles, T. (1998). Hospitality Management, an Introduction. Second Edition. Essex: Addison Wesley Longman Limited. Knowles, T. (1994). Hospitality Management, an Introduction. First Edition. Essex: Addison Wesley Longman Limited. Lewis, M. (2008). Value of the Hotel Catering Market. Caterer and Hotelkeeper. February (2), 63. Madanoglu, M. (2008). Resort Spas: how are they massaging hotel revenues? International journal of Contemporary Hospitality management. 20 (1). p60-66 Mail Online (2008). Bejing Hotels slash rates after Olympic demand falters.
