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Tariff Structure


Tariff Structure & Basis of Charging

Tariff is the rate or charges offered to the guest by the hotel for the use of different facilities ans services, during their stay. Commonly, tariff is a charge of room rates and other facilities. Tariff is a charge of room rates and other facilities. Tariff or room charges may include meal or breakfast depending upon the plan as per the guest choices. Prices of hotel services are incorporated in a card known as the ‘tariff card’.


Tariff card is the card containing the rates or price charged by a hotel for accommodation. Tariff card may include meals depending upon the types of plan the hotel offers to the guests. Prices of meals and other hotel services are also printed in the hotel tariff card.



Basis of Charging Room Rates

The sale of rooms contributes more than 50% of total revenue generated in the hotel. rooms are charged on the following basis:

  • The 24 hours basis: In twenty-four hours basis the room is charged for the stay of 24 hours. If a guest arrives  at 9 am today, the room charges will cover until 9 an tomorrow. No concession will be given if the guest leaves few hours earlier. His/her hotel day begins at 9 am every subsequent day. There is not any fixed time for check-in and check-out.

  • The 12:00 noon: A particular time of a day is fixed, mostly 12:00 noon as a check-in and check-out time for all the guests, hotel day begins at this time. This method is advantageous that a room can be sold twice in a same day. For example, Mr. A arrives at 12:00 noon and checks out early. After few hours, Mr. Y arrives and is provided the same room, he is also charged for whole day.

  • The Nightly basis: Here, the charge is fixed, according to the nights spent in the hotel. If a guest stays from 10 am until 6 am the next day, the guest in charged for one night or a day.

 

Food Plans: Tariff Structure

A Food Plan is a scheme or package through which we offer accommodation as well as food to the guest against a fixed rate. Following are the food plans commonly available in hotel:


European Plan (EP)

The European Plan, sometimes abbreviated as EP in hotel listings, indicates that the quoted rate is strictly for lodging and does not include any meals. Any food provided by the hotel is billed separately. Taxes and tips are usually additional as well.


American Plan (AP)

The American Plan, sometimes abbreviated as AP in listings, means that the accommodation’s quoted rate includes three meals a day, i.e. breakfast, lunch, and dinner. In the American plan, the meals are provided by the establishment’s kitchen and served on site.

Some hotels offer guests the option of being on the American plan or paying a la carte for food consumed in their facility. Travelers choosing a hotel in a remote location where there are not many restaurants — or none at all — are advised to stay at a hotel that offers an American plan.


Cruise Ships are one place you can always count on having an American Plan, since you can’t exactly take a walk around the corner if you don’t like the fare. However, several cruise companies have found a way to extract more money out of each passenger. In addition to their buffet and main dining room, where there is no extra charge, they tempt with additional restaurants where you can dine for a fee. These include the mediocre sushi restaurant aboard Anthem of the Seas, the inventive Qsine restaurant aboard Celebrity Cruises, and the elegant Pinnacle Grills aboard some Holland America ships.


Notes to ConsiderIn Europe and some other places around the world, the American Plan is referred to as Full Pension or Full Board. The American Plan is not the same as an All-inclusive Plan. The latter includes snacks and alcoholic beverages throughout the day in addition to the three squares.


Modified American Plan (MAP)

The Modified American Plan, sometimes abbreviated as MAP in hotel listings, means that the quoted rate includes two meals a day, including breakfast and either lunch or dinner. In the Modified American plan, these meals are provided on site and in the hotel dining room.

Some hotels offer guests the option of being on the American Plan, a Modified American Plan, or paying a la carte for food consumed in their facility. Travelers choosing a hotel in a remote location where there are not many restaurants — or none at all — are best served by choosing a hotel that offers at least a Modified American plan.

In Europe and some other countries, the Modified American Plan may be referred to as Half Pension or Half Board.


Continental Plan (CP)

The Continental Plan, which is sometimes abbreviated as CP in hotel listings, means that the quoted rate includes breakfast on the premises for every guest who occupies a room overnight.

Normally this meal takes place in the hotel’s restaurant or in a dedicated breakfast room with a few tables and chairs. You can also think of this as bed-and-breakfast, regardless of whether you’re staying at a hotel, resort, motel, lodge, inn or even a B&B.


Typically a continental breakfast is set out buffet-style — meaning you have to get up, select what you want, serve yourselves, and bring your food back to your table. You’ll also have to collect and arrange your own plates, cutlery, glasses and napkins. There is no set limit on how much you can eat, as long as you leave enough for the other guests. A continental plan breakfast array is usually only available during a span of several hours in the morning. It’s a good idea to ask about the schedule at the front desk when you check in so that if you snooze, you won’t lose.


Bermuda Plan (BP)

Bermuda plan is same as continental plan but instead of continental breakfast, American breakfast is served.


Go Plan (GP)

This is not a food plan in true sense, but is a kind of service provided by chain hotels. In this plan a guest is provided with temporary credit facility and they can settle their bills at their last unit (stay) of their tour program. Guests who come through Travel Agents attached to that hotel and Regular guests can avail this facility. It is an adjustment made in the settlement of accounts.

If a guest stays in different hotels of the same chain in the course of his tour, his bills will be forwarded to his next destination every time he changes the place of stay. The guest can make the payment at the last hotel he visits belonging to the same chain.


The use of these plans:

Commercial hotels prefer EP/ CP/ BP because:

  • Commercial hotels are situated in the urban areas, there are bound to be numerous restaurants in the vicinity. Hence the guest will prefer to keep his option open as far as meals are concerned. Moreover the hotel may not have a particular cuisine which the guest likes.

  • On the other hand hotel being situated in an urban area would get plenty of chance guests in their restaurants. Thus their F&B income is not restricted to only hotel residents. They do offer meal inclusive plans but only to groups sent by travel agents and company bookings for conventions, seminars, etc.

Resort hotels prefer AP/ MAP because

  • They may be situated in an isolated area with hardly any restaurant in the vicinity. Guests therefore prefer to have meals in the hotel. For the tourists wishing to go sight-seeing during the day, an MAP will be more appropriate.

  • The hotel itself benefits from this plan since the hotel relies only on the resident guests for their food and beverage income.

  • EP, CP, BP are the popular plans adopted in Commercial and Transit Hotels. They mostly get businessmen as clients, who normally have their major meals in independent restaurants. The Commercial hotels also get plenty of walk-in guests.

 

Hubbart Formula

The Hubbart Formula is a formula that can be used in hotel management.  It is used to determine the proper average rate to set for rooms in a given hotel. The Hubbart Formula is used to help with setting prices. 


It can be expressed as a formula:

[(Operating expenses + Desired return on investment) – other income]/projected room nights = room rate


As hotels see a constant increase in competition, they are forced to try and compete with other big name companies by providing better quality rooms or lower prices. In order to offer these lower prices, the Hubbart Formula is often used to deduce these prices.


Advantages of Hubbart Formula

  1. Systematic method of determining optimal average room rate.

  2. Forecast the desired return for any period of time.

  3. It takes into account the revenue accrued from non-room departments.

  4. Allows the manager to price in things like non-operating expenses.


CALCULATING ROOM RATES USING THE HUBBART FORMULA

  • Calculate desired profit: Desired Profit = Owner’s Investment X ROI

  • Calculate pre-tax profits: Pretax Profit= Net Income / 1 – Tax Rate

  • Calculate fixed charges and management fees: Depreciation+ Interest Expense+Property Taxes+Insurance+ Building Mortgage+ Land+ Rent+ Management Fees

  • Calculate undistributed operating expenses: Administrative+Information technology+Human resources+Transportation+Marketing+Property +Operation+maintenance+ energy costs

  • Estimate non-room operated department profit / loss : Food & Beverage Costs and Income+ Telephone Income

  • Calculate required rooms department income: The sum of pretax profits (Step 2), fixed charges and management fees (Step 3), undistributed operating expenses (Step 4), and other operated department income (Step 5) equals the required rooms department income.

  • Determine rooms department revenue: Required rooms department income + rooms department direct expenses of payroll and related expenses+other direct operating expenses

  • Calculate average daily rate (ADR): Divide Rooms Department Revenue by the Expected Rooms Sold to calculate ADR.



 

Rack Rate: Tariff Structure

When it comes to setting prices for rooms, establishing the highest rate is important. This rate is called the Rack Rate, and it is from this maximum price that all other rates take their lead. But that is not to say that one Rack Rate will apply to every room in a hotel. No. With rack rate setting it is essential to apply a different rate to each room category, otherwise occupancy (and therefore revenue) could be adversely affected.

When setting the Rack Rate for each category, a hotel will first consider key determinants, such as current and forecasted occupancy, deals, contracts with corporate clients, e.g., and any seasonal or out-of-season offers and discounts. Armed with this information, it can then set a Rack Rate that will ensure revenue is always maximized.

Hotels always have more than one rate code category for each room type. Room rates categories generally correspond to types of rooms available to sell in the hotel ( Eg: Suite, Deluxe, Premiere, Studio, Pent house etc. ).


Types of Room Rates

Corporate or Commercial Rate

These are rates offered to companies that provide frequent business for the hotel or its chain. This rate may vary according to the volume of business guaranteed by the companies. Eg: NEG1, COR1 etc.

Group Rate

These are rates which is offered to groups, meetings and conventions using the hotel for their functions.

Incentive Rate

The Rate offered to individuals who belong to an association or holders of special membership cards or Credit cards. Eg: Amex / VISA / Master card holders get 5% discount on Rack Rate, Lufthansa Frequent Flyer members get 25 % discount etc. For hotels these rates always give potential referral business.

Package Rate

Rates that includes a guest room in combination with other available events or activities. ( Eg: Best of London package which includes room rental, all meals, site seeing, airport transfers etc.) Package rate can be also a simple room and meal package like American Plan (AP), Modified American Plan (MAP) etc.

Honeymoon packages floated by some resorts attract business during the winters, e.g.- In Mussoorie, Packages are pre-paid usually for the full amount and refunds are not allowed. The families on holiday prefer such packages which range from 2 to 4 nights and can be extended on pro-rate basis.

Airline Rate

A rate which is negotiated between an airline and a hotel based on the volume of business the hotel is expected to get from the airline. Also applies to ‘layover’s’.

Day Rate

This rate is charged when a guest arrives at around 9 am and would stay only a few hours till about 3pm. Hotels only sell nights and hence this special day rate is charged which is sometimes 50% to 60%of the regular rack rate.

Half Day Rate

Rate charged for resident guests who want an extension in their check-out or departure time of 12noon. For example if a guest wants to keep the room till 6 pm, a half rate is charged which is 50% of the room rate he is already paying. However, at the discretion of the Lobby Manager, such a charge may be waived.

Travel Agent Rate

A rate which is offered by a hotel when the guest books via a travel agent. This rate is offered on condition of the Travel Agent providing regular business to the hotel.


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