Performance & revenue
Displacement analysis
Also written: displacement
A revenue management procedure that calculates whether accepting a low-rate group or contract business generates more net revenue than the transient, full-paying guests it will force away. Distinct from physics, in hospitality it measures net financial gain across rooms and total outlet spend.
Formula
Displaced Transient Revenue = Displaced Transient Rooms × Transient ADR
How it is used
Revenue managers execute displacement analyses before accepting group RFPs, long-stay contracts, or airline crew blocks during high-demand dates. The calculation compares total anticipated group revenue—including food, beverage, and meeting space rental—against the transient room revenue lost at BAR (Best Available Rate). If the group's total profit contribution exceeds the transient profit displaced, the business is accepted. This process drives group quoting strategies, minimum rate thresholds, and wash factor adjustments.
Worked example
A hotel considers a 50-room group for two nights at $150/night ($15,000 room revenue), bringing $5,000 in F&B profit. Accepting them displaces 40 transient rooms per night paying $220/night. Displaced room revenue is 80 rooms × $220 = $17,600. The group yields $20,000 total revenue versus $17,600 displaced, resulting in a positive net gain of $2,400.
Common mistake
Evaluating room revenue alone without accounting for ancillary spend, variable room costs, or group sales commission often leads to accepting unprofitable group business.