Myth and Reality in Hotel Revenue Management

Despite all the available information about revenue management, there are still some myths that persist about this practice. These myths are sometimes quite surprising, given that hotel revenue managers have experience in the hospitality industry. But whatever the case, the myths are there and this article aims to debunk them. So here are some of the common misperceptions you need to be wary of:

1. Myth: Hospitality Revenue Management Can Create Demand
Reality: Yield Management Doesn’t Create Demand, it Manages It

2. Myth: Revenue Management is a complex technique by which you can manage rates, occupancy, and RevPAR at times of high demand. It’s not necessary during off-peak season.
Reality: It should be noted that Hotel Revenue Management is a process which enables hoteliers to strategically manage high, medium, and low demand throughout the year. In the process, the hotel can derive maximum revenue from their inventory.

3. Hotel Revenue Management Just Focuses on Discounting
Reality: Besides discounting, revenue managers follow a business process that is designed for optimize results for every market segment the establishment caters to.

4. Yield management is a “Black Box”
Reality: Many believe that the revenue management software is the end-all be-all of yield management, the truth is, it is just one component in the entire program.

5. Hotel Yield Management is only Good during the Peak Season
Reality: Effective hotel revenue management has the potential to provide long-term customer value.
As you can see, hospitality revenue management is more than what meets the eye. Though many have misconceptions about it, hoteliers who understand what it is and what it is capable of have an edge over the others.

Last Room Availability: What it means to Your Business

Back in the old days, the Last Room Availability (LRA) was mainly associated with hotel revenue management. However, it is becoming an important factor in the negotiations between online travel agents (OTA) and the hotel establishments. But before we proceed further, it might be a good idea to clarify certain things. First, the article is focused mainly on LTA, not availability parity or inventory.

The former is a function of “rate parity” so it ensures that all OTAs have the same opportunity to sell rooms because they are handling a certain level of inventory. LTA is unique because all rooms available on the hotel website must be available to the distribution partner as well. In addition, the details below are not intended to bash OTAs in any way.

Majority of hotel revenue managers do not have current LRA contracts with any OTA. Hotels that target various market segments, from brand-name hotels to independent properties in the US, Europe, and Asia-Pacific region are not bound by this agreement. An estimated 10 percent of hotel revenue management teams have contract with LRA in place. The firms that agree on this are mostly based in Europe and North America.

A lot of hoteliers revealed that LRA is now only starting to be considered. One concern is that hospitality firms usually provide contracted net-rate sales of around 30 percent or more below the published hotel rate. Ultimately, LRA has its pros and cons. It is important for hotel revenue managers to consider this option and determine in signing a contract would be good for the company or not.

It is important to remember that signing agreements with OTA tends to lock you in for five years. The fixed merchant rate is also not something hotels can easily get out of. Large OTAs are unlikely to give some ground. Yet, the recession may be a good time to consider LRA especially if you have previous concerns with your distribution partners and distributed room allocations.

4 Places to Find Travel Deals

Bargains are everywhere – if there’s still a few hospitality companies that are holding out, they won’t hold out for long. Certain establishments claim they “never discount” but in 2010, they will. It is only a question of how long they are willing to go. iExplore Chief Marketing Officer Amanda Sundt said that upscale resorts will provide two-for-one deals and dining credits to clients even if they don’t discount aggressively.

Another development that will force the prices down is the opening of new hotel establishments. The increased capacity, as hotel chains like Four Seasons and Hyatt open more branches, won’t help the industry in terms of their prices. Appropriate and effective hotel revenue management is important for the players to survive.

Airline Prices will stagnate or Decline – while there are indications that the economy is recovering, it is not healing enough to affect airfares significantly. Airline carriers will continue with their aggressive pricing due to lackluster demand from leisure travelers. And until business travelers pick up some of the slack, it won’t likely increase in the near future. Overall, this might be a good thing for hotels as people are encouraged to travel more.

Blackout Dates are a Thing of the Past – off-peak times is traditionally known as the “value” season as hotel revenue managers lower their prices to lure guests. But blackout dates may be a thing of the past because low prices are becoming the norm. Steve Heydt from Elite Island Resorts said that “We’ve responded to this trend by ensuring that we allow our current value pricing to roll over and be available next spring, summer, and fall.”

Social Networks Announces Travel Deals – the increased use of social media among travelers is making travel deals more common. Travelers usually know about travel deals from sites like Facebook, Twitter, and MySpace because their friends and contacts make the announcements. For certain airlines, social communities have even become loyalty channels.

Hotels Gearing Up to Provide More Travel Deals

Just when you thought that hotels have released their best travel bargains, they come up with surprises. 2010 promises to be the year of the best deals as hospitality companies struggle to improve their sales figure and their bottom line. While there are a few experts that say that travel packages that have been massively discounted are about to be gone, there are indications that they might be wrong.

When you take a look around, it seems that it is even increasing as hotels compete with each other. In addition, research firms have come up with data that supports this trend:

Deloitte & Touche reported that “Leisure travelers will continue to seek out specials in 2010.” And “With hotels fighting to hold their rates as much as possible, they may offer and additional free night, complimentary spa treatment or discounted meals” according to Adam Weissenberg. Aside from the hotel industry, the aviation industry is affected as well. The analyst believes that it will provide booking incentives, maybe a monthly pass, in the near future.

Meanwhile, another firm, Mintel, forecasts that travel sales will remain flat throughout 2010. In addition, the research firm said that sales will fall by around 2.2 percent for this year to $123 billion. Other industries involved in travel such as aviation will experience an almost similar drop in profits. If you’re wondering what this mean to the industry, Peter Yesawich from Y Partnership offers an answer.

He said that more than half of all active travelers intend to “stay fewer nights” on their vacation. The implications of this are considerate because their lifestyle can push prices lower. The next article talks about where the best travel deals will most likely be found.

Tips to Improve Hotel Profits Part 2

In the previous article, we provided a few tips on how to achieve profit optimization in revenue management. It is not a good idea to lower prices drastically or concentrate on market share if you don’t concentrate on the bottom line. Here, we continue the list of tips to help improve hotel profits without sacrificing your hotel’s brand image.

These strategies highlight the potential in the industry and identify rooms for improvement. Following these tips can yield surprisingly positive results:

Integrate Your Operations

In the manufacturing industry, integration is the watchword. The hotel industry is fast catching up as more revenue managers recognize its benefits. Previously, the focus of many yield management teams is only on automation. However, automating without integrating hotel operations misses the point. Rather than having individual applications and a lot of systems, putting it into one will make everything more cohesive.

Yield management solutions like RevPAR Guru can provide online rate distribution, demand forecasting, and inventory control among others. Having real time knowledge of your situation leads to better decision making and improve hotel profits.

Forget About Comp Set Online

Traditionally, hotel revenue managers rely a lot on their competitive set or comp set. Recent research from Smith Travel showed that consumers don’t really care much about the comp set anymore, especially online consumers. They focus more on price and value. So if you intend to become competitive in today’s climate and increase hotel sales, ignore the traditional comp set and generate maximum booking with well-targeted advertising, travel packages, and provide value for money.

Try Mobile Advertising

In case you haven’t noticed yet, the mobile phone is hardly used for calling or texting anymore. An increasing number of users are buying smartphones to browse the internet, work on the go, and be updated about the latest happening locally and globally. And when it comes to travel planning and booking, the phone is receiving a lot of fans as well. Aside from developing an e-commerce website, provide helpful information about your rates, amenities, and features. See your hotel sales skyrocket.

Tips to Improve Hotel Profits Part 1

For a lot of revenue management teams, today is the time to roll their sleeves and work even harder. The drastic decline in demand during the past year is now extending to its second year. Worse still, some predict that real recovery will occur at the later part of the year or even at next year. The need to improve all three indications of a hotel’s financial health including occupancy, average rate, and of course RevPAR is pressing to say at the least.

In their quest to improve RevPAR, a lot of revenue managers are resorting to reactionary techniques and untested strategy. Based on what occurred during the past year though, implementing untested methods in a recessionary climate might not be a good idea. Returning to the fundamentals and innovating only when solid foundations are in place is the answer. The following strategies can help increase hotel sales and result to profit optimization.

Put Hotel Revenue at the Top

Revenue should be the priority of every hotel. Any overlook is very basic principle though because they try to squeeze in as many guests as they can at the hotel without looking at costs or other opportunities in the market place. Meanwhile, other hotels price too high even during the lean seasons. Offering packages will improve hotel profits without sacrificing brand image.

Use Technology the Right Way

Despite the number of available yield management solutions in the market, a lot of hotel owners still rely on the yield manager to manually analyze and implement complex pricing structure. Unfortunately, there is a lot of room for human error in this instance. Putting a cohesive system in place and using revenue management software like RevPAR Guru can provide a long-term solution. It will increase occupancy rate, manage distribution costs, and identify the right pricing method for the hotel.

US Hotel Revenue Managers Face More Challenges Ahead

Staggering from the drastic decline in hotel occupancy, hotels from all levels are reacting by lowering room rates, giving discounts, and offering more packages. Revenue managers are implementing whatever strategy they can think of to regain corporate, leisure, and group customers and retain their market share against competitors.
It is undeniable that majority of hotels will suffer losses for 2009 though a number of them might still post a certain amount in profits. The statistics from Smith Travel Research (STR) will provide insights on how the economic recession unfold and how it has affected hotel revenue managers. In addition, it will also give a glimpse of the challenges ahead when the economy recovers.
It should be noted that the US hospitality industry is highly seasonal and revenue management strategies often revolve around seasonal demand. Because of this, the pickup in June was seen as a sign that the industry has bottomed out. And that recovery might soon be on the horizon. Unfortunately, this doesn’t seem to be the base. Looking at 12-month averages, it becomes clear that the three major indicators: ADR, occupancy rate, and RevPAR are still sliding down.
In fact, Smith Travel adjusted its 2009 forecast significantly in July compared to its previous forecast in April 2009. Just last April, the organization predicted that RevPAR will decline 9.8 percent while it said in July that it might go as high as 17.1 percent. As Smith Travel President Mark Lomanno noted, “To a large degree, the industry is in a bit of panic mode.” In essence, when people see others cutting their expenses, they feel compelled too follow suit. This type of behavior will linger for some time.
As a hotel revenue management professional though, you might wonder, “Is it right to base the projection in the 12-month moving averages alone?” Well, it certainly isn’t. But the fact is even if you look at other indications, there is only a single week (ending December 2008) where all three indicators of hotel profit such as RevPAR, occupancy rate, and average daily rate did not decline. Hospitality yield managers can certainly expect a tough year ahead.

Travelers are Less Loyal to Hotel Loyalty Programs

Many hotel revenue managers might have already noticed the trend, but now it is a fact: travelers are becoming less loyal to hotel loyalty programs. And hotels are not the only ones affected by this, airlines, restaurants, and other hospitality firms are seeing the same trend. In fact, a Colloquy research firm survey showed that there is a decline of as much as 31 percent in active participation of hospitality loyalty programs.
Right now, travelers participate in 1.5 travel loyalty programs compared to the estimated 2.2 they participated on in 2007. In essence, less people are adding points to their travel account or cashing in on their points. There is no single reason for the drop because no situation is the same among travelers. For example, business travelers don’t need to travel as much because of fewer transactions. Meanwhile, families might be vacationing closer to home, with our without travel points.
In addition, yield management teams should also note that a lot of corporations are establishing established contracts with certain airlines and hotels. Executives and employees who go outside these programs will be penalized. Meanwhile, still a number of travelers are getting tired of juggling multiple accounts and have decided to stick to one or two.
The trend is summarized by Praveen Kopalle, a professor at Dartmouth College, “The thinking is that I’d rather be something to somebody as opposed to nothing to everybody.” In times of good economic condition, there is less constraints. But right now, hotel revenue managers are hard-pressed to determine what basket they should put their eggs in.
Every hospitality revenue manager, from airlines to hotels, knows this trend. That’s the reason why tons of packages, points, and other deals abound in the marketplace. They’re trying to carve a niche and provide value to customers that are willing to spend. Even revenue managers today admit that it might be a mistake for their clients to let their accounts lag.
The deals are just too attractive; for example, certain companies are letting customers earn twice as many miles these days just to keep them active. It would be a waste to let these offers pass especially when you can claim most of them when the times take a turn for the better.

US Hotels Drop Prices by 17 Percent

According to the latest data from the Hotel.com price index, the average hotel room rate in the United States fell by 17 percent during the first part of 2009. This figure is derived when the hotel rates this year is compared to the prices in 200. United States room rates averaged $115 a night during the first and second quarter of 2009, down from $139 of the previous year.

David Roche, the President of Hotels.com, commented that “This is by far the most significant change in prices we’ve seen since we created the Hotel Price Index. Americans’ travel dollars have never gone farther than in 2009.” It has become a trend among hotels, even high-end establishments, to provide discounts and other packages to attract more customers. This makes luxury and various amenities more accessible than any time in the last five years.

The drop in hotel rates does not affect the United States alone. It merely follows a global phenomenon where room rates around the globe fell at an estimated 17 percent. Price drops can be seen in every continent. North America and Asia both declined by 17 percent, Europe was down by 16 percent, and Latin America saw an 18 percent drop. It is not surprising that many are wondering when their yield management strategy will start to increase hotel profits.

Some notable points in the report are as follows:

- New York and Las Vegas experienced the biggest drop in hotel room rates, each destination dropped down their rates by an estimated 30 percent. But although New York had a drastic cut in prices, it remains the most expensive US destination averaging $196 per night.

- After New York, the states that follow on the most expensive list include Hawaii, Massachusetts, and Wyoming. Ski tourism, in particular, increased the hotel rates of the latter.

With the changing worldwide phenomena, hospitality revenue management is playing a more important role than ever. Worldwide, yield managers are looking at it as the solution to increase hotel sales and achieve profit optimization.

Business Travelers Give up Amenities to Save on Costs

Americans today are finding a lot of ways to cut costs, business travelers are no different. Previously, people who travel for business couldn’t care less about their expenses. They are the biggest spenders because the costs are typically shouldered by the company. However, with the tough economic conditions today, business travelers are forced to improvise. A lot of budget-minded individuals are shifting to lower-priced hotels either by choice or because they are told to do so.

The biggest beneficiaries seem to be budget hotels and institutions that keep their price low by not offering different amenities like meeting rooms, gyms, restaurants, and other facilities. They saw an increase in hotel sales and profit optimization. Caleb Tiller, the spokesperson for the National Business Travel Association revealed that companies are “moving travelers to lower-tier hotels”. And in the hospitality revenue management industry today, it is definitely apparent.

It should be noted though, that depending on the company, the approach to tightening the budget seem to be different. For example, a lot of companies are requiring it while a number of others are simply encouraging it. On the other hand, a few large organizations are trying to set an example to everyone concerned by making their top executives get modest accommodations while on a business-related travel.

A few executives admitted that there are some discomforts attached to trading down especially during the check-in time. Because they are not regulars at the hotel, the hospitality staff needs them to fill out forms and process his credit card. This trend has no signs of abating though. Almost every type of hotel is seeing some of this trend. This makes yield management strategies even more crucial.

The only type of hotel that’s not suffering too greatly under the circumstance is “service-select hotels”. Basically, hotels like Four Points by Sheraton and Hilton Garden Inn fall under this category. Though it is still relatively upscale, there are minimal amenities. These hotels saw minimal decline in revenue per available room because and other hotel profit indicators because of this competitive edge.