Hotels Wield More Restrictive Yield Mgmt. Strategies

<B>Hotels Wield More Restrictive Yield Mgmt. Strategies</B>

By Bruce Serlen

While enjoying consistently high demand for rooms through 1999 and 2000, such hotel companies as Marriott International, Starwood Hotels & Resorts Worldwide, Swiss&ocirc;tel Hotels & Resorts and Omni Hotels were able to perfect the techniques of yield management they learned from the airlines. Now that demand is slipping, however, it's an open question as to whether they can be as successful with revenue management as they have been.

Often to the chagrin of buyers, these yield management techniques enabled hotels to generate the maximum possible revenue from every room in their inventory, depending on the night of the week, season of the year, etc. But during the past few months, there have been signs that the ever-increasing occupancy rate growth may be slowing. In February, for example, Smith Travel Research reported that U.S. occupancy rates actually were down over the prior year. However, revenue per available room for the month was projected to increase, rising 2 percent to 4 percent over 2000.

Assuming that the economic slowdown is short-lived and occupancy growth rises again, perfecting the techniques of revenue management will remain a priority for hotel companies. Certainly in key gateway cities where demand has been highest, the availability of rooms will remain an issue. And when demand is strong and there are fewer rooms available to book on a given night, hotels have the opportunity to yield the rooms that are available at a higher rate. In fact, thanks to the technological advances that have fueled current revenue management practices, this available inventory can be managed hour by hour, moment by moment, to generate every extra dollar possible.

A stumbling block for hotels in this effort is any assurances they may have made to buyers to provide last room availability as part of larger chainwide rate negotiations. "We're taking a strong leadership role in promoting 'no LRA rate' agreements," said Bruce Wolff, senior vice president of distribution sales and marketing at Marriott. "For corporations that are willing to forego the LRA need, we can provide a better rate."

As part of this approach, buyers are being asked to anticipate much more closely than ever before what their room needs will be in a given city on a given night. "Corporations need to put into their equation just how important LRA is at a hotel on certain nights of the week or certain times of the year, versus a lower rate throughout the rest of the year," Wolff said.

Complicating the availability/yield management discussion for Marriott and other hotels is a lingering confusion over just what LRA entails. "There may be a growing understanding of LRA, but there are still some misapprehensions and some paradigms that need to be broken," Wolff said. "However, we can structure deals cooperatively, so the traveler shows a little flexibility. Understanding that at peak times of the year they're not going to get into the hotel enables us to give them a better rate year-round."

At Starwood, the shortage of rooms in key cities on peak nights has led to instances where the amount of business a hotel will take at a corporate negotiated rate is being capped. David Ogilvie, Starwood vice president for global corporate travel, said these decisions are not made easily and are typically on a case-by-case basis (BTN, Nov. 13, 2000). Factors include the number of room nights the company is booking on off-peak and shoulder dates, as well as on peak nights, and how much business it's bringing to Starwood hotels in cities where availability is not an issue.

In fact, Ogilvie said Starwood had evolved a system of so-called "need cities," where it looks to direct room nights, and views clients favorably who can bring market share to those properties.

Even in the most popular gateway city, hotel companies are cognizant of the need to fill the house on slow nights.

"Sure we negotiate rates and provide LRA based on clients' ability to deliver room nights to our hotels in high season," said Steve Houser, vice president of sales and marketing at Swiss&ocirc;tels. "But more important is their ability to deliver during the low season. It has to be a year-round partnership."

At its worst, there are complaints that revenue management entails building blackout provisions and minimum length of stay requirements into the GDS, without travel buyers' prior knowledge. While such practices, no doubt, go on, hotel companies understand that client relationships take a long time to build and need to be respected. "We restrict minimum length of stay requirements for this reason," said James Caldwell, president of Omni. "The same is true of blackout dates. If somebody's been giving you business all year long, it's very hard to say, 'You can't come in on this week.' "

Ogilvie "recognizes that at some point there will be another economic downturn, but because we offer a 100 percent perishable product, we have to maximize revenue while times are good."

Marriott now is rolling out its new revenue management strategy. "We've had great success with this idea with the travel management companies," Wolff said. "In the past, they too had a very strong aversion to not having LRA. But they've been able to explain it and sell it to their corporate clients. This is the year we expect to see the change in the paradigm at a lot of corporations to affect negotiated rates for 2002.