Hotel Managers Adopt Revenue Mgmt. Systems

<B> Hotel Managers Adopt Revenue Mgmt. Systems</B>

By Douglas Clark

Business travelers demand two very distinct things from a hotel--a room when they need it, and at the lowest possible rate. Providing a budgeted priced room at the last minute, however, contradicts how most hotels operate today.

For long-planned trips, travelers and travel managers expect steep discounts on bookings that often reserve multiple rooms for extended stays. In many of today's booming corporate destinations, and especially for peak mid-week business travel nights, well-positioned hotels could easily sell every room on property weeks, if not months, in advance.

But the business traveler--faced with an unexpected client problem, a drop-everything-and-go sales opportunity or some other unforeseen development--also needs reliable access to last-minute accommodations. Factor in the demands of the non-business traveling public and you begin to appreciate the questions faced daily by hotel managers the world over.

Should a room be sold three months in advance to guarantee a booked room, but at the cost of a deeply discounted rate? Or should that room be held until the last minute, increasing the risk of an unfilled room in a hotel, but retaining the chance to sell that same room to a late-arrival business traveler at a higher rate? More to the point, how should hotels decide when, to whom and at what price a room should be sold?

As the hotel industry moves from recovery into high gear, with demand now exceeding supply on many dates at many properties, progressive hotel managers are changing their traditional strategic focus on maximum occupancy to a "revenue management" philosophy designed to optimize rates and revenues.

Revenue or "yield" management is a well-established practice developed and refined in the airline industry that for the past several years has been gaining wide acceptance in the hospitality marketplace. Today's increasingly advanced revenue management systems employ complex forecasting techniques to optimize a hotel's room occupancy rate as well as its price and revenue performance.

The hotel industry has benefited greatly from the earlier experience of the airline business, where revenue management has long been used to optimize seat availability, fares and revenue. The SABRE Group pioneered the application of revenue management in the airline industry. The company drew on its close association with its sister company, American Airlines, in the refinement of revenue management technology for the hotel industry.

For a given hotel, revenue management means selling a room to a customer at the right time for the right price. For the traveler, it means big discounts when a trip can be planned in advance. And while the guest room price may be somewhat higher, efficient revenue management also means rooms will be available for those critical, last-minute business trips.

Travel industry experts see revenue management as the wave of the future for the hotel industry. By balancing the often contradictory demands of occupancy and rate, this rational approach allows hotel properties to improve their bottom lines, while at the same time improving service to both business and non-business travelers.

To gain maximum efficiency from a product that is absolutely perishable--an unsold hotel night can never be sold again--a hotel constantly must decide how many rooms to sell to groups at discounted rates, how many to sell to early-calling transient guests and how many to hold back to sell at closer-to-rack rates for last-minute arrivals. To guide these decisions, hotel managers juggle the ever-changing variables of discounts, duration controls, overbooking, seasonal and local market trends, special events, no-shows, cancellations and strategic accounts.

There was a time when the vital function of managing rates and availability was left to little more than the intuition of the local hotel manager. But given the competitiveness of the hospitality industry, and the booming economy that has shifted the focus from occupancy to revenue enhancement, astute managers now seek the proven results of scientific, automated revenue management technologies.

Many revenue management users report a 2 percent to 4 percent revenue increase in the first year of use, with some properties seeing gains of 10 percent. At many hotels, particularly those with high average occupancy and frequent sell-out nights, those percentages translate into significant profits.

Of course, some travelers always will react negatively to the higher rates charged for last-minute accommodations. But most business travelers recognize, that while price is a consideration, when you need a last-minute flight and hotel room to close a major piece of business, what you are really buying is availability.

By understanding the dynamics of today's high-occupancy market, and by using revenue management technology to optimize rates and revenue, hotel managers can satisfy both the demanding business traveler and their own bottom line.

Douglas H. Clark works as a product manager for Sabre Technology Solutions, the information technology division of The Sabre Group.