Revenue Management: The Hotel Stimulus Package. By Jean Francois Mourier, CEO and Founder of RevPar Guru 

Hotels are being pummeled by the economy, and the hospitality industry is suffering in every corner of the globe – what else is new?  In the current climate, most hotel experts are expecting RevPar (revenue per available room) to drop by as much as 11%, perhaps even more.  And with occupancy rates already at all-time lows, this isn’t good news for the hotel business.  In such a climate, many hoteliers will compete on rate, but this only creates a downward spiral of price competitiveness, and more pain for the long-term growth and sustainability of hotels’ revenues once the economy bounces back.   

So how can hotels compete in this weak economy, looking beyond discounts?  Is it possible for hotels to flourish, even during a travel slowdown? 

The answer is yes!  A fundamental building block of revenue management, RevPar is one of the most important metrics of the hospitality industry and thriving in a weak market is entirely possible with the right system in place.  

Back to Basics

So first things first, what is revenue management?  Wikipedia defines it as “the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource (such as airline seats or hotel room reservations).”1 So in hotel revenue management, managers must decide what the optimal price is for a room taking into consideration the following items (among many, many others) to ensure optimal RevPar (revenue per available room): 

• Historical data
• Competitor’s pricing
• Time factor (also known as booking window)
• Forecasted  occupancy
• Force of demand
• Page positioning
• Special events, conferences, etc.

For hotels, RevPar is key determinant of profitability. It’s what keeps the doors open, yet many hotels and chains still handle room occupancy and pricing in an old-fashioned and haphazard manner – reactively and rarely scientifically – something which is beginning to change as savvy hoteliers embrace online algorithmic software solutions that will automate the revenue management process.   

Think of it this way – rather than having a revenue manager spend all their time deciphering endless reports and constantly updating prices (or going the other way and losing out on valuable revenue because they aren’t changing them often enough), automating the process will ensure that the job gets done properly (and that prices are updated in real time) and will ensure that revenue managers have time to focus on the bigger picture of strategic business development including proactive (rather than reactive) yield management, OTA market manager relationships, promotions, packaging, implementation, group values, etc.  All that good stuff! 

Recession Matters

During weak economic times, such as we are experiencing now, obtaining increased RevPar and bookings is a difficult but entirely possible endeavor.  I have seen proper revenue management take a struggling hotel from barely surviving to thriving, even as the recession bites deeper.   One Miami-based property was struggling to maintain a 45% occupancy rate.  After overhauling its revenue management system, occupancy jumped to 90 to 94%, with an increase in revenues of 70%. Too good to be true?  Absolutely not!   

Times like these require greater efficiencies in everything from improving customer relationships and boosting loyalty initiatives, to improving direct marketing programs and not cutting back on service.  None of these, however, can be sustained without optimizing cost centers and profits.  And on that basis, effective revenue management becomes an operational imperative, not an option.  It’s time for hoteliers to think beyond discounts and so I have created a list of tips on how hotels can increase their RevPar, without sacrificing margins or brand value: 

Supercharge your internet sales

Only web-based internet sales can compensate for what has not been sold in advance to fill your hotel. In 2009, the meetings and corporate market is slowing even more so sales efforts should be focused on the internet. This is the channel that discount-hungry travelers are using more and more frequently when booking travel, so it is vital to manage your hotel’s web presence to gain greater visibility and better positioning… which of course, means more sales. 

Open your sales office at night

Hotel staff cannot manage Online Travel Agencies (OTA) allotments 24/7.  So if you’re not adapting in real-time and making updates as travelers are out there shopping (even internationally) when you’re asleep, you are missing out on valuable RevPar dollars.  As supply and demand fluctuate non-stop, you need to automate your pricing at night to increase your hotel’s profitability.  

Increase sales by changing your rates more often

Once the OTA allotments are filled, your hotel is closed for business, with no one to reopen the online booking allotment. But as more bookings arrive, hotel rates should successively increase.  Many hotels, however, leave money on the table because there is no one to change prices in real-time. In this economic environment where every dollar can make the difference between boom or bust, changing rates only once or twice a day does not make sense, or cents, anymore. 

Re-direct sales from your online competitors to your hotel

The evolution of the internet and the growth of online bookings, has made every hotel’s list of direct competition grow dramatically.  But online is now a lifeline for the lodgings industry.  There are many hotels to choose from in any particular area, but by increasing your hotel’s online visibility, managing complicated internet opaque channels, and having the perfect competitive rate always listed on your website while keeping rate parity and best rate guarantee, will lead to a substantial increase in sales. Pricing competitively at all times will keep your hotel in the front of your online competitors, and will re-direct guests to your hotel, keeping your rooms full and profits ticking over.  

While this may sound like a lot of work, having the right revenue management system in place can wring the maximum amount of revenue from any hotel property – automatically – and free of human error.  Hotels can increase their occupancy rates and manage their distribution costs like never before. 

Given the effects of the global economic downturn, managing RevPar intelligently and effectively is a necessity and savvy hoteliers are embracing this business practice in their own properties. Rather than discounting in an effort to increase bookings (and decreasing their profit margins in the process), they are optimizing their pricing and their online presence for increased bookings and revenue.  They are thriving even as consumer and business travel continues to decline.  So now the only question is – will you be one of them?   

About the Author: Jean Francois Mourier is CEO & Founder of RevPar Guru, a company that has developed an alternative type of revenue management and real-time pricing solution (combined with automated online distribution) to help hotels maximize occupancy and increase their profits.  The company’s Yield Dynamic Price Engine, an integrated revenue management and pricing solution, adds unprecedented power and real-time adaptability to the pricing process, leaving managers more time to run their hotels. Reach him at jfmourier@revparguru.com or visit www.revparguru.com for more information about the company’s services. 

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