Our hotel gets a request for a large group booking that would give a much needed occupancy boost. Trouble is, they�re asking for big discounts before handing you the business � which won�t be particularly healthy for your average daily rate.

Then you�re asked to bid for a piece of air-crew business, and you face a similar dilemma: should you sacrifice rate for occupancy by filling rooms at any cost � or stick to your rates, even if it means empty rooms?

In a cyclical industry like hospitality, which is at the mercy of fluctuating economies as well as seasonal forces, filling rooms at the right price is a near impossible balancing act � particularly when you have to make decisions today that will affect your operating performance a year or more down the road. One of the biggest buzzwords in the industry right now is �yield - management� � but what exactly is it all about? In a nutshell, it�s about planning ahead for the ups and downs of the industry and squeezing every last
drop of potential revenue to ensure your revPAR remains healthy.

That might sound a little like crystal ball gazing but, in recent years, it has developed into an exact technology driven science that is changing the way many hotels do business.

I spoke to Grahame Tate, MD Asia Pacific of IDeaS (Integrated Decisions & Systems International), and Martin Peterson, Asia Pacific VP of sales, marketing and e-commerce for Micros Fidelio about their yield management systems � and what they can do for a hotel�s bottom line.

MICROS� TLP (TopLine Profit) software was released in 1996 and is now used by more than 300 hotels. It is designed to maximise transient revenue through sophisticated forecasting and optimisation, and influence sales managers and reservation agents to produce the most revenue.

TLP provides tools for all market segments, including leisure, conventions, meetings and contract accounts. Profit contributions from all revenue streams are considered, as well as displacement of short lead-time business when making longer lead-time decisions. TLP morphed into OPUS 2 Revenue Technologies, Inc. (OPUS 2) in 1992.

IDeaS, founded 10 years ago by three scientists, now has a staff of about 200 people, including two offices in Asia Pacific and a large R&D operation in India. Following projects with Northwest Airlines and US Airways, IDeaS decided to focus exclusively on the hospitality sector.

Its E-yield system is based on unique algorithms developed by the company�s founders, which enable hotels to increase their profitability by maximising the opportunities created by sales and marketing. It forecasts future demand and then, in line with the hotel�s business rules/yield strategy, opens and closes rates, puts in length-of-stay restrictions and provides overbooking levels to the hotel.

It also provides the hotel with a dollar value of the business displaced should it accept a particular group request, showing the displacement costs on alternate days if the group is willing to alter its arrival or departure date.

OPUS is not a stand-alone product � how does that differ to a stand-alone one like IDeaS?

MICROS: Due to the nature of the design of OPUS2 products, they are best suited to an integrated environment where links are available to the PMS (property management system) and SCS (sales and catering system) to retrieve and insert information.

This allows for a much more timely and accurate approach to revenue management for the property.

Integration to third-party products facilitates the automatic generation of forecasts, hurdles and group analysis results for the operation. For this reason, OPUS2 products support interfaces to most major PMS and SCS products available, including superior integration with Micros Fidelio�s OPERA Suite plus PMS & SCS6 and 7.

OPUS2�s first-generation product, TopLine, supports a stand-alone environment where users are able to enter data and generate hurdles for updating in the corresponding PMS.

IDeaS: OPUS� TopLine is a good product in its own right, and I believe Fidelio has taken the stand-alone OPUS product and integrated it into its Opera offering. But E-Yield and TopLine differ in the way they think about demand forecasting. E-Yield forecasts demand by market segment, whereas TopLine does not. E-Yield also forecasts both group and transient demand, and TopLine does not.

I strongly believe that remaining independent from any PMS vendor allows IDeaS to solely focus on its core business and apply all our R&D efforts accordingly. This ensures that we remain best of breed. Yield management is all about forecasting as accurately as possible. When you rely on a yield management system to assist you in running your business, wouldn�t you buy the best engine available?

Do only certain types of hotels benefit from using these types of systems? Is it just the big ones, or can the smaller ones also see a good ROI?

IDeaS: If a hotel achieves a good average daily rate (ADR) and occupancies with a varied market mix, it will benefit from IDeaS. The majority of financial benefits are in length-of-stay management, with other benefits coming from rate and over-booking controls.

Given the conditions of good ADR and occupancies, naturally the bigger hotels will have a larger ROI and shorter pay-back.

Having said that, we have hotels ranging from 65-room boutique properties up to a 3,000-room property enjoying 80% group business. To be honest, there is no point installing a yield system where it will cost more than it generates in revenues. We go to a lot of trouble to ensure that any hotel we install our system in has the potential to deliver the returns we promise.

MICROS: Not all properties have a requirement for a revenue-management system. OPUS2 products are most beneficial to properties that experience business patterns with peaks and lulls over the course of the normal week. In this way, we help to flatten these patterns via management of the stay patterns through these periods.

OPUS2 products are suited to properties or companies of any size. Our installation base includes properties of less than 100 rooms to more than 5,000 rooms, and our enterprise system handles revenue management for whole corporations.

How complex is it to install and manage these types of systems? Does it need a full-time member of staff or even a team?

MICROS: The installation of the application is handled completely by the Micros Fidelio Asia Pacific revenue management team and is a fairly simple process.

In fact, from project commencement the application can be installed, configured and fully operational and already optimising the clients business within two weeks.

Management of the system is divided into daily, weekly and monthly tasks which are carried out by the revenue manager (or personnel appointed to the role) and involves monitoring of the system and data integrity and identifying future opportunities in business patterns.

IDeaS: I suppose you are expecting a �Yes, it�s simple � leave it up to us� kind of answer, but the reality is that it�s as complex as the business model at the hotel. It�s not a trivial task to build and install a yield management system. 

It takes us about four months and, at times, there is heavy involvement from the hotel which, from a system ownership perspective, should not be underestimated.

Not just in training, but also in helping us understand what we see in the historical data of the hotel.

There is a total of nine days training, carried out over three separate sessions, but it is the hotel�s involvement � both during installation and as part of an ongoing process � that is the key to the big returns we promise.

It should not be thought of as extra work. Rather, the automated system should be allowed to get on with the daily grind of forecasting while the revenue manager uses the information to assist the sales and marketing team to drive the property in a more profitable manner. After all, it�s all about revPAR � you can�t take occupancy or ADR to the bank.

When new systems are installed, some staff get concerned that it may eliminate their jobs. Is this the case with this type of product?

IDeaS: No! The product is a new member of a hotel�s revenue-management team and can�t succeed without the other members being actively involved. 

You can�t take the human element out of the hotel business. IDeaS yield management is about getting control of the business, not relinquishing control of the business to a computer.

MICROS: Our products are designed to assist management by providing information and analysis that would be difficult to achieve in a manual environment. In the same way that a PMS is an indispensable tool to manage reservations, arrivals and departures, our products are integral in the management of revenue earning potential. Personnel responsible for the monitoring of revenue practices should be enthusiastic, not threatened, about implementing OPUS2 products.

What are the kinds of benefits one would expect from installing these types of system? Do you offer some sort of guaranteed ROI?

MICROS: Products provide forecasting & optimisation of transient business, including rates, length of stay and oversell cal-culations to the room-type level. OPUS2 provides the analysis of all group business, including all contributions from ancillary revenue and costs vs the transient displacement to provide an accurate projection of the value of each piece of group business.

IDeaS: We have seen many hotels move up in their competitive set based on revPAR, which means increased revenues.

The payback time for the investment is usually between three and nine months, with the ROI against a 10% cost of capital being around 400%-500% over a five-year period.

For certain hotels, we will provide a contractual guarantee of a minimum of 4% uplift in room revenues.

Can a new hotel install a system, or does it need to have operated for a while?

IDeaS: Normally, we need to see a full year�s worth of historical data. In some cases, where the same owner has hotels next to each other that address the same markets, we would be in a position to build a system based on the data from one of the hotels.

MICROS: OPUS2 uses both historical and actual data to forecast the demand for a property. Over time, the actual data is given more weight than the historical information to provide a more accurate forecast of the changing business patterns for a given property. In the absence of historical data (such as with a new property), OPUS2 immediately gives weight to the actual information received from the PMS to provide the system forecast. 

Terence Ronson [email protected]

Terence started his career as a Chef, and acquired his wealth of practical experience and knowledge whilst holding various management positions with Hilton International in Asia and at several prestigious establishments in the U.K. After developing a personal interest in computers and technology some twenty years ago, Terence has turned his attention on to this exciting and rapidly evolving aspect of the business, working with several  prominent IT related companies in the hospitality industry, applying their products and services so as to streamline businesses, improve profitability, and the guest experience.