| by Bruce W. Mainzer, January 2009
A common misperception about hotel revenue management (RM) is that its
value diminishes when room occupancy falls. With a healthy economy,
an RM system can often appear to be a well running car engine, doing its
job to manage the mix of bookings to maximize revenues. During
low occupancy periods, some hotel management teams mistakenly view RM as
a low priority activity. However, it is precisely during these challenging
times that hotel professionals should be looking under the hood, and asking
questions regarding the methods and the data used to manage hotel pricing
and customer mix. Hotel teams should rely on RM processes to enable
responsive sales, marketing, cost containment and pricing decisions that
work in today�s economy.
Case studies have shown that 4 to 12% improvements in RevPAR are achievable
with effective RM processes. Recently, one large property that
implemented a revised RM strategy during a 5% decline in demand still experienced
a RevPAR increase of this magnitude. Since a single digit increase
in RevPAR can easily translate to double digit increases in gross operating
profit, RM�s value during this period should never be ignored.
Hotel managers should be focusing on the following activities to maximize
the contribution of their RM processes to hotel profitability during this
economic downturn:
1. Proactively Manage Booking Demand Forecast
Most RM systems use a blending of historical demand and the latest booking
trend information to develop a booking forecast. However, during
these times when recent booking behavior can be volatile and last year�s
performance may be irrelevant for today�s situation, hotel management should
confirm that the weighting between the latest trends and last year�s performance
is appropriate. These demand forecasts are also heavily dependent
on up to date and realistic group materialization rates and the latest
advance booking window trends to generate improved forecasts of room inventory
usage. Ensuring that these forecasts are up to date and responsive
to the latest trends will permit better pricing decisions by day of week
or identification of new profit maximizing pricing restrictions and packages.
Accurate and reliable demand forecasts also play a critical role in providing
hotel teams with opportunities to identify cost containment decisions for
total profitability.
2. Update Revenue Strategies and Policies to Reflect Current Conditions
The latest booking trends should be examined to identify pockets of
opportunity. What channels or demand segments seem to be performing
better than average? What does this imply about current sales
targets and pricing? Now is the time to use RM data to determine which
marketing programs are generating incremental room nights, and focus on
those advertising/promotion programs that are working. Assumptions
regarding profit margin for different demand types or pricing products
need to be updated to ensure that the right pricing is made available,
and room nights from the most profitable customer segment type can be maximized.
The review of hotel policies should be comprehensive and challenge prior
decision-making made under different economic conditions. As
an example, policies regarding contracted or recurring room nights need
to be reviewed. Perhaps a very restrictive policy toward accepting
contract room nights was appropriate last year with higher occupancies,
but in today�s economy this source of demand may be an opportunity to fill
otherwise empty rooms.
3. Revenue Manage Across All Revenue Streams
Many resorts and other properties go beyond room inventory revenues
and incorporate all revenue streams (spa, food and beverage, golf, telecommunications,
parking, etc.) for their RM decision-making. These �total revenue
managed� properties should be updating their assumptions about ancillary
revenues by analyzing the latest trends by customer segment, so that the
RM processes are working with the most current information.
For those properties that are not applying �flow through� operating
income derived from ancillary revenues to their RM processes, now is a
good time to upgrade their RM systems and decision-making to do just that.
By analyzing ancillary revenue behavior by customer segment (segments can
include type of guest, pricing product used, lead booking time, and or
channel used for booking), the RM system can drive further profitability
through more sophisticated pricing and availability by pricing product/
customer segment.
4. Maintain Rate Integrity with Effective Channel Management
After the travel downturn caused by 9/11, RevPAR declines were
often compounded by some hotels abandoning rate integrity and allowing
third party Web site properties to price room inventory independently of
the hotel property. The result was that, at times, third party Web
sites could have lower yielding room rates that were priced under the lowest
available rate offered on the hotel�s own Web sites, or call center.
Today, hotel managers understand the need for rate integrity, and frequently
employ channel management policies and processes that maintain control
over rates, even when room nights are distributed through third parties.
To protect RevPAR, it is essential that all third party room night distribution
agreements are reviewed to retain control of rates and availability. Although
the hotel should have a conservative approach to discounting rates, there
will be certain cases in which a discount or promotional rate will make
sense to generate profitability. Establishing that these price discounts
are contained and not spread to unmanaged distribution channels is a key
requirement. Availability of room inventory should be set according
to the channel�s per booking costs/ net yield so that booking availability
is restricted if higher yielding channels can be relied on to produce those
same room nights.
About the Author:
 Bruce
W. Mainzer formed Mainzer Consulting Group LLC to provide hotel owners,
asset managers, and hospitality management companies with clear assessments
of the revenue management needs of their hotel properties. Mainzer
Consulting Group provides the hotel industry with identification and development
of solutions to empower property revenue management systems to reach their
full potential. Mainzer Consulting Group has assisted owners
such as Strategic Hotels & Resorts, Inc., Maritz Wolff & Company,
and Broadreach Capital Partners to maximize the revenue performance of
their property portfolios.
Bruce is a recognized authority on revenue management and currently
serves as a member of the Editorial Board of the Journal of Pricing and
Revenue Management. He has over 24 years of experience in the travel
industry, serving as Vice President of Marketing of Hyatt Hotels Corporation,
and Senior Vice President of Marketing for TravelCLICK. Bruce�s revenue
management expertise began at United Airlines where he developed and implemented
the airline�s first yield management system. As Vice President of
Marketing for Norwegian Cruise Line, he introduced new yield management
concepts to the cruise industry, and later extended these concepts to the
ski and resort industry as Sr. Vice President of Marketing and Sales at
Vail Resorts.
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