News for the Hospitality Executive
Revenue Management Must Overcome Several Challenges
July 24, 2012
IN-DEPTH: Revenue management (RM) can contribute a lot more than it does today in the travel industry. But to do so RM executives need to take a longer term view of enterprise value which may conflict with the short-term optimization goals of their day jobs. They also need to think strategically about how RM principles can be extended to the customer and channel space.
EyeforTravel’s Ritesh Gupta investigates
RM is uniquely positioned to steer the revenue process in the travel industry. It is expected that RM professionals will be increasingly pulled away from the day-to-day tactical rate setting or inventory allocation decisions to share their expertise in the broader marketing context.
RM needs to integrate with all the disciplines – sales, marketing, channel optimization, loyalty marketing and operations –to be more successful.
A stronger contribution
The focus is on making tactical RM decisions easier, not only from the aspect of inventory management, but also when optimizing prices.
In the case of hotels, current systems or capabilities are restricted primarily to rooms, but if these are extended to other non-room items, in an integrated fashion, hotel groups would see improvement in operational efficiencies across the organization.
This would free up the RM professionals to think more strategically, says Dev Koushik, director, revenue optimization and analytics, InterContinental Hotels Group.
It is recommended that RMs’ contribution to the bottom line should be stepped up in two ways:
1. By evaluating the value of a booking on a profit and not just a revenue basis
2. By evaluating a booking on a lifecycle and not just marginal basis. This involves considering the repeat business or lower price elasticity of a customer to prioritize inventory access
Setting the right price
In a segment such as private aviation, RM is at the heart of the commercial process. “Aircraft charter is by its nature an asset utilization business. As such, profitability is determined by how effectively the assets are used to drive contribution to cover the high fixed costs of aircraft ownership. Profit is won or lost on how well revenue management drives core revenue decisions,” explains Theodore Botimer, VP revenue management, Xojet.
He says there is a great deal of science around the optimal allocation of inventory with a fixed set of price levels. Deciding how to change sets of price levels is much less clear. There is not as much research in the area and price change analysis has not been effectively implemented in the revenue management field.
“The path to increased significance for RM would be through greater entry into the strategic management discussion. This change will require high level revenue management professionals/executives to take a longer term view of enterprise value which may conflict with the short-term optimization goals of their day jobs,” says Botimer.
The major challenges for RM professionals today related to communication within the organization and inter-departmental co-operation. Many of the policies and procedures implemented by revenue management can be undone – often unknowingly – by other departments.
“Plugging the leaks associated with RM policy implementation has always provided one of the largest returns on investment,” says Botimer.
According to Botimer, RM professionals have a great deal of knowledge about their problem and the potential returns from embracing revenue management within the corporation. Partnering with other departments to build policies that incorporate revenue-management thinking without alienating or devaluing others remains a constant challenge.
“RM professionals who leverage their knowledge of the short term to impact medium and long-term problems effectively will gain greater prominence for RM in their organizations,” says Botimer.
If they do not understand corporate objectives and perform the proper analyses, RM professionals will continue to be viewed as overly focused on the short term. “Pushing out revenue management thinking to the organization happens organically over time, but true and immediate impact can come from RM professionals who are skilled internal sales people within their companies,” says Botimer.
the planning horizon lengthens and there is greater focus on core
value, the status of RM within the organization will accelerate.
data is likely to be leveraged to the point where buying decisions can
analyzed more effectively at a detailed level.
EyeforTravel is a leading business intelligence provider for the online travel and tourism industry. As well as providing some of the most in-depth research into global online travel markets and trends, EyeforTravel produces a series of senior executive travel conferences on a diverse range of topics including travel distribution, online marketing, social media, mobile and revenue management. For more information visit www.eyefortravel.com.
Global Events Director
London, UK: +44 (0)207 375 7219
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Director of Events & Industry Analysis, EyeforTravel
London, UK +44 (0)207 375 7229
US Toll Free: 800 814 3459 (Ext. 7229)
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