By David Millilii, CEO of LodgIQ
Amadeus reports that group and business travel segments are steadily recovering, with 4.3 million group room nights booked for H1 2023. The global business travel segment is expected to recover fully by 2024. According to the Global Business Travel Association (GBTA), group travel demand will likely increase in 2023, and the average spend per attendee for group events will increase in 2023.
Group business means big business for hotels, accounting for a significant portion of hotel revenue. Some estimates suggest it can make up as much as 30-50% of a hotel’s total revenue. This underscores the importance of effective group revenue management for hotels seeking to maximize profitability and optimize their business mix.
However, despite the importance of group business, many hotels still rely on manual processes and legacy systems to manage their group bookings and revenue. This can lead to missed opportunities and suboptimal pricing decisions, particularly in the face of increasing competition and market complexity. To make the best decisions on groups, revenue managers must understand the actual value of each piece of group business, including food and beverage, meeting space, and all ancillary revenue streams associated with that group business – and then have the tools to assess any displaced revenue that may result from accepting the group. With over 2 million events occurring in the U.S. alone, hoteliers who want to compete for group business effectively can no longer afford to ignore their own statistics or rely on anecdotal information or gut instinct when it comes to decision-making.
In response to these challenges, more hotels are increasingly turning to advanced revenue management solutions that incorporate group forecasting and optimization capabilities. By leveraging sophisticated algorithms and machine learning techniques, these solutions can help hotels to better understand and anticipate demand from group customers, optimize pricing and availability across multiple segments, and automate critical processes to save time and reduce costs. This can be particularly important for hotels seeking to compete in the rapidly evolving group market, where speed and responsiveness are crucial to success.
Effective group revenue management is critical for hotels seeking to maximize revenue and profitability in today’s competitive marketplace. Revenue managers must fully examine current and future group demand, transient displacement, available guestroom and meeting space, and non-room revenue. By leveraging advanced AI-powered revenue management solutions and best practices, hotels can better anticipate demand, optimize pricing and availability, and win more business from group customers.
Fortunately, modern technology can also vastly improve the unique operational challenges of group revenue management (RM). By sharing metrics and analytics across the entire hotel company, new solutions eliminate inter-departmental friction caused by conflicting goals, creating cohesion between sales, catering, and revenue management. Implementing the innovative “lead scoring” technique helps hotels prioritize group business, maximizing the speed and number of bid responses, thus increasing conversion rates. Sophisticated systems also offer the ability to present prospects with alternative dates, unlocking the potential to book lucrative business in times of greater need.
Balancing and simultaneously optimizing guestroom and function space inventories is a significant challenge in group RM due to fixed capacity constraints and differing consumption patterns of guest segments. Traditional approaches, such as manual methods or rules-based systems, are time-consuming and result in using lower-margin breakeven rates and profit hurdles, leading to lost revenue opportunities. Hotels must adopt more dynamic tools that offer better analytics and factoring in elements such as price sensitivity, day part, current and historical average lead times, and accurate forecasts of group and transient demand to optimally allocate available guestrooms and function space across group segments and define the best rate to maximize revenue.
Why is Group Forecasting Important?
Forecasting is critical in any hotel revenue management strategy, enabling hoteliers to make informed pricing decisions that can significantly impact profitability. Effective forecasting reduces uncertainties and allows managers to optimize financial results by anticipating future demand and business performance. However, until recently, a key element has often been missing from the forecasting process – forecasting for group business.
A comprehensive revenue management strategy, including transient and group business, is critical for optimizing the entire property and maximizing profits. The transient and group segments essentially compete for a fixed inventory of sleeping rooms. However, groups also utilize function space, making revenue management decisions for groups much more complex. The booking windows for transients and groups create additional challenges, with groups typically booking earlier in the process and transients booking later. Groups can constrain available sleeping rooms, allowing hotels to capture higher rates from transient customers or other groups. However, overbooking negotiated rates for groups may lead to displacing higher-value customers later in the booking window. Transient displacement analysis is insufficient for optimizing the bottom line. It only accounts for revenue needed to break even with displaced transient bookings and does not consider the possibility that groups may displace other groups. Additionally, most revenue management solutions are designed exclusively for transient businesses, lacking the sophistication and agility required for groups.
The solution is an accurate group forecasting solution with well-crafted segmentation, which can resolve these issues and help a hotel achieve an optimal business mix. An effective group forecasting tool can evaluate a proposed group against forecasted transient business and other forecasted groups that have not yet booked. This helps optimize transient forecasts against capacity already adjusted for anticipated group bookings. Additionally, transient and best available rate (BAR) pricing that reflects the group forecast helps the sales team negotiate better rates from groups.
Group forecasting also enables the prediction of whether the expected demand from a request for proposal (RFP) will occur. An intuitive revenue management system makes it easy to handle fluctuations in group demand, dynamically updating rates across revenue segments as needed. Revenue managers can evaluate proposed groups against forecasted transient business and optimize their forecasts against capacity. By including group forecasting as part of its revenue management strategy, hotels can find the best mix to optimize availability and pricing for guestrooms and meeting rooms to maximize TRevPAR (total income a hotel generates on a per-available-room basis).
The opportunity to drive revenue growth and profitability through group business has never been greater, but revenue managers know they must look beyond historical approaches, gut instinct, and conventional methods. Next-generation cloud-based revenue management platforms are transforming processes and driving the next wave of performance improvements as leading hotels embrace AI-powered solutions that are easy to learn, use, and afford.