Hotel revenue management fit for the future

A nimble revenue management system that can respond swiftly to changing rules is now essential, says Elly Earls

The coronavirus pandemic has forced the hotel industry to operate in an environment with drastically increased uncertainty and reduced headcount. Hoteliers haven’t been able to rely on traditional metrics, such as year-on-year benchmarking, and they’ve had to contend with a dramatic shortening of the booking window, which has meant being braver than ever when it comes to holding rates.

While there was a lot of scepticism surrounding how revenue management software would handle the unexpected fluctuations, the technology has come through, with algorithms adapting quickly to cope with the new emerging patterns and helping operators make decisions that would have been practically impossible without them.

Klaus Kohlmayr, Chief Evangelist at revenue management software provider IDeaS, says that during the pandemic, revenue management system (RMS) technology has been critical to help hoteliers deal with the rapid shifts in demand as travel restrictions change. In some cases, he’s seen hotels go from 10% to 70% occupancy in the space of 72 hours.

He’s seen hotels go from 10% to 70% occupancy in the space of 72 hours

As well as consolidating data from a large number of sources, RMS technology can help hotels understand micro-trends, such as which segments are up or down, changes in market and competitor environment and changing price sensitivity.

“RMS technology also automatically adjusts pricing as demand changes,” he says. “When hotels are at 30% to 40% occupancy, every percentage point of additional revenue counts even more, and an automated RMS will help hotels achieve that.”

Samantha Williams, UK Market Owner at Profitroom, which helps hoteliers drive direct bookings, has seen three key segments pacing ahead in 2020: repeat customers, domestic guests and locals. “Focusing on these segments for growth will provide a hotel with more focus in short-, mid- and long-term planning,” she advises.

Profitroom has noticed an increase of almost 20% in repeat business for hoteliers from the leisure market. “In times of uncertainty, people want to feel safe and secure, so travelling back to a place that’s familiar is more attractive,” she explains. “Hoteliers should remember to value their loyal guests first – especially where tight restrictions are in place.”

A good customer relationship management system can help operators execute this sort of strategy with success. It also means they can personalise communications via guest segmentation, targeting each audience with the most relevant packages.

The UK’s domestic tourism has also obviously increased given the ongoing travel restrictions. “On average guests are willing to travel one hour per night, which means hoteliers can use this to promote special packages to the domestic market based on geographical booking patterns and trends,” Williams notes.

“But remember that a hotel’s target audience might change over time, so you need to regularly review this. For instance, due to the tier system, we might see an increase in demand from the immediate locality, and this is something that hotels should look to capitalise on.”

Understanding the Price-demand Relationship
It goes against a revenue manager’s instinct to hold prices when occupancy pick-up is behind the budget, especially for short- and mid-term scenarios, but that’s exactly what operators need to do.

“In the current environment, what is different to previous downturns is that travellers are often the people who are least price-sensitive,” Kohlmayr explains. “It is more critical for hoteliers than ever to understand the price-demand relationship: will a decrease in price [lead to] an increase in demand and result in higher overall revenues? We have seen that in many cases the answer is no. In fact, some hotels have increased their prices versus last year, because they realise people have to travel or want to travel and will do so no matter the price of the hotel. They are also placing a higher value on health and safety measures – people will book a more expensive room if they feel their stay is safer.”

People will book a more expensive room if they feel their stay is safer

That said, the domestic market is saturated and operators still need to be competitive to attract a higher value guest and increase gross operating profit per available room, according to Williams. She advises coming up with creative ways to be different from your competitors, such as working with local partners in the area to provide one-off experiences; making the most of your on-site amenities and helping guests envisage the experience through compelling storytelling, video and imagery; tailoring packages to each individual; or seasonal campaigns.

Growth in Direct Bookings
The pandemic has made a huge difference in the way guests book hotels and their priorities when they do. For example, there has been a dramatic shortening of the booking window as people are hesitant to commit, given the health and safety uncertainty. The booking window was just seven days on average in October in the UK.

In addition, the once-popular advance purchase rates favoured by those looking for the lowest price because they were confident in their travel plans have significantly reduced in popularity, as have negotiated business rates, which are all but non-existent this year.

What’s more, according to Williams, there’s evidence to show that guests have lost trust in third-party online travel agent (OTA) booking sites such as Booking.com. “We’ve seen a direct booking growth of 34% compared to an OTA decrease of 24%,” she says. “This is a trend that is continuing, so now, more than ever, hoteliers have a real opportunity to take back business on a direct platform.

“With the OTAs being in a weaker position, hoteliers will have the advantage. Hotels can take back control of pricing strategies and penalise OTAs who produce lower rates, creating rate disparity.

“This is a tactic that will be most successful for luxury leisure hotels. It’s important to also consider metasearch as a direct channel too, and this should be built into a direct booking strategy to take back OTA market share.”

The Year of Staycations
Williams has little doubt that 2021 will continue to be the year of staycations. Her advice for hoteliers is to remember that they can’t create demand by lowering prices. “Demand is now a balance of perceived value regarding safety and trust,” she says.

Her advice for hoteliers is to remember that they can’t create demand by lowering prices

There’s also a larger social responsibility expected from hoteliers in the local community. “This isn’t just about giving back and engaging to build brand awareness and presence, but it will also support the green shoots of recovery, should another forced closure take place,” Williams says.

“For example, collaborating and engaging with like-minded brands and local businesses in the creation of new seasonal packages and unique experiences will become essential to support incremental spending.”

Yet while there is certainly some cause for optimism, Kohlmayr expects we will continue to be in the current situation for at least the next nine months and that operators will need to continue to work in the leanest possible way to make it through this crisis.

“This means consolidating departments (ie, revenue management, distribution, sales and marketing into commercial functions) and giving their reduced teams the best automated tools to make them more efficient,” he says.

“With fewer people it is even less possible to work in a manual environment, which has also become much more dynamic. An analytical, automated RMS will provide confidence to the operators that their pricing and revenue opportunities are optimised at all times.”

Profitroom’s Lockdown Checklist

Here’s what hoteliers should be doing now:

• Turn NRF (non-refundable rate) cancellations into vouchers to protect cash flow – better still, ensure they’re redeemable online to reduce the manual admin.
• Get ahead of competitors and prepare early seasonal promotions to get business on the books for December to Easter.
• Promote the use of gift vouchers for Christmas presents.
• Do an audit of Christmas packages and availability to push over this period.
• Launch spring campaigns now. Demand is looking ahead beyond lockdown and Christmas. We anticipate this spring will see a higher domestic demand than normal for leisure hotels typically held back with seasons.
• Load 2021 prices if they have not been released yet, and even 2022 prices for international resorts.
• Use lockdown to make a system change for the better. If there’s something that’s not working for you, now is the time to change it where there will be less business disruption.
• Maintain your marketing and brand visibility. Don’t lose market share over your competitors – focus your efforts on the areas where you can gain the biggest value. Invest in projects such as video or photography shoots or updates to your website.