REPORT FROM THE U.S.—Lagging group rates remain the U.S. hotel industry’s biggest hurdle to reaching previous peak levels of performance, according to revenue managers during a webinar Tuesday.
While group demand has been consistent with 2007 levels throughout the downturn, group rates during 2011 continued to linger near 2010 levels, according to Jan Freitag, senior VP of global development for Hendersonville, Tennessee-based research company STR, the parent company of HotelNewsNow.com.
The inconsistency between demand and average daily rate is attributable mainly to a perceived weakness on the part of revenue managers. With overall demand numbers down during 2009, meetings planners were able to negotiate lower rates—many of which are just now being realized.
| |
2007 ADR |
2011 ADR |
| Transient |
US$176 |
US$160 |
| Group |
US$161 |
US$147 |
Source:STR Note: Data is for upper-tier hotels only
“My worry is group ADR that is on the books today and will materialize this year (was) negotiated from a position of perceived weakness,” Freitag said during “Shore Up Your Team’s Core Competencies,” presented by HSMAI University, HotelNewsNow.com and STR.
The unfortunate result is depressed ADRs for years to come, he said.
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| Jan Freitag, senior VP of global development, STR |
“We’re suggesting that in the next two years … that we’re going to get back to peak ADRs nominally,” Freitag said. “But adjusting that for inflation, we’re still way, way below where we were in 2007.”
Core competencies for success
That’s not to say pushing rate is a hopeless endeavor, Freitag said. On the contrary, there’s still ground to be made up on the transient side, which would not only recover some lost revenue from the group side but also give revenue managers a stronger leg to stand on during the next round of negotiations.
But in order to achieve those results, revenue managers must address several core competencies that are crucial for success, said Kathleen Cullen, corporate director of revenue strategies for Heritage Hotels & Resorts.
“If we can make sure that we have our fundamentals set up properly—in other words, we have a culture that completely embraces revenue management … departments are working together … and we are approaching our pricing from a strategic perspective … we can hopefully position ourselves from the transient side to try to make up for some of that group revenue,” she said.
Cullen, along with Heather Scharmer, manager of revenue management education for Four Seasons Hotels and Resorts, discussed seven such competencies during the 90-minute webinar.
1. Company culture
The entire company must embrace the culture of revenue management, Cullen said. “It’s no longer just one person sitting in a silo … everybody has to work together.”
The buy-in must start at the top. If executives don’t believe in the importance of revenue management, it is unlikely the rest of the organization will either.
2. Departmental structure
Revenue managers must have a seat in the board room for their voices to be heard, Scharmer said. As such, it is crucial organizations establish corporate hierarchies that give the position a place of prominence. Whether at the corporate or hotel level, revenue managers should be at equal levels with their peers in sales and marketing and operations.
3. Strategic pricing
Strategic pricing requires a recognition of many different factors, including the product being priced, its value to the market and how that value stacks up against the products of competitors, Scharmer said.
Establishing one’s place within the market is perhaps the most important part of that equation, she said. Not only should revenue managers understand how their hotel offering stacks up against competitors, but also they should understand which customer segments they’re trying to target within that market.
One way to help establish footing is by analyzing how many properties within a competitive set name you back as a competitor.
“If I as a hotel am putting a hotel down the street into my comp set but they’re not putting me into theirs, I need to take a look at why that is so,” Cullen said.
4. Demand and strategic forecasting
“If you don’t do forecasting, it’s very difficult to set the rest of your strategy,” Cullen said. And not just any forecasting, revenue managers must consider four types of forecasting, she added.
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| Kathleen Cullen, corporate director of revenue strategies, Heritage Hotels & Resorts |
The first, demand forecasting, determines anticipated demand for a hotel absent any constraints. “That is the most important forecast that every hotelier should be doing on a regular basis for their particular hotel. It’s the foundation of being able to set the rest of your strategy,” Cullen said.
This approach requires revenue managers to identify stay patterns or arrivals for each day of the week, using historical patterns and booking pace to understand how many guests a hotel could book in total regardless of the number of rooms they have available for those guests. Thus, demand forecasting often exceeds the physical capacity of a particular property.
The second type of forecasting is strategic forecasting, which supports strategic objectives such as understanding the impact of unconstrained demand on inventory controls for rates and availability, Cullen said.
The third, revenue forecasting, is the most common and realistic. This approach helps revenue managers target a realistic outlook for occupied rooms and revenue. It is typically compared to the budget to help identify variances, she said.
The final approach is operational forecasting, which is used for operational purposes at the front desk, housekeeping, etc.
5. Hiring talent
Both Cullen and Scharmer agreed talent acquisition is the most important competency for revenue management success at any hotel. Without the right person in that position, none of the other systems or practices matter, they said.
So what should hoteliers look for in a strong revenue manager? The list of attributes is seemingly endless, but typically includes some or all of the following:
• results driven;
• thinks big picture;
• resilient;
• risk taker;
• strong communicator;
• strong decision maker;
• holds themselves accountable;
• expert analyzer; and
• has a strategic outlook.
The best revenue managers also are able to juggle several emerging disciplines above simply crunching numbers. Channel management, social media and marketing are just a few tectonic plates shifting in the revenue-management landscape, Scharmer said.
“One of the biggest challenges that the industry has today is finding someone who can truly wrap their arms around all these different areas and embrace them and run with them,” Cullen said.
6. Channel management
“Every single hotel must have a channel management strategy,” Cullen said.
She was quick to emphasize a channel management strategy does not mean revenue managers are required to play in every channel. Rather, they must carefully choose which mix of channels generates the highest return for a particular property.
“You really want to make sure that you have a predefined channel management strategy and understand who the appropriate channel partners are,” she said. “It’s imperative that we know the cost and the profit by the distribution channel.”
7. Goal alignment
One of the biggest mistakes hoteliers make is having conflicting goals among various departments, Cullen said. Everyone on the team should be working toward the same goal.
That doesn’t mean everyone’s objectives have to be the exact same. They should simply complement one another, she added.
