Years ago, I was flying home from a business trip and got stuck in Raleigh, North Carolina, because of bad weather. The management company I worked for at the time had a hotel nearby, so I decided to hole up there for the night. When I arrived, the front office employee informed me that the hotel was full. I learned that the hotel did not have an oversell guideline in place, so I advised the clerk that most of their remaining arrivals would not be showing up because the whole Northeast was shut down. This did not persuade the employee to change her mind, as she responded, “My computer says we are sold out.” Eventually the manager on duty checked me in, but despite my telling him repeatedly that I did not need a special rate because I was traveling on business, he did me a “favor” by extending the hotel’s employee rate. While I was grateful for not having to jump into a cab to find another hotel, I was also frustrated that the property wasn’t optimizing its revenue potential.
The industry has come a long way in recent years, and while I am sure scenarios like this one still happen, the frequency is decreasing. This is due in large part to the increased business acumen of positions throughout hotels, driven mostly by revenue management.
Revenue management as a discipline in hotels has been around for about 20 years, and it takes a long time for new disciplines to become ingrained within a culture. Think of it from the standpoint of hotel GMs. Twenty years ago, GMs were first being introduced to revenue-management concepts, and these introductions were coming from low-level managers in their hotels, mostly within reservations. These new ideas and concepts were foreign to most GMs. They either learned about things such as revenue per available room along with these entry level managers, or from them. Their only exposure to the discipline came during their tenure as a GM, so they had no hands-on knowledge of how it worked.
Contrast this with other hotel disciplines such as food and beverage, rooms and sales. For many GMs, they have spent significant time working in one or more of these areas themselves before becoming a GM. GMs work in the industry for 15 years to 17 years in hotels before even becoming a GM. During that time, they were learning about and practicing revenue management. This has brought us to what I consider a revenue-management renaissance period.
Revenue management is now maturing in the industry. Many people who are a part of the revenue team at a hotel have been exposed to revenue management in many different positions within their hotel careers, and with that, it has become ingrained within the hotel’s culture. You would be hard-pressed to attend an industry conference these days that did not have at least one session dedicated to revenue management. The industry is ready for new advances within the field and is ready to expand upon the current role of revenue management that focuses mainly on rooms revenue.
Revenue management’s basic building blocks
To make these advancements though, revenue management needs to come back to some basic building blocks. Metrics that are currently used on the rooms side of revenue management are insufficient to be used across multiple revenue streams. Take RevPAR as an example. If RevPAR were to be used across multiple revenue streams (using total hotel revenue versus using just room revenue as we do today) as a key performance indicator, it is easy to see how faulty decisions would be made.
Add to this the complexity of comparing these types of measurements across multiple hotel companies. As the industry moves forward in this arena, there will be a need to compare these new metrics from one hotel to another, and a common metric will need to be used to achieve this, similar to how STR uses RevPAR Index for rooms. (STR is the parent company of HotelNewsNow.com.)
Hotel companies need to take the lead on this. They need to come up with rational metrics that make the most sense and start building their cultures around them. It is much more difficult to start a new culture of total hotel revenue management from scratch. Those hotel companies that start this process now will have people in their organizations that understand the concepts needed to achieve the goal of total hotel revenue management. While it may be necessary to change some of these metrics, as companies similar to STR develop their own metrics to be shared from one company to the next, those organizations that have already built the culture will be poised for success and will be the market share leaders out of the gate.
Personnel pipeline problem
Another obstacle that gives companies pause to expand the revenue-management discipline beyond rooms is the lack of qualified talent. While the revenue-management culture has taken hold, it is still difficult to find leaders in revenue management. Many times vacancies will remain open at hotels for months at a time, even in the current economy where unemployment rates remain high. If we have a shortage of this manpower now, we may be creating a bigger personnel pipeline problem.
The personnel problem stems from a shortage of people in the industry with strong business acumen skills. Revenue management, as a discipline, has done a good job throughout the years gobbling up those that have this skill set in our hotels and hotel schools, but the hospitality industry as a whole does a poor job recruiting for these positions outside of these traditional talent pools.
Managing revenue streams
The complexity of other revenue streams is one more stumbling block to getting started. In revenue management, we constantly strive to the forecast or model that will provide us with the optimal result. This is how the discipline has made such great strides in room revenue management through the years. Many hotel companies now use very sophisticated revenue-management software systems, with forecast models generated by expert statisticians that predict roomnights and revenue far into the future.
We must manage our expectation for revenue management in other revenue streams. People think that if it isn’t as perfect as the process now employed by rooms revenue management, it cannot, or should not, be done. This of course is hogwash. The same principles employed while rooms revenue management was in its infancy can be applied now to the other revenue streams. By starting small, and using simple models, significant gains can still be made. Then, through time and learning from mistakes, more sophisticated models will be built, allowing for even further increases in these areas.
Finally, an additional roadblock holding up progress toward total hotel profit optimization is departmental silos. Although they are important, it’s not the revenue management and marketing silos that will propel forward total hotel revenue management. Rather, the silos that must be addressed are those between revenue management and accounting.
No matter what metric the industry settles on to maximize total hotel revenue management, it is clear that the common element will need to be profit based. The needs here will become more obvious as revenue management embarks on the road to total hotel revenue management. More refined views of profit levels will become apparent, breaking down in ways of segmentation that perhaps we have not yet begun to uncover. But it is obvious that the needs are there, and starting to break down these silos will be an important first step in the process.
While there are many obstacles in making these next strides for revenue management, ours is the discipline that is best poised to take them on. Relying upon people who have skills in business acumen coupled with the fact that the revenue-management culture has finally taken hold throughout the industry, the revenue management renaissance is upon us, which ultimately will lead us to total hotel profit optimization.
Neal Fegan is a hotel industry, revenue management expert with more than 10 years experience in the field and holds degrees in both Economics and Psychology. He has created a Revenue Management Academy, leadership development programs to develop new talent, pioneered an internal social computing revenue management website, delivered keynote addresses at revenue management events, and has sat on industry panels offering expert professional insight. He is an active member of HSMAI, serving on its Revenue Management Advisory Board. In his current role he is expanding the scope of revenue management by developing programs in function space and restaurant revenue management.
About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board leverages insights, emerging trends, and industry innovations to guide the development of products and programs that optimize revenue for hotels.
• Co-Chair: Jon Eliot, CRME, CHA, Vice President of Revenue Management, Premier Hospitality Management
• Co-Chair: Sloan Dean, CRME, Vice President of Sales & Marketing, Interstate Hotels & Resorts
• Immediate Past Chair: Scott Roby, CRME, Vice President, Revenue Management, Evolution Hospitality
• Chris K. Anderson, Ph.D., Professor, Cornell University
• Bonnie Buckhiester, President & CEO, Buckhiester Management USA Inc.
• Sheila Cosgrove, Director, Revenue Management Ops & Planning, Intercontinental Hotels Group
• Kathleen Cullen, CRME, Vice President Revenue Strategies, Heritage Hotels and Resorts
• Kent Duncan, CRME, Vice President, Sales & Revenue Strategy, Marcus Hotels & Resorts
• Tammy Farley, Principal, The Rainmaker Group
• Neal Fegan, CRME, Executive Director of Revenue Management, Fairmont Raffles Hotels International
• Rhett Hirko, CRME, Director of Revenue Analytics, Hyatt Hotels & Resorts International Operations
• Jay Hubbs, Vice President, Regional Sales, ReviewPro
• Burl Hutchison, CRME, Director of Revenue & System Optimization, Sabre Hospitality
• Klaus Kohlmayr, Senior Director, Consulting, IDeaS - A SAS Company
• Mark Molinari, CRME, Corporate Vice President of Revenue Management and Distribution, Las Vegas Sands
• Orly Ripmaster, CRME, Senior Associate, KSL Capital Partners
• Mark Robertson, Central Director Revenue Management, Wyndham Hotel Group
• Susan Spencer, Market Director - N. America, ChannelRUSH
• Trevor Stuart-Hill, CRME, President, Revenue Matters
• Paul Wood, CRME, CHBA, Vice President of Revenue Management, Greenwood Hospitality Group
Want to Learn More?
This topic will be addressed as part of the 10-part 2012 Revenue Management Webinar Series produced by the HSMAI University in partnership with HotelNewsNow and STR. Each month a webinar covers one aspect of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you’re not able to attend a live program, archives are available.