REPORT FROM THE U.S.—While the U.S. hotel industry might not be where it was in 2008 in terms of average daily rate, the performance metric is going to be the best chance hoteliers have to grow revenue per available room going forward, according to Karrie Keen, director of destination and trend operations at STR. In order for this to happen, hoteliers need to focus on effective revenue-management strategy.
Executives at STR, parent company of HotelNewsNow.com, are forecasting that occupancy growth is going to taper in 2013, with a slight increase of 0.3% over 2012 occupancy. ADR, on the other hand, is expected to increase 4.6% by next year, Keen said Thursday during a HSMAI webinar titled “Improve Your Business Acumen.”
“We’re pretty much putting all of our eggs in the ADR basket,” she said.
As a takeaway, Keen advised hoteliers to “keep (that) in mind when you’re trying to get your performance numbers where they need to be.”
That’s where the practice of effective revenue management comes into play.
Hiring the right revenue managers
It all starts with hiring the right people, said Neal Fegan, executive director of revenue management for Fairmont Raffles Hotels International.
Hoteliers should evaluate how much revenue-management experience leaders in charge of the hiring process actually have, Fegan said. HR officials often might not know the specific qualities possessed by a good revenue manager.
Conducting the interview with the GM or director of sales present might be more helpful, he said.
According to Fegan, there are other things hoteliers can do to ensure they are getting the right people working in their hotels, including surveys that measure a candidate’s aptitude within the field. It can be expensive to pay a third-party firm to conduct these surveys, but inexpensive software exists in the marketplace that allows hoteliers to develop surveys on their own, he said.
“Ask (candidates) what really sets them apart from (other revenue managers), from people (they) wouldn’t consider as strong,” Fegan said.
He also suggested giving the survey to current revenue managers within the organization to compare their answers to potential candidates. “You’d want some consistency,” he said.
Fegan said that just because a candidate went to hotel school doesn’t mean they are the best person for a revenue-management position. The revenue-management aptitude has already been weeded out when people make the decision to go to hotel school, he said. “Those aren’t people thinking about supply and demand and ‘How am I going to price?’”
Instead, “you want to get to students before they choose their career path,” Fegan said. “It’s easier to teach hotel lingo to someone who’s got the revenue-management aptitude (such as a business or economics student) rather than teaching revenue management to someone who’s got the hotel aptitude,” he said.
Advanced analytics are beneficial
In a 7,100-room casino hotel such as The Venetian Palazzo, the important revenue-management decision regarding the value of offering a complimentary night to a guest comes up often.
Jack Easdale, VP of yield management at the Las Vegas hotel, said by using research, analytics and probability one can find that a retail cash-paying customer spending $500 on a roomnight can actually yield more profit than a comped casino player that averages a $501 loss whenever that guest stays at the hotel.
The team at The Venetian has invested a tremendous amount of capital in tools and analysts to help in this process. “We have a team of statisticians outside of the revenue-management spectrum analyzing casino play, casino guests (and) casino marketing,” Easdale said.
While this example will not apply at every hotel, revenue managers can still use advanced analytics to determine how marginal costs affect revenue. Easdale said at another hotel, it could apply to food-and-beverage sales.
Creating the right revenue-management culture
The entire process of revenue management is centered on a long-term mission and a vision that defines success and then following through with it to reach those goals, said Garth Peterson, regional director of sales for the Americas at hotel consulting firm iDeaS Revenue Solutions.
The key question to remember is, “How do we tangibly measure the success and implementation of our revenue-management culture throughout the organization?” Peterson said.
“The point here is alignment, getting everyone moving in the right direction,” he said.
Removing moral hazard, the ability for someone to do something that might not be in the interest of the organization, is crucial, The Venetian’s Easdale said.
People with high integrity that willfully make decisions in the best interest of the company are a necessity, he said.
The revenue manager, however, needs to take charge, Peterson said. “If you don’t take ownership of revenue management as the revenue manager, someone else might take ownership of it for you,” he said.