Revenue management must focus on profit, not everything
Revenue management must focus on profit, not everything
30 AUGUST 2019 7:21 AM

As hotel metrics settle in the low single digits, revenue managers are being squeezed to get the most revenue from every conceivable stream at the risk of missing out on profit.

NASHVILLE, Tennessee—Hoteliers are asking their revenue managers to use their magic to harness every feasible revenue stream.

But while revenue management has evolved and diversified, the discipline shouldn’t stray too far from the basics, according to panelists at a Hotel Data Conference session titled “Stop revenue-managing everything!”

“The discipline is a hybrid,” said Vickie Callahan, VP of revenue management at Atrium Hospitality. “Revenue optimization is profit optimization, and you have to have both. We are focusing our team to be more focused on profit.”

Callahan added she has seen a lot of concern as to where the science of revenue management is going.

Panelists said in hotels, rooms revenue is still revenue management’s biggest obsession. Perhaps food-and-beverage revenue gets a slice of attention, but panel moderator Chris Crenshaw, VP of digital data solutions at STR—the parent company of Hotel News Now—said the airline industry remains so much better at concentrating on fee revenue.

For example, Crenshaw said, in 2018 the airline industry made $92.9 billion in ancillary fees and $64.8 billion in baggage fees.

Jack Easdale, SVP of revenue management and enterprise analytics at Venetian|Palazzo|Sands Expo, said revenue managers also need to remember what is important to those outside the business.

“Shareholders would still say profit is the most important metric, whereas Wall Street would say you are judged on (revenue per available room), so it is a balancing act,” Easdale said.

Nicole Young, senior corporate director of global revenue management at Rosewood Hotel Group, said most revenue managers have been in situations where obtaining the most revenue is not the healthiest situation for the business.

Callahan said education is needed for those coming into the discipline.

“There are different skill sets that are needed,” she said. “I learned the ropes, but I am not sure the current batch of revenue managers have the time now.”

Gino Engels, co-founder and chief commercial officer of OTA Insight, said the industry needs more benchmarking data on profitability, rather than the traditional RevPAR metric.

“Profit margin is not something you can take to the bank,” Engels said.

Eyes on the price
As hotel products continue to evolve, revenue management is required to function in different ways, but most on the panel agreed revenue managers must have a seat at the top table.

Easdale said his team concentrates on capturing value, not just value creation.

“We separated revenue management from analytics, even though they sound pretty much the same, don’t they?” he said. “But then The Venetian is a different beast to most of the hotels represented here.

“We are still squeezing blood from stone. Most of our room guests are almost sick at the price point, but they really want to stay there.”

Easdale added revenue managers must be responsible for overall strategy.

But can a revenue manager who works remotely still take on a leadership role?

“All our associates are remote, and that requires leadership,” Callahan said.

Young disagreed.

“When you put on revenue management too much responsibility, you can stifle a lot of the support structure,” she said. “We must all be commercially minded in respect to our own discipline, but we need to take a step back. F&B revenue management needs to revenue-manage F&B, not someone sitting remotely.”

Engels said everyone is looking at the same data, but that data is not complete as it sits in silos.

“I still prefer to see a system where revenue managers pull the strings,” Engels said.

Callahan said she sees no discernible difference in performance between on-site or off-site revenue managers, but her company observed that those on-site did a great deal more than their job specifications said they should do.

“They often are doing things outside of revenue management that the GM thinks is important,” Callahan said.

If cutting costs is a priority, Young said allowing revenue managers to work remotely might be more ideal.

“In the job market, costs are kept down by going remote,” she said. “We’re in a dogfight over labor, and if that is achieved by opening up to those wishing to work remotely, then that is good.”

Easdale said he hasn’t hired anyone from an undergraduate program for some time. Instead, he prefers to hire applicants who know coding and artificial intelligence.

“Revenue management will look a lot different in the future. … AI is getting closer and closer to the point where a lot of quantitative work is being done,” he added.

Future revenue managers need to bring more expertise to the table, Young said.

“We have been guilty of overvaluing operative experience,” she said. “Now, business acumen and financial competency are becoming more important as the role moves towards optimization.”

Fees, please
Easdale said resort fees remain highly profitable, and backlash to them, in his experience, is due more to how they are disclosed rather than the fees themselves.

“In our hotel, resort fees work out to 15% of room rates, which might sound like an annoying tax. It is not stopping booking, but some hotels have taken it too far, with a $30 room rate and a $35 resort fee,” he said. “We’re driving incremental (earnings before interest, tax, depreciation and amortization) every year, and there are only so many places to go as we do 92% to 95% occupancy every year.”

Callahan said parking and pet fees are receiving increased focus.

“I could not find an Anaheim hotel that did not have a parking fee, between $12 and $60 if they are close to Disney,” Callahan said.

Fees often provide flexibility, which could come in handy as the economy flirts with recession, Young said.

“These fees are not flexed or yielded like room rates, but they might become so if we move to a slowdown, although I do get a little peeved that we keep continually being compared with the airline industry, as we are not in transportation,” Young said.

There are limits to line items that can be revenue managed, panelists said, with Young saying she was once asked to see if there was a manner in which children could be monetized, while Callahan was tasked with the same goal in regards to ice cream cones.

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