Revenue streams from hotels with casinos or complex F&B programs need to be considered when yielding.
MINNEAPOLIS—While rooms revenue is the most critical—and typically the most profitable—revenue stream in a hotel, today’s revenue managers are broadening their scope and taking other areas of the hotel into consideration.
Particularly for hotels with casinos or complex food-and-beverage programs, these revenue streams need to be considered when pricing rooms, distributing inventory or negotiating group contracts, a panel of revenue managers said this week during the Hospitality Sales and Marketing Association International’s 10th Revenue Optimization Conference.
Revenue per available room may be the most widely used measurement for making these types of decisions, but analyzing different revenue streams by profit allows revenue managers to make the smartest decisions.
“We have to boil things down to profit,” said Neal Fegan, executive director of revenue management at Fairmont Hotels & Resorts. “We decided that we are going to be revenue stream agnostic. It doesn’t matter where the revenue is coming from, we’ve got to boil them down to profitability.”
At Las Vegas Sands Corporation properties throughout the world, the hotel rooms are just a piece of the overall business. Mark Molinari, VP of revenue management and distribution, uses “total revenue management” to analyze and decide price for room, convention and F&B business.
“Total revenue management for us is more than just the casino,” Molinari said. “We’re actually a group and convention company. We sold over one million group roomnights in 2012—it’s 22% of our business globally.”
He said room rate is the most critical piece of the puzzle when evaluating flow-through, but there are several other factors to take into consideration.
“We measure more on total profit,” he said.
Fegan said function space supply and demand isn’t as easy to forecast as roomnight occupancy. Therefore, Fairmont has chosen to simplify function space occupancy by identifying the space as either occupied for an entire meal period or not.
“That makes it easier to determine when it was busy and when it wasn’t historically, which helps us predict the future,” he said.
The revenue-management experts suggested considering the effects on the value one department of the hotel has on another. For example, many groups or casino-goers will receive complimentary room upgrades. The value of those upgrades needs consideration when yielding, Molinari said.
“Those rooms have value,” he said.
Molinari also suggested factoring in leisure displacement value and the value of lost shoulder nights when determining group prices.
On the F&B side, he said revenue managers need to understand guests’ “propensity to spend” and take group and casino business from guests who might spend more on F&B.
Menka Uttamchandani, VP of business intelligence at Denihan Hospitality Group, said F&B is essential to Denihan’s DNA as the independent hotel management company works with top chefs. Customers who are looking to come to Denihan’s hotels for their restaurants “may not be as price sensitive,” she said.
For rental revenue, Molinari suggested using a price-per-square-foot measurement instead of price per room because “rooms can be cut a million different ways.”
“Room rental is the most profitable but also the most quick to be waved,” he said. “Room rental all flows to the bottom line. As an industry we need to take a look at that.”
Uttamchandani said understanding the guest profile is important.
“We share this data with the revenue-management team. We try to be a part of that loop,” she said. “Understand age, gender and understand what each hotel has as their demographic. Then you know what to do with the hotel.”
Knowing the different types of customers allows hoteliers to determine those who are willing to pay more for flexibility.
“A strong revenue manager knows the customer profile of a certain channel,” Uttamchandani said.
Because each channel comes with a different cost, Uttamchandani said revenue management is just as much about managing the channel costs as it is about managing the revenue. “And that leads us to total revenue management,” she said.
For example, Uttamchandani said Denihan is experiencing more guests who book early and then continue to look for a cheaper rate through other channels and later cancel.
“We are trying to stay ahead of that,” she said. “Does it make sense to have a slightly lower (best available rate) and how do you find that balance?”
To get buy in on total revenue management from all hotel employees, the panelists suggested incentivizing properly. Denihan’s revenue team is incentivized based on gross operating profit, RevPAR index and profitability.
Molinari said proper incentives are critical.
“If incentives are aligned with organizational goals, sales people will go out and achieve that goal,” he said.