On a recent webinar, hotel revenue management experts discussed the challenges they’re currently facing amid coronavirus as well as the pricing hurdles they anticipate in the downturn to follow the pandemic.
GLOBAL REPORT—The drop-off in demand caused by COVID-19 is testing the acumen of hotel revenue managers.
With shelter-in-place orders keeping travelers at home and hotels operating with very low occupancy, revenue strategies are being reevaluated, according to revenue-management executives who joined HSMAI’s recent “Staying the course (Revenue optimization)” webinar. Some hotel owners and operators might even be wondering if their revenue-management team is essential during this pandemic or in the recession that’s likely to follow.
Dave Roberts, professor of Hospitality & Tourism Management at Virginia Tech University and a former SVP of revenue strategy and solutions at Marriott International, said he’s worked through several downturns and heard more than once “in a downturn, revenue management doesn’t matter.”
In fact, pricing mistakes are much more costly in a recession, which makes revenue strategy a priority, Roberts said.
“In a downturn, inventory management is about half as important as it normally is,” Roberts said. “On the other hand, pricing is, I believe, more important in a downturn than it is in a steady state of recovery, and the reason for that is that pricing mistakes are more expensive.
“If you have a high-demand environment, you can make a pricing mistake, and you can mostly offset that with some adjustments. … In a high-demand time if you underpriced—or overpriced—you can adjust that between that point-of-arrival date and you can actually recoup most of those losses—not all of them but most of them. You don’t have that opportunity in a downturn.”
Nicole Young, senior corporate director of global revenue management at Rosewood Hotel Group, said her company had suspended operations at its hotels in Europe and the Americas, including the Caribbean. Despite that, Young said she’s “never been busier in my career with a whole bunch of hotels that aren’t operating currently.”
“Everything that you’ve been conditioned to look to for benchmarking for success for wins, those elements really don’t apply right now,” Young said. “So what can we do within our organization to define what our wins are? Sometimes that’s what has happened today that will affect tomorrow, or the future, that we can kind of start to use to gather information for sound decision-making.”
Adjusting revenue strategies
Changing revenue strategies due to coronavirus means acknowledging the losses coming to your company’s portfolio or your individual property, Roberts said.
“What you don’t want is the general manager or an area director or someone in the corporate office to say, ‘You know what, the industry is going to take this 50% hit, but we’re going to turn on all these engines and we’re only going to take a 15% hit because we have mitigation efforts,’” Roberts said. “I’ll say on a rare exception basis that can work, but for the most part you’re highly, highly unlikely to be able to mitigate most of this demand disruption. And I think the earlier you communicate that to this to your various stakeholders, the better.”
In times of a demand crisis, it’s easy to fall into the trap of making emotional pricing decisions rather than logical ones, Roberts said. He stressed confidence in forecasting tools and considering out-of-the-box ideas to continue to drive bookings without immediately cutting rates.
“If we talk about consumer confidence in bookings … waive your cancellation fees or shorten the booking window, or have policies that if the guest’s nearby event cancels, we’ll go ahead and waive (fees) and reduce the uncertainty in that way before you go to broad-based discounting,” Roberts said.
Karen McWilliams, VP of revenue strategy at Concord Hospitality, said now is the time to lean on the diverse skills of team members to weather this storm.
“We have to realize that are our team members have earned a seat at the table,” McWilliams said. “They are the keepers of our culture, and empowerment has never been more critical than it is today, to really be able to look at all different ways to implement tactics that will get us beyond this.
“Everything that we’ve done before today is practice for something like this, where we are really looking beyond the standard measurements that we have. We’re in unchartered territory.”
McWilliams said it’s best to consider cross-training and reprioritizing certain tasks where appropriate.
“People are raising their hands, more than ever, saying, ‘What can I do?’ ‘What more can I learn?’ ‘How can I help support this function?’ ‘What can we help with the operations team?’” she said. “So, there’s a lot of pitching in and willingness to step out and learn something different.”
Over the past few years, segments of the revenue-strategy discipline have been assisted by AI or machine-learning pricing tools, but Roberts said those tools haven’t faced a downturn either.
“We’ve never actually seen this automated pricing in place during a downturn,” he said. “And so my advice to revenue leaders is make sure you’re keeping a closer look on your price-response recommendations from your pricing engine than you normally would. And if you think you’re at any risk whatsoever of triggering a downward spiral, override that thing, or put it on pause.”
Roberts added he’s optimistic that “downward spiral” of AI pricing will not occur.
Revenue-managing markets that are reopening
Young was asked what Rosewood’s revenue strategy will look like in some of its Asian markets that are beginning to end their lockdowns. She described the recovery as “a tiptoe back into operations.”
“What we have seen, unfortunately, in some markets that have relaxed restrictions is there’s a little bit of resurgence of illness,” Young said. “It hasn’t been necessarily as simple as going back to typical operations and just being open.”
What’s considered normal operations might look completely different following coronavirus once hotels and restaurants reopen and demand begins to return, she said.
“If you think about what we might see in a restaurant is reduced seating capacities to accommodate social distance guidelines, that could also apply to rooms,” Young said. “So our inventory schemes within our hotels and the scale of operations very well may look different from what they look like today.”