The Science and Art of Revenue Management Continue to Evolve
By EJ Schanfarber President & Chief Executive Officer, Alliance Hospitality | October 23, 2016
The revenue manager of an individual hotel or hospitality entity has become the “quarterback” of modern hospitality strategy and, in many ways, operations. He or she reviews past game data, surveys the competitive environment, consults with coaching staff (ownership and brand standards) and listens to teammates (especially the general manager and director of sales) before hitting the field on any given day and making a complex play call.
As we know, with revenue management, a lot of things are in motion at once before we can determine and allocate “which rooms, when, at what rates.” Certainly, in recent years, the data and analyses available to today’s best-trained and most-experienced revenue managers have gotten increasingly powerful. However, the challenges have become concomitantly complex when we consider such factors as the varied room reservation pipelines and their respective commission structures, the continued proliferation of hotel brands, ambitious new build or renovation programs that alter comp set capacity, or new lodging models. Not to mention that often difficult to predict consumer.
Like some other industries, the hospitality sector initially set out to emulate the airlines in their quest to maximize the value of any given seat on a plane—and we keep getting better at it. But we must be careful not to carry the analogy too far. Hotel entities can’t add to or subtract from capacity in the same ways; it’s impossible to add another “scheduled hotel” on the fly. We also have different cost structures for areas like financing, operating expenses or staff.
In this article, we review some of forces driving hospitality revenue management today, as well as some of the contemporary challenges that our revenue management systems must be capable of accommodating to in the overall drive to profitability and return on investment.
Evolving Pipelines and Concepts of Revenue
The multiplicity of reservation pipelines continues to be a challenge for hospitality revenue managers. We have OTAs like Expedia, brand web sites, individual property web sites, online booking portals for corporate accounts, and opaque web sites on which the consumer isn’t aware that the respective property is “sponsoring” the reservation. Each has its own cost of acquisition, but most entities will have to comply with parity issues, especially with their brand.
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