Cashing In: How Revenue Management Can Help Bolster the Bottom Line

By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | August 10, 2014

In recent years both the residential and commercial real-estate sectors have resembled more of a roller-coaster ride than a sensible place to invest for capital growth. The same can be said specifically about hospitality. Increasing levels of competition have led to a near oversupply of rooms and decreasing levels of ongoing customer loyalty. Hotel owners and investors alike have also faced major challenges around how to best manage their hotel assets to increase the value of their properties and maximize ROI.

While the past five years have seen some hotel markets face key challenges to maintain profitability, many markets are experiencing strong growth, leading to increased interest from investors in the sector. A recent report focusing on the Australian hotel market recorded that, "Investment in the hotel industry outperformed all other competing property sectors in terms of financial returns for the quarter ending Mar 2014, posting an 8.8% annualized return."(1)

In other words, things are getting better. But hotel owners and investors today face new challenges to look beyond balance sheets toward the technology and systems they're using to drive bottom-line value.

Technology moves quickly, and while keeping up with these constant changes can be difficult, owners should still understand the role technology can play in their business strategy. In the past, many hotel investors and owners have viewed revenue management technologies and strategies, for example, as a discipline that is too 'micro-level,' this could not be further from the truth in today's dynamic and technology-driven industry.

Jake Egberts, Senior Vice President at Jones Lang LaSalle Hotels, highlighted a key reason why investors should have an increased interest in revenue management technologies: The ability to extract value from an asset even in the face of increased competition. He said, "In a competitive hotel market, revenue management is a key tool to manage the business. It assists management in understanding their markets and helps to maximize revenues. Investors should expect their operators to be leading the way on this in order to help them to extract optimum value out of the asset."(2)

Leading the way how? Continued advancements in technology, coupled with a seemingly endless number of booking channels, are necessitating revenue management tools to maximize revenue from hotel guests, in both high and low periods of demand. Revenue management technologies can create a high flow of additional revenue that directly impacts bottom-line results, making it a key tool in increasing a hotel's valuation.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.