Keep a Check on Rate Parity and Prevent Revenue Leakage
By Bhanu Chopra CEO, RateGain | December 03, 2017
When certain actions or outcomes lead to loss of revenue, leading to a decline in your planned estimated revenue and actual revenue, you have revenue leakages. An example of that is fixing the price of a product and estimating your revenue based on it, but if one of your distribution channels sells it for a lower price, you face Rate Disparity. With the advent and popularity of online booking channels, the complexities of sourcing and managing your inventory have also increased. Hence, more will be the chances of revenue leakages. This is why industries with perishable product and services like airline and hospitality frequently face this challenge.
To curtail them, we must learn where they stem from. Discrepancies due to lack of communication between departments and deliberate misuse of fare rules. Some of these challenges are a part of a hotelier’s day to day life. While you cannot eliminate all of them, you must focus on the ‘big-eaters’ because taming them will substantially lift your bottom line. Following are some common causes of revenue leakages- System/tool related errors in your revenue management software:
OTAs - Big Eaters or Much Needed Friends?
Hotels and Online Travel Agents share a love-hBBate relationship. While hotels always want to get rid of the bulky commissions they have to shell out for the online bookings OTAs bring you, they also do not want to miss the market penetration, reach and promotional benefits OTAs provide them. OTA popularity and massive customer reach remain unmatched to that of any hotel’s online presence. However, OTAs often undercut hoteliers, making them a major contributor to hotel revenue leakages.
Let us look at some facts. According to Triptease- On an average 25% of the times, a direct hotel price is undercut by an OTA. As per estimates, this level of undercutting is costing hotel industry over $1Bn a year in direct bookings. Regardless of this, the direct price is on average $10.27 cheaper compared to all other platforms. Such a scenario calls for a pressing need to check this practice, which is possible by knowing where disparity stems from.
Following are some ways in which OTAs cause rate disparity - Using out of date rate code, failure to charge the specified rate due to a system error, currency conversion problems, having a base allocation for a category of rooms your hotel has sold out, putting out wholesale rates, and lastly using a LOS (Length of Stay) rates which are not supported by your CRS (Central Reservation System). Although this may look like an endless cycle of leakages, it has a solution. Enter rate parity.
The Hotel Business Review articles are free to read on a weekly basis, but you must purchase a subscription to access
our library archives. We have more than 5000 best practice articles on hotel management and operations, so our
knowledge bank is an excellent investment! Subscribe today and access the articles in our archives.