Optimizing Revenue

By William Atkinson, Contributing Editor | September 01, 2006

If ever there was a time for revenue management technology, it's today. According to a research report (Revenue Management in U.S. Hotels: 2001 - 2005), published by the Center for Hospitality Research at Cornell University's School of Hotel Administration, revenue management is executed more closely on average by hotels that price above their competitive set than by those that price below their competitive set. Interestingly, there are no differences in results during economic downturns or rebounds. However, for each hotel price segment, the degree of revenue management is greater for those hotels that perform better than their competitors, providing evidence that revenue management strategies are more prevalent in higher performing hotels.

In July 2006, Smith Travel Research reported that the average rate at U.S. lodgings for the first six months of 2006 was $96.56, up almost 7 percent from the first six months of 2005. The luxury segment had the greatest rate increases — from $249.28 to $271.68.

In sum, if you utilize revenue management and are able to perform better than your competitors, you can take greater advantage of the growing boom in the hospitality industry. Three companies that are doing just that are Omni Hotels, Kimpton Hotels and Vintage Hotels.

Maximizing profitability

Omni Hotels (Irving, TX), which ranked highest among upscale hotels in J.D. Power's customer satisfaction survey for 2005 and 2006, is in the enviable position of having more reservation requests than it has rooms in its 40 upscale hotels, according to Brad Anderson, corporate director of revenue management. As a result, Omni wants to maximize its revenue and profitability, and has been able to do so by implementing an automated revenue management solution called OmniCHARM (Centralized Hotel Auto-mated Revenue Management), offered by JDA Software (www.jda.com).

The system allows the revenue managers and sales directors at all of the properties to work together to identify and capitalize on the most profitable and loyal Omni guests. This involves forecasting future demand and then allocating capacity to ensure that rooms are available for the most valuable customers. In some cases, these are customers who are willing to pay the highest room rates or stay the longest. In other cases, it means the customers who spend the most on available amenities in conjunction with the room rates.

"In sum, the new system provides us with vital information on the total of the room rate plus the extra spend," explains Anderson.

As a result of using the technology, Omni saw a 3 percent increase in capture of the total available revenue opportunity, defined as what Omni would have booked anyway, plus what it could have potentially turned away. "Since that time, the 3 percent has increased to almost 5 percent, because demand has outpaced our supply," adds Anderson.

An even more significant benefit is that the system allows revenue managers to spend less time on number crunching and more on forward-thinking activities. "In this industry, planning is done 90 days ahead," Anderson notes.

This application allows Omni to do so a year in advance. "It helps us engage in strategic decision-making, instead of the tactical decision-making that we once did," he concludes.

Price dynamics

Kimpton Hotels (San Francisco, CA) selected revenue optimization technology from IDeaS (www.ideas.com). Currently, the technology is being rolled out in three of Kimpton's 39 boutique properties.

The technology allows each implementation to be tailored and deployed as if it is a custom application, while still allowing a consistent yield strategy for all of its hotels.

One of the IDeaS modules that is particularly relevant to revenue management for Kimpton is the IDeaS Pricing and Channel Management Module, which allows hoteliers to maintain consistent yield across the channels. "We are actively using this module," reports Heather Richer, director of revenue for Kimpton's Monaco Properties (Chicago, IL).

Kimpton is happy with the technology. "Because of the granularity that it provides, we are now able to price more dynamically and have the functionality to set our rate levels better than we ever could manually," states Richer.

"In addition, the technology is causing us to review our business practices and market segmentation, allowing us to think at higher levels than we did in the past," he informs.

Serving better

Vintage Hotels (Niagara-on-the-Lake, Ontario) operates three boutique-style hotels in close proximity to each other in Ontario, all of which hold the Four-Diamond rating from the Canadian and American Automobile Associations.

Because of its luxury status, it elected not to offer its inventory through Internet discount-rate sites, because of its inability to control rates. However, realizing that the future of booking was going to be the Internet, Vintage Hotels partnered with Northwind (www.maestropms.com) to implement a technology platform suite called the Maestro Enterprise Multi-Property Suite, which includes the Maestro Yield Management System module.

The technology allows Vintage to control all of its rates from one screen. Shoppers see the same maximized rate for a specific room type whether they look at the Global Distribution Systems offerings or third-party Internet travel sites. Management can also manage inventory and rates, because the system provides real-time reports that show what is being booked and where the rates are posted.

Lisa-Jane Wheaton, revenue manager, is very impressed with the technology. "The singular database allows us to quickly pull together all of the analytics, such as rate and inventory management, etc., that we need in order to properly determine our strategy," she reports.

In addition, management is able to operate its sales/catering, spa, and guest room reservations off the one main system. This provides a faster turnaround in terms of the most up-to-date availability and return on rates and room types.

"The technology also allows us to look at what our guests' spending habits are and when they are purchasing it," states Wheaton. "This ultimately allows us to go beyond the rough data of dollars, to the guests' preferences, so we can create guest preference profiles. This will allow us to serve our guests even better in the future."


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