The Informed Investor - Why hotel owners and investors are increasingly checking-in to revenue management.
The Informed Investor — Why hotel owners and investors are increasingly ‘checking in’ to revenue managementThe rapid development of consumer technology, agrowing number of booking channels, constantlyevolving customer bases and a dynamic marketplace By Paul van Meerendonk,has meant that the science of revenue management, Manager of Hospitalityand its ability to have considerable impact on hotel Consulting at IDeaSperformance, is continually expanding. It is notsurprising, therefore, that the world of revenuemanagement is coming under increasing scrutiny fromthose who have a vested interest in the performance ofa hotel – namely, hotel investors and owners. Investors and owners should no longer view revenueJake Egberts, Senior Vice President at Jones Lang management as a discipline that is too ‘micro-level’LaSalle Hotels, highlighted the reason for the increased to be overly concerned with. Instead there should beinterest in revenue management on the part of investors. an appreciation that not only do revenue managers“In a competitive hotel market, revenue management is handle the day-to-day revenue optimization process,a key tool to manage the business,” he said. “It assists but that the often overlooked discipline of revenuemanagement in understanding their markets and helps management is a crucial tool – savvy owners andto maximize revenues. Investors should expect their investors are already seeking to cooperate more closelyoperators to be leading the way on this in order to help with revenue management departments in order tothem to extract optimum value out of the asset,” he ensure that asset value is optimized throughout theadded. hotel’s life cycle. Pre-Opening Planning It is no secret that strategic forecasting well before the guests arrive is a necessity. This should include a SWOT analysis, an investigation of micro-market and economic factors that might affect performance, as well as an in-depth competitor analysis. In addition, a finalized pricing structure based on market conditions and hotel positioning, finalized channel strategies according to product positioning and market environment, together with market segmentation strategies with a particular focus on business with long lead times, will put the wheels in motion for a successful hotel launch. Effective revenue management from this early stage in the hotel’s life cycle will give everyone involved the right information about where they are going and how to get
THE INFORMED INVESTOR — WHY HOTEL OWNERS AND INVESTORS ARE INCREASINGLY ‘CHECKING IN’ TO REVENUE MANAGEMENTthere – from pricing structures to the right business mix,as well as pinpointing any potential ‘red flags’ at the hotelproperty.Hiring a revenue manager should also be an early pieceof the puzzle to fit. It is at this ‘pre-opening’ stage thatkey senior executive positions begin to be filled – generalmanagers, sales managers, and so on. Usually, a revenuemanager is one of the final pieces to fall in place. But, inconsideration of the impact revenue management canhave at this early stage, it would be a sound tactical moveto ensure that this person is one of the first hires, andthen use their skills and talents to build the foundationsof a successful hotel from the very start. Ongoing Revenue PerformanceA successful entry into the market can establish a hotel and its revenue generating ability for years to come. If donecorrectly, the hotel will be able to position itself effectively in the market and ensure revenue optimization at thehighest possible level. If a hotel is incorrectly launched into the market it has the potential to result in a significantunderperformance of the asset, and a substantial amount of money can be left on the table.Beyond the scope of traditional management systems today canrevenue management practices use a hotel’s data for complex,such as selecting the correct predictive price-sensitivityoverbooking levels, setting rate demand modelling which, whenrestrictions, and setting the Best used to inform strategy, leads A lack of strongAvailable Rate, lays the art of to increased profitability whilstsetting the right rate in the first technology vision managing the risks associatedplace. Things move very fast in with uncertain demand. A lack and strategythe technology world, and it can of strong technology vision andbe difficult to keep up, but owners in a hotel will strategy in a hotel will result inand investors need to be certain missed opportunities. result in missedthat they understand the roleof technology in their business opportunities. Revenue management must bestrategy and critically evaluate considered from the very firstinnovations in the market. feasibility study, and setting aThe advanced analytics built strategy and establishing a long-into some of the best revenue term action plan is vital. Thefocus must not only be upon ensuring that the hotel is priced correctly, but also covering a wide-range of pricing,forecasting and optimization related processes, structures, tasks and tools that safeguard the sustainability ofthe revenue management of your hotel and establish a solid foundation towards continued and market-leadingRevenue per Available Room (RevPAR) performance.
THE INFORMED INVESTOR — WHY HOTEL OWNERS AND INVESTORS ARE INCREASINGLY ‘CHECKING IN’ TO REVENUE MANAGEMENT Essential RefurbishmentAs anyone who watched as The Savoy, one of the grand-dames of the London hotel world, underwent its £220million and three year-long refurbishment will attest, refurbishing can be an expensive and lengthy business. Theoverhaul was initially projected to take 17 months, but unexpected structural complications caused the process totake much more time and money than was originally budgeted. It was estimated that for every week it remainedshut, the hotel was losing £500,000 in revenue. Thus, in addition to the huge expense, the loss of revenue meantthat The Savoy had to “hit the ground” running when it re-opened in 2010 in order to recoup and deliver return onthe refurbishment investment.Now, in 2012, the precisionanalytics and forecasting of revenuemanagement have played their partin The Savoy’s success story – in2011 The Savoy had an AverageDaily Rate (ADR) of £470, comparedto its 2007 pre-refurbishment ADRof £250. The courageous moveof a complete refurbishment hasallowed The Savoy to positionitself at the very top of the Londonluxury hotel market. While it maybe tempting to immediately hikeprices once the front doors reopenin order to recoup costs as fastas possible, it is only through thecareful application of revenuemanagement that decisions can bemade regarding strategic pricingthat will safeguard the longevity ofrenewed revenue.At IDeaS, our sophisticated analytics, demand modelling and forecasting have helped hotels in key competitivecities across the world – such as London, New York, Dubai and Shanghai – position, and reposition, themselves inorder to optimize their revenues in the long-term.This brief tour through some key phases in a hotel’s life cycle spotlights the importance revenue management playsthroughout. Our custom revenue solutions have supported new hotels in their pre-opening phases and hotelsundergoing refurbishments, in addition to hotels already operating who want to apply analytics to their long-termpricing strategies and see the clear benefit of investing in revenue management. If you have a vested interest inthe performance of any hotel property, and have not already moved revenue management to the forefront of yourpriority list, hopefully this article will prompt you to ‘check-in’ too.