By Ryan Haynes, Director of Haynes MarComs and host of Travel Market Life podcast.
Regional and independent hotels are falling behind city centre and globally branded properties in how they measure their business success. A recent study revealed occupancy as the top commercial KPI used by rural, coastal and beach hotels with 28.3% using ‘heads in beds’ as the cornerstone of their revenue management strategy. Meanwhile, city based hotels are focused on maximising revenue: 45.5% of city hotels use revenue per available room (RevPAR) as their dominant performance metric.
Discussing the findings, a panel of hospitality leaders found a shift in approach, paired with using the latest technological solutions, can help hotels work smarter, not harder to optimise pricing across all their business units.
The need to reduce the emphasis on occupancy
Occupancy is certainly a worthwhile metric for hotels, but in today’s experience-driven economy, hoteliers need to position their business as a more holistic offering.
Using occupancy as your key KPI underplays the importance of non-bedroom business units. Welcoming non-residents for spa days, dining, events, and other leisure activities not only diversifies your income streams, it also strengthens your brand recognition and expands your customer base.
Chasing occupancy above all else is also a costly strategy – to drive occupancy, hotels need a greater spend in Sales and Marketing to attract more customers. High occupancy also results in higher operational costs in everything from housekeeping services and in-room consumables, through to wear and tear on furniture.
Speaking on a recent Travel Market Life podcast, Michael McCartan, Area Vice President, EMEA at IDeaS, referenced the cultural changes that are needed to shift towards a wider revenue management strategy. “Just over half [of respondents] said they had a dedicated revenue management function. We know independent hoteliers are busy people, they wear multiple hats. But while they identify that a good revenue strategy is key to improving performance, many said they are falling behind in reacting in a timely manner.”
Creating a commercial culture amongst an operationally savvy team can be challenging, but a fresh ‘total revenue management’ approach can bring dividends to hotels.
Is total revenue management the unicorn of the hotel industry?
Total revenue management – the principle which moves beyond occupancy towards a more holistic approach to a hotel’s revenue streams – has long been talked about by the industry. So why hasn’t it been adopted by independent and regional hotels, many of which rely heavily on non-bedroom business for their commercial success?
Inna Nekrassova, Head of Revenue at The Lanesborough (London), said: “I still don’t think any hotels – groups or independents – have implemented [total revenue management] to its full potential. One challenge is the tools – there’s a lot of focus on rooms, but the fact so many hotels are not using a revenue management system shows how far we have to go.”
Another key challenge is building a commercial culture within a business, particularly within operational colleagues. “Inviting HODs to strategy meetings is a good first step. When you show them data and what is possible, they want to be involved and implement it into their work,” said Nekrassova.
Independent hotels benefit from fewer barriers when implementing new ideas and strategies, presenting an opportunity for this important market sector to lead the way in a strategic revenue management revolution.
Shifting the strategic focus and creating cultural change
McCartan said: “The big changes we’re seeing with the independent sector is recognition that intelligent automation can really help change the performance of the operation. It’s helping increase processing speeds, optimising decisions, and reducing costs. This in turn allows hospitality professionals to rely on their human capabilities…focusing on the strategic rather than the tactical.”
A commercially focused culture will not evolve overnight – nor is it possible without supporting the hotel’s revenue management leadership, whether that be a revenue manager, director of sales, or GM.
Part of the reasons why the adoption of total revenue management has been slow is the technological landscape – often messy, legacy tech stacks where systems don’t speak with each other.
McCartan said: “In the past, applications didn’t talk to each other. Now they’re starting to share data and talk to each other, there’s better results and performance from the tools…Total Revenue Management nirvana requires the tech ecosystem to support the operational ecosystem. Combine those and we will see a big step forward in the adoption of tech, not just for rooms but for whole operations.”
Can technology really help hoteliers work smarter?
It’s not only revenue management strategy and measurement that differ between city and regional hotels – there is also a gulf in the use of technology to enable commercial success. Less than half (45.3%) of regional hotels use a revenue management system (RMS), compared to over three quarters (77.2%) of city hotels. Hotels using an RMS drove stronger ADR increases in 2022/23 than those without – 14.15% increase vs 11.69% increase respectively.
Geza Bocsak, Head of Revenue Management and Sales at Harbour Hotels, noted the key to successfully adopting a total revenue management approach is to have backing from senior stakeholders such as owners and GMs.
“Pitch the tech as an additional assistant to make your team more effective.” A human resource isn’t able to constantly be looking 365-days ahead and factoring in a multitude of variables – from weather forecasts, global events, socio-economic factors, competitor pricing, and more.
Nekrassova said: “Technology sets you apart, reacting quickly to changes in the market. Sometimes things you don’t expect might trigger a change in pricing. One person cannot physically keep an eye on all the changes in the market, but systems can change many times a day. Having a good tech stack is important for independent and smaller groups.”
McCartan added independents need to rethink their adoption of technology, “in particular intelligent automation which is levelling the playing field for independent hotels. Advances in AI and machine learning are eliminating many repetitive and tactical tasks for hotels. This is a distinct benefit for independent hotels.”
Technology is changing, not replacing, the role of a revenue manager. “It’s like having an additional assistant,” said Bocsak. “Looking at every room type and segment, 365 days in advance, making thousands of decisions for one hotel in a day,” with capacity far greater than a human resource could produce.
Fluid market conditions continue to impact hotels of all star rating, and in all locations. Whether in a regional town or city centre, the leisure market remains short lead, yet with a dynamic revenue management strategy and an automated RMS, hoteliers can capitalise on the ever-changing booking windows.
“It’s important to make sure you have longer lead time offers in the market, which are competitive and attractive to those who will book longer lead,” said Nekrassova. “It’s the combination of long and short lead that’s important to drive prices – you want the base business to be able to increase short lead prices. Booking pace does affect how you manage pricing.”
With all the variables impacting consumer behaviours, technology becomes pivotal in responding quickly, and ensuring attractive pricing is set. “Data is the oxygen that fuels an RMS,” said McCartan. “Without good quality, clean data, the automation can’t perform optimally. The best RMS will incorporate historic and forward-looking data to get a clear picture of market demand, and respond in real-time to changes in demand. If you can forecast and recalculate constantly, you’ll provide the best prices for the maximum guests at the right price.”
Listen to industry professionals discussing the hottest topics in the world of travel and hospitality at the Travel Market Life podcast.
