The evolution of revenue management means that hoteliers should take the rate lead and start improving those battered ADRs by increasing their rates, Vanesha Ramsamy tells Hotelier India.
Tourism has always been associated with being a volatile industry. If you did not believe this statement was true, then think about the latest event – a volcanic ash cloud resulting in the grounding of most European flights and storming the unpredictable tourism industry.
This brings about the issue of adaptability and whether good forecasting can really get you out of trouble. What factors need to be taken into consideration while trying to achieve an accurate set of figures? What tools can hoteliers use as part of their daily strategies to improve their battered average daily rates (ADR) with an upturn in the economy around the corner?
The traditional practice of revenue management suggests that the key to a successful strategy is accurate forecasting. Merely looking at historical data is not going to provide an accurate forecast. Therefore what are the ‘contemporary’ factors that need to be taken into consideration while forecasting?
Firstly, we should look at the growth of online distribution channels. In the last few years, the internet boom has changed the way consumers shop for and book hotels. Essentially, almost everything that hoteliers knew about the customers booking behavior based on historical data is now obsolete. What hoteliers need to do along with constant innovation is to look over their shoulder at all times to see what their competitors are offering, and then go that extra mile to not only differentiate their product but also provide better value to their customer.
We also witnessed a disturbing phenomenon over the last year, as hoteliers dropped their rates in the hope to stimulate demand. Industry experts dubbed the rapid rate decline as “a race to the bottom” and this has unfortunately turned out to be true.
Traditional revenue management practices stipulate that rates should be lower with more restrictions, long prior to arrival, aiming at the price-sensitive market and as the arrival day gets closer, the higher demand dictates the increasing rates. However, this was not the case during the recession due to the general lack in demand. In order to attract more customers, hotels were dropping their rates nearer to the arrival date because they needed to fill the rooms. This had a domino effect on the rest of the industry.
“Hoteliers therefore need to have a sophisticated and modern system that will allow them to manage their rates and availability efficiently on the various distributions channels”
Hotels nowadays update their décor – but never think of updating their policies. Every organisation that was looking to weather the recession and come out stronger would have sat down and had a radical rethink about every single element of their business model.
The majority of hotels have a flexible same-day cancellation policy, which is a product of the last century and another tool that hoteliers need to remodel so that it provides them with better results which work in their favour. How can a business operate profitably when their customers take full advantage of their lenient policy to leave them out of pocket? Surely this is an aspect that needs to be fundamentally reviewed and be skewed in the hotel’s advantage if one sees their last-minute cancellation report getting larger.
Hoteliers also need to make the most of mobile technologies. This means they have to offer the best price at all times and make sure they have full control on their inventory. In recent days, hoteliers have realised how difficult it is to keep control on inventory and change prices on all channels.
In light of the above, revenue managers need to ask themselves the following questions – if more and more guests start booking at the last minute, what does that say for your forecast? With all the changes and the roller-coaster ride in the last two years, can hoteliers rely on the past to predict the future?
At evolution, our belief is that revenue managers should focus on the present and react accordingly. We cannot say how customers will book in the future but it is very likely that online bookings will keep increasing. Hoteliers therefore need to have a sophisticated and modern system that will allow them to manage their rates and availability efficiently on the various distributions channels.
We also suggest that hoteliers should start testing the market with higher rates. With most economies emerging from recession and consumer confidence on the upturn, it may be time to reverse the rate decline. It would make sense for hoteliers to start improving those battered ADRs by increasing their rates.
Hoteliers should strive to become the ones to take the rate lead and encourage longer stays by offering incentives. There is absolutely no doubt that the road ahead is bumpy but those who make the right calls now will undoubtedly feel the pressure ease off quicker.
