Can hotels put their revenue management on autopilot?

Insight comment
Having trouble recruiting a revenue manager? Why not use a fully-automated revenue management system instead. Well, the machines haven’t quite taken over yet, but they can do a lot of the boring and repetitive chores for us.

The pandemic forced hotel managers to make difficult decisions. Like hotel employees in general, many revenue managers were furloughed and ended up leaving the industry.

Some hotels decided to stop paying for their revenue management systems (RMS) too. One independent London general manager who had stopped using the RMS for more than 18 months, said: “To be honest, revenue management is not at the forefront of my activity at the moment. I am concentrating on recruitment and building my team.”

In a reversal of fortunes, big city hotels are now having to find new ways to generate demand, which is arguably more of a sales and marketing role. In contrast, some countryside and coastal leisure destinations have the luxury of being able to cherry-pick demand, traditionally a core skill of the revenue manager.

Do hotels now regret letting their revenue managers go? Jane Pendlebury, CEO at HOSPA, said: “They should have been furloughed for a little bit but then brought back in plenty of time to help generate demand when the hotels reopened.”

Revenue manager positions historically commanded some of the highest salaries in the industry, often more than the general manager. Recruiters in the UK are now focusing on attracting graduates into RM roles.

In the context of a global staffing crisis and a shortage of revenue managers, several technology vendors are now offering increasingly automated revenue management systems. By now, the rationale is a familiar one: leaner teams require new ways to do more with less. Automation provides an answer.

On Autopilot

For example, Atomize’s RMS includes an Autopilot function which tells hoteliers to: “Sit back and relax. Switch on Autopilot and let the system automatically update your rates per room type.”

But letting RMS run untended raises a dilemma, said John Burns, president of Hospitality Technology Consulting.

“I am betting the success, or maybe the survival, of my hotel on this algorithm. Can I trust it? We’ve always been uncertain about our RMS. Typically, RMS have made recommendations and we tinkered with them. So, we have an enduring trust challenge,” he commented.

In this respect, little has changed since the early days of RM adoption in the late 1990s, according to Pendlebury.

“Even then, vendors told us not to intervene and just let them make all the decisions. So that hasn’t really changed,” she said. “It was never the best advice to just let it run because the revenue manager has to be flexible and has to communicate with all the different stakeholders so it needs that human intervention to understand all the different dynamics.”

Indeed, RM is an area that requires lots of human intervention and decision-making. The RMS may be saying that the hotel is going to be empty in June, for example, but if no one takes any action, the system will continue to say the hotel will be empty in June until it is.

In contrast to the stereotype of the analytical geek with his nose in a spreadsheet, revenue managers need to be outgoing and good at communicating with colleagues and guests. In essence, they are the commercial brain of the hotel. 

If a guest comes down to reception and asks to stay an extra night at a discounted price, the revenue manager needs to be empowered to make the right decision.

Ideally there should be one revenue manager per hotel because he or she needs to know what is happening at a local level; if there are roadworks outside the hotel or when Lady Gaga is performing nearby.

So, the prospect of an untended RMS working its magic in the background is an attractive one for under-staffed teams, but still something of a false dawn.

That said, RMS today are increasingly sophisticated and remove a great deal of the drudgery involved in setting prices and distribution.

At the recent HSMAI ROC conference in Dallas, panelists spoke about the need for hoteliers to put more trust in RMS so that personnel can focus more on the bigger picture rather than repetitive chores. Lori Kiel, chief marketing and revenue officer, Kessler Collection, was interested in new technology that makes the preparation of annual budgets less time-consuming.  

Personal Skills

Choosing an RMS depends on the skills of the revenue manager. If they are highly skilled they will have different requirements to a revenue manager who needs simpler advice. 

Cloud-based RMS allow multiple users to log in and check data from a centralised dashboard. A good RMS displays all pricing data, as well as industry and competitor data, in one place. 

“The best revenue manager in the world is going to struggle without a system because they are very, very powerful,” said Pendlebury. “They are constantly recalculating. No manager could do that. The more powerful the tool, the more the revenue manager is freed up to think freely, creatively and communicate effectively.”

One key function of a RMS, and one that is impossible to achieve manually, is the ability to track and compare booking pace, pick-up, and lead times, one day, one week, two weeks etc… prior to arrival.  

Pendlebury said: “There is more variety now in different systems and what their strengths are. Different hotels will have different requirements. It’s a long-term strategy. At the start it’s good to just focus on pricing and distribution and then move on to develop segmentation and displacement analysis.” 

RMS are not cheap, but the ROI can be quick. “An investment in a RMS is rarely a wrong solution if you’ve got a skilled operator. I’ve heard of people breaking even in a really short space of time,” said Pendlebury. The deployment of a RMS generally results in a 5 to 20 percent uplift in RevPAR.

Industry View

In the end, RMS are dependent on their operators. The proportion of hotels that use revenue management systems is not high. Only around one quarter of independent hotels use an off-the-shelf piece of RM software.  The rest use spreadsheets and their own forecasting tools. The international brands have their own RM systems, or ones created with a vendor, but their use is at the discretion of unit-level managers.

RM vendors, therefore, have a large market to go after. Many hoteliers put off investing in RMS until some day in the future when they are making more money. “It is like not buying good running shoes until you become a good runner,” commented Ravi Mehrotra, president and chief scientist, IDeaS, speaking at the Leadership From Chaos conference. 

As most RMS are now cloud-based, hoteliers can choose one that integrates with their booking engine, channel manager, PMS and CRM for automatic data sharing. Some vendors offer flexible pricing instead of contracts, so there the chance to try two or three RMS before deciding which is the best fit. There is also the option to outsource some RM functions to a consultancy.

The RMS needs to be matched with a skilled, or at least competent, operator, underlined Pendlebury: “Revenue managers are there to increase profitability. A good one will change the fortunes of the hotel. It’s worth investing in their education because it’s one of those topics where nobody knows everything. It’s so fluid and ever-changing.”