How hotels are using revenue management to look beyond rooms

For hoteliers, the key principle of revenue management (RM) has historically been to sell the right room at the right price to the right customer at the right time. The rationale is that hotels are essentially real estate businesses and room sales are their main profit centre. It’s a well-defined goal, although a complex one to achieve with so many variables at play.

Some hotels use revenue management systems (RMS) to help. A modern RMS crunches reams of market and competitive data to understand supply and demand and uses AI-powered algorithms to set the best prices for a hotel (or a group of hotels) in real time.

RMS vendors were quick to call attention to the positive role they played in the hotel industry’s post pandemic recovery.

Mike Chuma, vice president of global marketing at IDeaS, said: “The quarterly results for hotel brands like Choice, Hilton, Wyndham and Accor are worth reading as they link their recovery success to rate. Choice Hotels posted an ADR increase of 15.1% in Q3 2022 compared to Q3 2019 and they use a white-labelled IDeaS RMS.”

If RM is delivering a boost to rooms revenue, is there scope to apply it to non-rooms departments too? Evan Baker, lead account executive at Pricepoint, said: “Any business operating with a perishable inventory and demand patterns (limited spa spaces per day, limited tee-off times on the golf course, limited services per dinner at the restaurant, indoor parking garage with 100 spaces) can benefit from revenue management.”

MICE is another area that appears ripe for revenue management.  Loews Hotels, a luxury hospitality company that owns or operates 26 hotels in North America, decided to extend RM to its meetings and events business, which accounts for one fifth of its total revenue.  

Loews Hotels wanted a better way to evaluate group business, including the associated value of guest rooms, meeting space, and ancillary revenues. The Loews Hotel team collaborated with IDeaS, who deployed a meetings and events optimization engine with dashboards for reporting that delivered automated forecasts, equipping sales teams with a tool for evaluating enquiries.

Yira Segarra, senior director of group & event revenue optimization at Loews Hotels, said ensuring staff were educated on the system and its metrics was essential. She said: “The system facilitates the process, but a champion and subject matter expert was essential for integrating it into current practices.”

Becoming more efficient at assessing and responding to sales leads contributed to Loews Hotels reporting its highest ever catering revenues in 2022, 27% up on 2019.

Daniel Thwaites, a UK brewery with an extensive pub estate and 23 hotels and inns, is another company to apply RM to meetings and events.

The revenue management staff wanted to align function-space and guest-room revenue strategies, yet they lacked the same level of insight into function-space demand that they had with guest rooms.

“We collected function space data on a spreadsheet but never really used it to make decisions because it required so much maintenance,” said Katharine Hurved, group revenue manager at Daniel Thwaites. “The team spent more time entering the data than actually doing anything with it.”

Deploying an IDeaS system, Hurved added: “This was our first attempt at yielding our conference business, and it worked.” Daniel Thwaites has reported up to a 25% uplift in rooms revenue, by aligning meetings & events and rooms strategy.

Previously, guest rooms and function space were treated as two entirely separate entities. A key goal of the implementation was to change that mindset. “We wanted to get to a place where we’re looking at one revenue strategy across the portfolio,” said Hurved.

Briefly, in the darkest days of Covid, the fundamental value of revenue management was thrown into question as forecasts and pricing based on historical data became redundant.

Since then, RM has proved its worth once more, as forward-thinking hoteliers harness the benefits of new real-time business intelligence and automation.

Still, the use of RMS is not widespread in the hotel sector, with some estimates putting it at around 20%. Concerns over high costs and complexity persist despite the newest generation of RMS having transparent SaaS-based pricing models and user-friendly interfaces compared to older systems.

Post-pandemic, hoteliers have additional revenue-boosting tech at their disposal such as digital guest journey and upselling software that make ancillary purchases smooth and easy for the guest.  

Increasingly, there is a school of thought that says hotels must move from a rooms-centric mindset to a guest-centric one, adopting metrics from retail like customer lifetime value. Perhaps RevPAG (revenue per available guest) will eventually replace RevPAR.

RMS vendors have an enormous slice of the global hotel pie to go after, but to be successful, they will need to develop their solutions to meet the total revenue and profit optimisation needs of today’s owners and operators, reckoned Tristan Gadsby, CEO, Alliants.

“Revenue management should consider total revenue, not just rooms revenue. It should also recognise loyalty, room availability and price availability for customers operating outside corporate agreements,” he said.

“It’s important that RMS vendors fine-tune their products to achieve the best outcomes. Too many price changes and a lack of consistency can lead to changes in consumer behaviour resulting in more discounting and last-minute bookings.”

Some RMS vendors are explicitly addressing the shift from rooms to total profit optimisation. BEONx, for instance, says its AI-driven platform captures value at every point of the guest journey, across booking, check-in, spa, offsite activities, retail and rebooking.

RMS vendors are also looking outside the hotel sector. Atomize started out supplying its intelligent pricing automation to the digital advertising industry, and then moved into hotels. It has now branched into automatic pricing for live sports, concerts and entertainment.

Evan Baker said Pricepoint is in talks with several pet hotels. Not to be confused with pet-friendly hotels, these are luxurious kennels.

He commented: “One of the strongest features of an AI-powered RMS is that it learns and adapts to the unique characteristics of the property it works on. It is not a one-size-fits-all solution. Since it is specifically designed to work just as well on a five-room property in Kentucky as a 300-room hotel in Morocco, it is well-suited to operate in other domains with perishable inventory and regular changes in demand.”