An efficient revenue management system or RMS is key for hotels to maximize revenue generation and make informed decisions based on performance analysis and data, especially during these unsteady times where demand patterns oscillate at any given moment.
In the hotel industry, RMS can create an efficient inventory of the total number of guestrooms, maximize profitability and help hoteliers make informed, data-driven decisions. A good RMS strategy will help hotels understand the historical and future-looking data for a property, along with knowing the market dynamics and the prevailing economic conditions that might impact guest’s price sensitivity.
And though humans still make final decisions, it’s technology that is guiding their hand and, in some cases, a set-it-and-forget it approach is observed—the tech has become that good.
Owing to the diversity of its portfolio, Denver-based Sage Hospitality Group uses several tools for revenue management at its properties and, as Patrick Pahlke, its EVP and chief commercial officer, noted, the company looks for tools that provide quality demand forecasting, price optimization, inventory and channel management, as well as quality reporting and analytics “that integrate with our other systems on property,” he said.
PROFITABLE SEGMENTS
Having an efficient RMS can help zero in on a reliable pricing strategy, understand demand trends and help gauge the most profitable segments for hotels.
Pivot, the lifestyle operating vertical of Davidson Hospitality Group, identifies guests booking directly with its hotels and those spending on items outside the room rate as some of the most profitable guest segments.
“Guests who stay multiple nights, eat at the restaurants at the hotels, use the spa and contribute the highest volume of TRevPOR (total revenue per occupied room) are our most profitable,” said Harry Carr, SVP of revenue management for Pivot.
Groups and conferences were a high portion of business for Sage Hospitality prior to the pandemic and those segments are now coming back.
“Our sales teams are fully focused on layering that business into our mix across the portfolio so that we can maximize revenues in other segments,” said Pahlke.
Hotel companies rely on technology to optimize revenue management. One hospitality RMS provider is San Francisco-based Duetto, which counts such clients as citizenM, Standard International, NH Hotel Group, Louvre Hotels, Radisson Hotel Group, Melia Hotels Internationals and more than 150 casino resorts, which use Duetto’s RMS to optimize their rooms and suites and their portfolio of products through their multi-revenue approach.
Duetto’s Chief Revenue Officer Chris Crowley said that demand and rates have both increased for full-service hotels and convention center hotels, two segments that were depressed during the pandemic.
Duetto’s global data show that destination resorts continue to thrive, with Q1 room nights up 23%, average daily rate up 6% and room revenue up 23% compared to the same time last year. Duetto data for Q4 2022 showed a 240% increase in room nights and a 283% growth in room revenue for properties in North America.
DEMAND PATTERNS
Demand can be impacted by local influences and seasonal patterns, say hoteliers. It can also be hyperlocal and can react to events such as concerts, regional events and conventions. Look no further than the recent Eras Tour by Taylor Swift, which boosted occupancy and caused demand to skyrocket in the cities where she performed in the U.S.
Meanwhile, environmental impacts and concerns of climate change also affect demand. Weather patterns have changed when people want to travel and to which destinations.
“The corporate window of Monday to Wednesday doesn’t exist anymore and this has changed the number of static rates in the market,” said Crowley. “Rates are much more dynamic as seasonality is less predictable.
RATING SUMMER
Demand is expected to remain strong in key leisure destinations, like Las Vegas and New York, but demand in secondary cities may start to trail behind, predicted Crowley.
“Full-service and extended-stay offerings globally will see strong performances,” he said. Globally, room nights for this year are up 14% on 2022, ADR is up 9% and rooms revenue is up 19% compared to the same period last year, Duetto data said. For North America, all segments are enjoying a 6% uptick in room nights this year, a 3% gain on ADR and an 11% lift in room revenue for this year compared with 2022 figures.”
Markets that eased restrictions early on in the pandemic, especially those in the Southeast, have been witnessing a decline, said Pivot’s Carr, and many travelers, especially affluent ones, are now looking abroad for trips as those markets open further. “Florida, Georgia, Arizona and other destinations are seeing a decline as many vacationers have already experienced these destinations,” he said. His colleague at Davidson, Kathy Hood, SVP of revenue management, noted the Caribbean, Mexico and Europe as popular destinations this year. “This summer we could see some pressure on ADR; however, if demand remains strong, we can continue to drive ADRs above last year,” she said.
LOOKING AHEAD
With demand remaining strong through the rest of this year, room rates and demand are expected to normalize through the end of the year.
According to Duetto data, Q4 is already looking promising, both for properties in North America and globally.
“Q4 2023 is currently trending up 6% on room nights, up 5% on ADR and up 17% on room revenue for North American properties compared to the same period last year,” said Crowley.
Despite resort rates becoming softer than last year, travelers will still be looking for properties that offer full-service amenities and value for money.
“The third- and fourth-quarter group patterns will be a baseline bellwether. Booking windows will remain short, resulting in continued volatility,” Hood said.
Given the existing financial situations, inflation is a key aspect when creating a revenue management strategy. Though the rate of inflation has been falling over the past 10 months since it peaked in 2022, there is a segment of travelers that remain price sensitive when it comes to booking travel.
“[It] means that we will need to take that into account as we continue to set rates for our hotels,” said Pahlke. “At least for this summer, we are continuing to see incredibly strong demand across our portfolio.”