Looking beyond room rates: a holistic approach to hotel revenue

There has never been a more challenging time to operate a hotel in the Asia Pacific region. From the increasing rates of competition to changing customers’ booking preferences, now more than ever hoteliers need to ensure that they are maximising all revenue-generating opportunities.

NB This is a viewpoint by Rachel Grier, managing director of APAC for IDeaS.

To maximise revenues and enhance customer loyalty, it is vital that hoteliers gain a holistic view of all guest interactions within the hotel, not just their room spend.

To get the full picture of a guest’s preferred activities and to understand their overall value, it is essential to integrate data from all transaction systems. Elements to consider include:

meeting room or event space usage
guest reservation channels
food service
spa treatments
gift shop purchases

Frequency of travel, length of stay, room type, day of arrival and lead time to reservation are also factors in determining a hotel guest’s value and profitability.

In addition to making more strategic and ultimately profitable decisions about which guest reservation requests to accept, a deeper understanding of guest preferences will lead to better decisions about promotions, service offerings, inventory levels, food and beverage options and property layouts.

This integrated customer behaviour data supports wiser pricing decisions, supplier choices and financial strategies. Overlaying these insights with sophisticated, multi-algorithm driven forecasting and optimisation provides controls to ensure that revenues are maximised, costs are minimised and the maximum profit position is achieved.

Packaging ancillary services

While areas such as food and beverage, spa facilities, conference facilities and leisure options (such as golf courses) combine to form a hotelier’s overall asset, the role that integrated hotel technology plays in helping package and promote these offerings beyond room rates is often overlooked.

Simply packaging ancillary items together will not fit all guest requirements - but providing the flexibility for customers to pick and mix additional items is ideal. Typical offerings could include champagne, chocolates or flowers; however, savvy hoteliers should be more creative by offering additions such as spa treatments, golf rounds, in-room waters and mini-bars. Any element that guests may select to enhance their stay could be considered and analysed.

Including these enhancements at a concession determined by channel, or perhaps dates prior to arrival is an additional option for hoteliers.

Whilst most properties encourage staff to upsell ancillary services to guests at check-in (which can contribute significantly to their top line), this becomes less than ideal since it relies heavily on the employee at the desk that day.

Truly understanding where customers from each market segment are likely to spend will empower hoteliers to make better decisions about who should receive the last available room at their property, a free or discounted breakfast, complimentary spa treatments, etc.

For example, one customer may result in high revenues but low profits, whereas another customer could provide lower revenues but much greater profits. Profit maximisation is generally the goal. Having this data systematically available and consumable through a revenue performance tool or data visualisation suite will speed up or automate significant parts of the decision making process. This is as relevant to group business as it is to transient bookings.

Extending Revenue Management Beyond Rooms

Function or banquet spaces in hotels (the areas dedicated to meetings and events) can account for up to 40 percent of a hotel’s overall revenue. These spaces are serious profit drivers for a hotel property; however, major amounts of money are left on the table when these spaces go undersold or unsold altogether.

For some time now, leading hoteliers and academics around the world have recognised the potential of function space revenue management. A 2011 survey by Sherri Kimes, professor of operations management at Cornell University and a leading revenue management academic, recognised function space as the area with the highest likelihood of success outside of traditional room revenue management.

Despite these types of findings, it is an area that has been notoriously difficult to measure and capture value. However, the recent emergence of KPIs in function space revenue management, which include space utilisation, profit per occupied space (ProPost) and profit per available space (ProPast), have become industry standards and are helping hotels measure the performance of their function spaces.

Advancements in analytics and technology also provide hoteliers with access to function space forecasts that can determine future utilisation to help make impactful revenue optimisation decisions. These forecasts lead to better decisions for using available spaces optimally and applying dynamic pricing based on demand.

The first step is to recognise that optimising function space revenue is only one part of the overall equation when it comes to meeting rooms and conference areas within a hotel. Meetings and events often have great variability in components (food, beverage, AV, meeting room rental, etc.), meaning each has very different profit levels. Decisions need to be made on what type of business is most profitable for a hotel, not just the business that drives the most revenue. This added dimension gives hoteliers an even greater control of not only their revenue but also their ultimate profits as well.

A holistic approach to revenue generation is needed

The formal process of non-room revenue management is emerging in the Asia Pacific hotel industry and the revenue and profit opportunities that this represents are significant. Optimisation of alternate and ancillary revenue streams is a strategic discussion being held within the industry and is extremely important as hoteliers are planning for a future beyond room revenues in fostering a sustainable revenue culture throughout the entire hotel.