How many ways can we say it? The COVID years (yes, years)
will be written about for a long time to come. Any number of industries are
struggling to cope.
From the medical professionals tasked with untold and
unforeseen shifts in staying ahead of a hidden enemy to the small businesses
struggling to remain relevant to the travel industry experiencing unprecedented
upheaval, it’s a whole new world.
Those of us in the hotel industry are watching for any
uptick in revenue to help us reset and rebuild. Some executives in the industry
are questioning the value of revenue management right now. Ten years ago, I
would have agreed that when revenue is down 90% and more, what is the
need for a traditional revenue management system (RMS)?
However, we are fortunate today’s sophisticated RMS is not
burdened by the need for high demand. Modern revenue solutions optimally price
all products (room types and rates), fold in cost/profitability and can do so
on autopilot if needed. These advancements in technology actually help a hotel
squeeze out revenue even (and especially) in times of the greatest uncertainty.
And the higher the degree of uncertainty, the higher the
need for robust, accurate and relevant data to back up decisions. Never has the
world been this hungry for data. We see it all around us, from data on the
spread of the coronavirus, to data about the re‐opening of economies and the
lifting of restrictions. But in the hotel industry, like many other hard‐hit
industries, we seek answers to questions to inform our futures.
How has travel behavior changed? What are the needs of
guests now? Who can I expect to book and when? When can I expect a recovery to
start? These are all questions the industry is struggling to answer.
The power of data
The first thing to do is look for the opportunities within
our current situation, drawing out new data sets to build an up‐to‐date picture
of today’s business and the expected business going forward. Second is to
analyze how these patterns have changed for booking, rates and guest behavior.
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An RMS (especially decision‐making systems) needs accurate
and reliable data from a myriad of sources, often representing the best version
of the truth. To obtain this truth, RMS providers are spending a huge amount of
time and effort to ensure the data received from the various systems is
accurate and timely in order to allow the systems to make the right decision.
To do so, we continuously add new data sources to our feeds.
In conversations with many in the industry, one thing that
has been prevalent is the substantial increase in interest in the forecasts of
these powerful revenue platforms. Especially now, more people across the
organization and beyond are asking to understand what is most likely to happen
in the near future.
Additionally, with demand constantly changing according to
the flare up of infections in certain countries and regions, and regulations
that change literally from hour to hour, the revenue management community is
faced with an unprecedented need to re‐forecast frequently.
It is obvious that a hotel that does not have accurate data
in one place, or doesn’t have the right tools to quickly re‐forecast as changes
are happening, will soon find itself in a world of hurt.
A different type of demand
What if (as has just happened in the United Kingdom) a
government announces a package specifically targeted to stimulate travel - and
people start booking their next stays after they hear the news in the evening?
What if a lot of that demand happens during a revenue
manager’s “off hours” and there is no RMS? The hotel could potentially miss out
on a huge revenue opportunity (of which there might not be many). Conversely,
if new restrictions are imposed and demand drops again, a hotel does not want
to be stuck on a rate level that is too high.
And the higher the degree of uncertainty, the higher the need for robust, accurate and relevant data to back up decisions.
Klaus Kohlmayr - IDeaS
In a recent conversation with Best Western U.K. CEO Rob
Patterson, he mentioned that in a current analysis his team found a significant
amount of hotels being either overpriced or underpriced in a particular market,
opening up opportunities for his hotels to capture more market share.
Together with the need for rapid forecasting, the brisk
changes in demand require accurate and automated pricing to be able to optimize
a hotel’s revenues (even if they are currently or often limited to 20 or 40%.)
Some recently observed trends indicate guests are now
booking short‐term before arrival, which can put a strain on operations.
Occupancy rates can shift from 10% to 70% within a 72‐hour window. There has
also been a renewed preference for direct versus indirect booking. The
traditional rate structure is now very different than it was a few months ago,
and advance purchase rates have pretty much gone out the window as flexibility
Our analysis shows that in many markets a significant number
of hotels are mispricing themselves, often to the tune of double‐digit
percentages. In the current economic environment with lower demand and often
higher‐per‐occupied room costs (due to increased health and safety measures),
hotels need to optimize every potential dollar in revenue. It will make the
difference between a profitable or unprofitable business.
When you have little revenue and are constrained by
government regulations, you need to manage and price your level of occupancy
accurately, whether that is at 25% or 50%, depending on current government
restrictions. Pricing encompasses rate, room type, product, etc. - which should
each be priced on its own merit - and is an even more critical process in a
time of less revenue.
Revenue science can automatically account for dynamic
micro‐adjustments in price based on occupancy, which is important in a time
when an extra one or two percent in revenue can make or break your
A world in flux
As we’ve discussed, data‐driven decision‐making requires the
right data and the best tools to use it. If you have reliable data in place,
your next step will be to forecast what your business will look like going
Your customers are looking at their own data sources such as
government regulations, COVID‐19 cases and rates of transmission to help inform
upcoming travel decisions, resulting in shorter bursts of demand.
customers are making accommodation decisions, they are now not only looking at
availability, but also at services and sanitation measures a property is
taking. Because of this concern, guests are turning to direct booking because
the property’s website is the best and most up‐to‐date source of information
for its health and safety measures.
This has resulted in a stronger performance for direct
booking channels versus indirect. Past crises, like the global financial crisis
of 2008, often spurred an over‐dependency on online travel agencies to generate
demand, which may be effective in the short‐term but was not positive for hotels
in the long‐term. This is something to try to avoid this time.
The long‐term stay segment has managed to do very well
during this time, especially in the United States, continuing to run at up to 70%
occupancy. In the meantime, the leisure
market (particularly in drive‐to destinations) is expected to reach similar
performance to last year as places begin to open.
These market changes are
where you should focus your analyst’s eye, extracting the specific data to
review and make responsive decisions.
Obviously, forecasting has become more dynamic, forcing
companies to perform rolling 30‐day or 60-day forecasts because the future
beyond that is so unclear. Over the next 18 months, the industry will be in a
state of rapid, iterative forecasting.
You must have the right data in the right place, as well as
the right business intelligence and revenue management tool to organize and
interpret this data. These tools can help you understand your cost of
distribution, cost by channel, sensitivity by channel and more - much better
than an Excel spreadsheet can.
So while the world is in flux, we all must negotiate
daily/hourly changes, be aware of any new factors that will come out of those
changes and do our best to plan for the unknown in order to come out smarter
and more resilient after it is over.