The Informed Investor - Why hotel owners and investors are increasingly checking-in to revenue management.
1. The Informed Investor — Why hotel owners
and investors are increasingly ‘checking in’
to revenue management
The rapid development of consumer technology, a
growing number of booking channels, constantly
evolving customer bases and a dynamic marketplace
By Paul van Meerendonk,
has meant that the science of revenue management,
Manager of Hospitality
and its ability to have considerable impact on hotel
Consulting at IDeaS
performance, is continually expanding. It is not
surprising, therefore, that the world of revenue
management is coming under increasing scrutiny from
those who have a vested interest in the performance of
a hotel – namely, hotel investors and owners.
Investors and owners should no longer view revenue
Jake Egberts, Senior Vice President at Jones Lang management as a discipline that is too ‘micro-level’
LaSalle Hotels, highlighted the reason for the increased to be overly concerned with. Instead there should be
interest in revenue management on the part of investors. an appreciation that not only do revenue managers
“In a competitive hotel market, revenue management is handle the day-to-day revenue optimization process,
a key tool to manage the business,” he said. “It assists but that the often overlooked discipline of revenue
management in understanding their markets and helps management is a crucial tool – savvy owners and
to maximize revenues. Investors should expect their investors are already seeking to cooperate more closely
operators to be leading the way on this in order to help with revenue management departments in order to
them to extract optimum value out of the asset,” he ensure that asset value is optimized throughout the
added. hotel’s life cycle.
Pre-Opening Planning
It is no secret that strategic forecasting well before
the guests arrive is a necessity. This should include a
SWOT analysis, an investigation of micro-market and
economic factors that might affect performance, as well
as an in-depth competitor analysis. In addition, a finalized
pricing structure based on market conditions and hotel
positioning, finalized channel strategies according to
product positioning and market environment, together
with market segmentation strategies with a particular
focus on business with long lead times, will put the
wheels in motion for a successful hotel launch.
Effective revenue management from this early stage in
the hotel’s life cycle will give everyone involved the right
information about where they are going and how to get
2. THE INFORMED INVESTOR — WHY HOTEL OWNERS AND INVESTORS ARE INCREASINGLY ‘CHECKING IN’ TO REVENUE MANAGEMENT
there – from pricing structures to the right business mix,
as well as pinpointing any potential ‘red flags’ at the hotel
property.
Hiring a revenue manager should also be an early piece
of the puzzle to fit. It is at this ‘pre-opening’ stage that
key senior executive positions begin to be filled – general
managers, sales managers, and so on. Usually, a revenue
manager is one of the final pieces to fall in place. But, in
consideration of the impact revenue management can
have at this early stage, it would be a sound tactical move
to ensure that this person is one of the first hires, and
then use their skills and talents to build the foundations
of a successful hotel from the very start.
Ongoing Revenue Performance
A successful entry into the market can establish a hotel and its revenue generating ability for years to come. If done
correctly, the hotel will be able to position itself effectively in the market and ensure revenue optimization at the
highest possible level. If a hotel is incorrectly launched into the market it has the potential to result in a significant
underperformance of the asset, and a substantial amount of money can be left on the table.
Beyond the scope of traditional management systems today can
revenue management practices use a hotel’s data for complex,
such as selecting the correct predictive price-sensitivity
overbooking levels, setting rate demand modelling which, when
restrictions, and setting the Best used to inform strategy, leads
A lack of strong
Available Rate, lays the art of to increased profitability whilst
setting the right rate in the first technology vision managing the risks associated
place. Things move very fast in with uncertain demand. A lack
and strategy
the technology world, and it can of strong technology vision and
be difficult to keep up, but owners in a hotel will strategy in a hotel will result in
and investors need to be certain missed opportunities.
result in missed
that they understand the role
of technology in their business opportunities. Revenue management must be
strategy and critically evaluate considered from the very first
innovations in the market. feasibility study, and setting a
The advanced analytics built strategy and establishing a long-
into some of the best revenue term action plan is vital. The
focus must not only be upon ensuring that the hotel is priced correctly, but also covering a wide-range of pricing,
forecasting and optimization related processes, structures, tasks and tools that safeguard the sustainability of
the revenue management of your hotel and establish a solid foundation towards continued and market-leading
Revenue per Available Room (RevPAR) performance.
3. THE INFORMED INVESTOR — WHY HOTEL OWNERS AND INVESTORS ARE INCREASINGLY ‘CHECKING IN’ TO REVENUE MANAGEMENT
Essential Refurbishment
As anyone who watched as The Savoy, one of the grand-dames of the London hotel world, underwent its £220
million and three year-long refurbishment will attest, refurbishing can be an expensive and lengthy business. The
overhaul was initially projected to take 17 months, but unexpected structural complications caused the process to
take much more time and money than was originally budgeted. It was estimated that for every week it remained
shut, the hotel was losing £500,000 in revenue. Thus, in addition to the huge expense, the loss of revenue meant
that The Savoy had to “hit the ground” running when it re-opened in 2010 in order to recoup and deliver return on
the refurbishment investment.
Now, in 2012, the precision
analytics and forecasting of revenue
management have played their part
in The Savoy’s success story – in
2011 The Savoy had an Average
Daily Rate (ADR) of £470, compared
to its 2007 pre-refurbishment ADR
of £250. The courageous move
of a complete refurbishment has
allowed The Savoy to position
itself at the very top of the London
luxury hotel market. While it may
be tempting to immediately hike
prices once the front doors reopen
in order to recoup costs as fast
as possible, it is only through the
careful application of revenue
management that decisions can be
made regarding strategic pricing
that will safeguard the longevity of
renewed revenue.
At IDeaS, our sophisticated analytics, demand modelling and forecasting have helped hotels in key competitive
cities across the world – such as London, New York, Dubai and Shanghai – position, and reposition, themselves in
order to optimize their revenues in the long-term.
This brief tour through some key phases in a hotel’s life cycle spotlights the importance revenue management plays
throughout. Our custom revenue solutions have supported new hotels in their pre-opening phases and hotels
undergoing refurbishments, in addition to hotels already operating who want to apply analytics to their long-term
pricing strategies and see the clear benefit of investing in revenue management. If you have a vested interest in
the performance of any hotel property, and have not already moved revenue management to the forefront of your
priority list, hopefully this article will prompt you to ‘check-in’ too.
