Three things hotels could learn from airlines

By RevPAR Guru CEO Jean Francois Mourier

Many hoteliers and revenue managers don't know that revenue management in hotels actually developed from the successes of airlines' yield-management practices. I know what you're thinking: 'my hotel doesn't fly, so I can't use the same processes that an airline does. It just doesn't make good business sense. Actually, it does.

Hotels have many of the same issues and challenges that the airlines do: 'perishable inventory, customers booking in advance, lower-cost competition and wide swings with regard to balancing supply and demand. Hotels use the same websites and reservations channels to sell their rooms as airlines do to sell their seats. Hotels have to manage rates and occupancy, just like airlines do. Even the factors that are examined in a successful yield/revenue management practice are the same:

1 ­ Number of seats/rooms available?

2 ­ How much time is left to sell the seat/room?

3 ­ What are your competitors charging for the same seat/room?

So, if airline yield management and hotel revenue management came from the same source (the airlines) and are based upon many of the same business challenges and pricing factors, then why are the two industries so different today?

To be honest, I don't know why the hotel industry hasn't adopted the sophisticated algorithm-based revenue management technology that the airlines have. But I'm willing to give you the benefit of the doubt in that you probably didn't know about how successful the airlines have been using yield management. So I¹m here today to tell you the three lessons that your property can learn from the pricing experts at the airlines.

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Lesson #1: Consumers already understand and expect fluctuating prices from airlines, so why aren¹t the hotels doing it too?

This one is pretty self-explanatory. Let's move on to the next...

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Lesson #2: Algorithms, algorithms, algorithms

As I mentioned earlier, hotels and airlines use the same factors to determine rates. The major difference between airlines' yield-management and hotels' revenue-management processes are that the majority of hotels analyse all of the data collected manually, whereas airlines use sophisticated algorithm-based systems to analyse, interpret and price their seats.

Wait, did you think that American Airlines uses a channel manager? Nope, they're more high-tech than that. And your property should be too. Especially since airlines are competing in a much smaller market (there are perhaps 20-40 airlines flying to any given destination) than hotels, where there could be 500 different properties in a single destination. That's even more reason for hotels to get on board with automation and rate fluctuations, all handled by the capable bytes of a sophisticated algorithm-based revenue management system.

Surprisingly, there is only one company that offers a full-automated, algorithm-based revenue management system. Can you guess who that is (wink, wink, nudge, nudge)?

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Lesson #3: Price your rooms based upon what the market will bear.

A very common pricing strategy for hotels is to offer a set price while the property is at 0-50% occupancy, but once occupancy goes above that point, rates are increased. In most cases, this results in a high volume of bookings from 0-50% occupancy, and then a huge drop-off of sales once the rate is increased. Obviously, this often leads to hotels with lots of empty rooms (and lots of empty space in their wallets as well).

Airlines do it better. Rather than changing rates at random intervals based on their capacity, they consistently update their rates (automatically, of course) to ensure that they are offering the best possible price that will still secure bookings. Airlines¹ prices are based on what the market will bear all the time, from 0-100% capacity.

A hotel at 20% occupancy isn¹t a rare occurrence (especially during the off-season) but when was the last time that you saw an airplane that was only 20% full? So take a lesson (or three!) from the airlines in order to increase both your occupancy and RevPAR ASAP. Your revenues will be soaring sky-high in no time (pun intended!).