BEST PRACTICE: Ramping up revenue management

Advancements in revenue management are finally making their way to the Middle East, as hoteliers increasingly prioritise dynamic direct sales. Hotelier reviews the historic challenges, current trends and analyses how to choose the best system for your property

Once the domain of chain hotels and luxury properties in North America and Europe, the concept of revenue management has since swept the hospitality world, reaching the Middle East a few years ago. Many have jumped on the bandwagon, finding the road to maximum margins and rocketing RevPAR figures.

In mature markets, revenue management has been an established part of the hotel industry for well over a decade now, and while the Middle East has followed suit, it is still “lagging behind”, says ResNet World’s managing director Saahil Mehta, having “only been considered seriously post the economic crash of 2008”.

However, adds Micros Fidelio’s senior director of consultancy services, Linda Vallner, there is an “increased interest” for its products, indicating that “there is an awareness in the region that knowledge of revenue management is needed and that in the competitive markets, everyone operating in automation to a certain degree is a must”.

Vallner also says that while it is generally perceived that high-end luxury hotels would make the transition first, “the budget and mid-market hotels have been faster to embrace revenue management in the Middle East than the independent up-market hotels have been”.

Agreeing, Ayman Ashor, general manager at Tilal Liwa Hotel, a four-star desert hotel in Abu Dhabi from Danat, says: “As multinational brands continue to flood into the region and establish themselves with several new properties, revenue management grows in importance and is gaining more recognition in the hotel organisational structure.

“Where once the prestige of full hotel occupancy was paramount, we now see this western model of increased RevPAR and integrated total revenue management strategies as the emerging focus,” Ashor adds.

He says this is due to “the massive increase in hotel inventory – particularly in Dubai – which has seen the emphasis shift from simple sales strategies to an integrated revenue and sales approach more in line with the US and Europe”.

“The concept of dynamic pricing in the form of best available rate (BAR) is something that a growing number of hotels are now following closely,” says Fabian Specht, managing director of IDeaS Revenue Solutions Europe, Middle East and Africa.

“This often leads to an understanding and appreciation of what wider revenue management practices can do for their organisations.”

Ashor says that Tilal Liwa is currently carrying out BAR testing, and it is proving to be a successful strategy. “BAR prices monitor changes in our bookings. Based on the response we know what the market is willing to pay for a room at our hotel.”

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Investments
So, where would investment be best placed if you’re new to the revenue management game? While an RMS is of great importance, it cannot work if it doesn’t have a well-trained, knowledgeable revenue manager controlling it.

“Automated systems are a valuable and necessary tool for revenue managers to understand demand and activate inventory and distribution strategies,” says Alexander Lee, group director of revenue management and distribution at Jumeirah Group.

“For large and complex properties we have in the Jumeirah portfolio we require leaders who are able to proactively make decisions that will enhance revenue and grow market share.”

Lee also says that when looking for a revenue manager, his pre-requisites have evolved over the past few years, in line with the development of the sector itself.

“Revenue managers now need to lead revenue management strategy as well as be savvy channel management experts. The volume – and value – of demand being generated via brand, as well as third-party, electronic channels continues to grow exponentially and this requires them to proactively manage and manipulate, appropriate to each period’s yield strategies.”

Anita Markiewicz, Mövenpick Hotels and Resorts’ vice president revenue management – Middle East and Asia, agrees that the skills a revenue manager needs have developed over time, and says that it’s not always easy to find the right people.

“Recruitment is a challenge in delivering good revenue management, as the more technical and higher the expectations of the role, there seems to be fewer people with the right mix of technical expertise and people management to deliver the culture, communication and strategies, and there are so many new hotels all over the Middle East, Africa and Asia.”

Carlson Rezidor Hotel Group’s director, revenue development Middle East, Cristina Polo, says that the training on revenue management should not be restricted to revenue managers.

“Training should extend to general managers, directors of sales and marketing and other key parts of the revenue process. The more everyone understands the more we can make smart decisions in our everyday work.”

“There are hotel companies in the Middle East who are leading the way for the attitude shift – holding regular conferences where revenue managers meet each other and share their data and best practice,” says Specht.

“Certain actions and communities have been put in place by the industry itself, but perhaps more needs to be done in terms of educating the market on the meaning and the value of revenue management.”

Difficulties
Even with all of the training in the world, the Middle East is currently posing a unique problem within the sector.

While other regions have past data and forecasts depending on upcoming events and demand, this region’s troubles over the past year and a half were unprecedented and threw up an on-going curveball to revenue managers.
“Forecasting has been an issue this last 18 months due to the Arab Spring,” says Polo. “But the countries that weren’t touched by the Arab Spring (Dubai etc.) kept their market penetration and held fast to their rates.”

The Arab Spring and sudden drops in tourism to certain parts of the region have in some cases resulted in hotels dropping rates last-minute.

But Mövenpick’s Markiewicz warns against this move: “This simply dilutes business, drops the marker rate and teaches the client to wait, enhancing late pickup.”

For Jumeirah, there has been a change in the traditional reliable markets in the region, which has pushed it to develop its strategies.

“For our resort properties the dependence on qualified market segments continues to decline and therefore enhances the need to maintain and proactively manage dynamic demand and the related pricing strategies,” says Lee.

“This development brings us closer to some of the more mature European and US markets. This change also requires a cultural shift with the need to enhance the seniority and overall leadership skills of our revenue management talent.”

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Knowing your stregnths
“Know your product strengths, your customers and your competitors and make sure you review your selling strategy on all channels every day, and re-forecast as necessary,” Markiewicz advises.

“Select which business will give you the best total revenue and profit and not just what is best for one day.”

The problem some hotels are having is with risk and trust, ResNet World’s Mehta says. “Revenue managers have to seek permission on everything they do which prohibits smart, quick decision making.

I am not saying give them carte blanche, but there needs to be a framework in which they can work so it does not prevent hoteliers getting the tools they need to be successful.

Owners and GMs need to change the way they operate and they need to put more power into their employees’ hands. As most hoteliers are risk averse and care about job security, they are not reaching their profitability potential and taking the easy approach through dependency on wholesalers and OTAs.”

Integration
When on the lookout for a revenue management system, hotels are advised that finding something which integrates with other hotel systems is essential.
“Having a revenue management system working together with a channel distribution system can push and control rates directly at the source of reservation,” Micros Fidelio’s Vallner says.

“Revenue management systems will eventually be working with rate shoppers systems across the board to compare the direct competitors’ rates and suggest rates that are better than the competitors,” she adds.

Within the property itself, a good revenue management system should be evaluating customer spend across the entire hotel, allowing revenue managers to change rates accordingly. “Imagine a customer spending thousands in the hotel outlets but being lost because only the highest rack rate is open,” says Vallner.

“A sophisticated reporting tool across both the PMS and F&B operations will achieve good data that can also be used across the estate to feed the system properly.”

IDeaS’ Specht says that currently, this is not being carried out: “Revenue management technology available today is largely limited to rooms revenue management systems, with simple tools and processes being used, to some degree or another, to manage the other assets.”

However, he adds: “The revenue management industry within hotels globally is moving at such a rate that at IDeaS we are constantly rising to meet new challenges, new demands and to identify new areas of potential revenue streams to help our customers develop a strategic view of their overall estate.

Our technology is developing at such a speed and very soon there will be a platform able to support the solving of more complex revenue management problems, and will lead to all assets of the hotel being revenue managed on one platform, providing a ‘total revenue performance’ view for the hotel.”

However good the RMS is, the onus is still on the revenue manager to deliver the results. “Systems are there to process data but you still need a human to make decisions. No matter how much a machine can advise, you still need someone to analyse, implement and follow up,” says Rezidor’s Polo.

“I like to think of a learner driver handling a Ferrari,” adds Markiewicz. “You would never get the best results without external intervention and support.”

Looking to the future, Mehta says that hotels will be using revenue management to bring back customers’ booking through direct channels.

“Hotels will be moving away from their dependence on OTAs and wholesalers and focusing again on their own direct sales. We will see value ads, special deals, incentive programmes, etc, that drive consumers to the hotel website and away from expensive third parties. With the increase of hotels in the region and the cut-throat competition, the only way forward is to play it smart.”

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Case Study 1

THE HOTEL: Kempinski Hotel Mall of the Emirates, Dubai
THE VENDOR: IDeaS Revenue Solutions

Objective
• Implement an effective RMS on opening the Kempinski Hotel Mall of the Emirates in 2006.
• Deliver maximum revenues, including strong occupancy.
• Drive additional revenues from optimised pricing performance.
• Get the highest possible RevPAR levels.
• Begin forecasting demand and optimising revenues with immediate effect.
Strategy
• Implement IDeaS’ New Hotel Services Success Package (NHSSP).
• Create a historical hotel data profile to start forecasting occupancies and demand.
• Best Available Rate (BAR) pricing recommendations and automated rate availability controls were enabled and updated three times a day during the full booking window.
• Implement IDeaS’ BAR module, Group Pricing module and Last Room Value recommendations into the system.
• The IDeaS BAR module supports the integration of competitor pricing information, providing a further BAR pricing output.
Results
• Full RMS reporting capabilities supported the hotel’s strategic and tactical decision as trading developed through its early weeks and months.
• The hotel brand experienced seamless integration with its central reservation system, property management system and channel management system.
• In 2012, year-to-date transient benefits alone provided for a return on investment of 30:1 at Kempinski Mall of the Emirates.
• To allow for insight into the level of benefits derived from IDeaS RMS, Kempinski Hotel Mall of the Emirates continues to track and review the system’s performance and the benefits that these controls and pricing decisions deliver.

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Case Study 2

THE HOTEL: The Point Brisbane, Australia
THE VENDOR: Micros Fidelio
Objective
• Re-think the hotel’s administration systems to coincide with a 90-room extension of the Australia property.
• Optimise revenues by moving away from the previous highly-manual system.
• Have a system which was not limited in its reporting and yielding capabilities.
• Find a system which was easy-to-use and user-friendly, so that if new staff enter the hotel with little hotel experience, they could get to grips with it easily.

Strategy
• Set hurdles in the new system based on past data – looking at previous occupancy levels, set a target, and then once reached, room rates can jump up a tier.
• Installed the Opera Property Management System (PMS), shortly followed by an investment in the Opera Hotel Revenue Management System (ORMS).

Results
• The ORMS has contributed a significant growth of US $5-$10 in the hotel’s average room rate, with the increases being noticed almost immediately.
• Can easily look at booking history, and get a better sense of what business might be displaced if a large group booking was taken on, and adjusting ARR in response.
• The integration of OPERA PMS and ORMS allows the latest pricing information to be automatically displayed at reception, giving receptionists the ability to see the prevailing ‘daily rate’, which will vary according to the occupancy level of the hotel.

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Case Study 3

THE HOTEL: Radisson Blu Hotel, Dubai Deira Creek, UAE
THE VENDOR: JDA

Objective
• Implement Carlson Rezidor’s own revenue management system, which is called SNAP.
• Create a dynamic pricing strategy, which would prove to be a key success factor due to the mix of business and leisure guests, coming through both GDS and OTAs.

Strategy
• Optimise the best available rate of the day by taking into account the anticipated demand of the rooms, as well as the rates of the competition.
• Set up a system from which it was possible to recommend the daily rate for the hotel up to 120 days in advance.
• Implement the system in such a way that the director of revenue was able to interpret the system’s recommendations, and implement them.
• Allow the director of revenue to define the proper inventory management and distribution channel strategies based on the recommendations.

Results
• In September, the figures on a year-to-date basis showed that RevPAR penetration (RGI) had increased by nine per cent reaching more than 140%.