Hotel Revenue Management in times of crisis

We have only just managed to leave the pandemic behind us, and our industry is already facing new challenges.  

This motivated Elisha Schoppig and Marco Baurdoux from Hotel-Spider to pose the following question: "How can revenue managers best face difficult times?" 

Sara Kock, Revenue Manager at RoomPriceGenie, and Sebastian Küchler, Consultant and Lecturer at Swiss Hospitality Solutions and the EHL Swiss School of Tourism and Hospitality discuss this question. 

In the livestream, the two revenue experts explain what revenue management currently involves, which data is most important for pricing purposes, how hotels can best react to current cost developments and much more.  

The goal of revenue management 

You are probably already all too familiar with this well-known definition of Revenue Management: "Revenue management is the science and art of selling the right room to the right guest at the right time via the right channel." It becomes obvious that revenue management refers to the ensemble of pricing and sales strategies.  

"It's a different case with closely related yield management, which focuses exclusively on the optimal positioning of dynamic room prices," Sebastian explains. “Both disciplines complement each other, and their combined goal is to maximize hotel revenue." 

Modern hotel technology also offers us many possibilities. "Thanks to new tools, we are now also able to benefit from system-based revenue management. This opens up a whole new range of possibilities for us in terms of data analysis, pricing and forecasting," adds Sarah.  

The most important datasets for solid pricing 

Well-founded pricing is essential for maximizing revenue. In the past, this was often achieved by relying intensively on historical data. However, due to unpredictable markets and significant changes in demand patterns, this approach is currently less reliable.  

"We don't base our pricing on historical data at all anymore. Instead, we take a close look at how the market as a whole is positioned and what our competitors are doing. We also analyze internal data, such as the current occupancy rate and the reservations trend for the next 365 days. This enables us to make well-informed pricing decisions, even in times of uncertainty, without needing to rely on historical data," Sarah explains.  

Market analysis - but how often? 

To maintain room prices at the optimal level at all times, it is, of course, important to continuously monitor the market. However, how often should you analyze occupancy, reservation trends and market conditions? 

Sebastian offers the following advice: "Particularly in times of crisis, it is important to react as swiftly as possible to market changes. Revenue managers should therefore monitor the latest trends on a daily basis. This can be performed in a time-saving manner with a Revenue-Management-System (RMS), as it runs constantly in the background and provides the most up-to-date data on request". 

Sebastian suggests using this rule of thumb in the case of hotels that do not yet have an RMS: "Analyze the current season or month and the following month three times a week. In the case of city hotels, I also recommend evaluating the following months on a weekly basis. Hotels located in resort areas should look ahead to the next season at least once a fortnight." 

Those who stay on the ball in this way can react quickly to new developments. You will be able to adapt your prices, channel strategy and minimum stay restrictions accordingly and always position your hotel in the best possible way.  

Reacting to changes in reservation trends 

"Even before the pandemic, there was a trend toward shorter advance reservation times "This has intensified enormously during the crisis, as travel restrictions and new waves of infection have been unpredictable," says Sebastian.  

That's why hotels, whether urban or rural, currently often observe a lead time of 14 days or even less. This potentially complicates operational planning and, of course, pricing. In this context, the most important thing is to adapt your approach to the current reservation behavior. 

"In the past, hotels applied last-minute discounts to fill any remaining rooms. This is currently less relevant, as travelers are booking later anyway and accept the standard prices. Instead, offers for early bookers would be more effective in the current environment, thereby creating a basis instead of relying on last-minute bookings. This also provides demand data, which is in turn useful for pricing optimization," says Sarah.  

Monitoring sales costs 

In addition to maximizing sales, cost optimization in sales is also an important factor. This involves, for example, increased focus on direct reservations. In this way, you can prevent your hard-earned revenue from being reduced by commissions and other distribution costs.  

For example, you can reward bookings made on the hotel website by offering various benefits, such as a free late check-out. Alternatively, you can make it less attractive for travelers to use OTAs by charging higher prices there than on your direct channel.  

"How well the latter performs depends to a large extent on the market. If the competition is manageable, your OTA profile will probably not forfeit too much visibility. However, in a highly saturated market, you risk losing plenty of OTA reservations," according to Sebastian.  

To which Sarah adds: "You should only opt for this route if your hotel website has become a solid alternative to OTAs. It is only worth shifting your focus from OTAs to the direct business if the website can be easily found by potential guests and offers a good conversion rate.” 

To control the occupancy rate on the basis of price adaptations 

If you regularly adapt your prices, you are well aware that this also has an impact on demand. Particularly during a shortage of skilled workers, this opens up interesting opportunities for you.  

"Smaller teams often struggle to handle the workload of a fully booked hotel. It may therefore be worth slightly increasing prices to curb demand to a certain extent. From a revenue management perspective, this may initially sound counterproductive. However, it provides the team with the chance to catch their breath a little. It also enables you to ensure guest satisfaction with fewer members of staff and to maintain your good reputation or review score," Sarah explains.  

The goal has therefore been shifted. "It’s no longer just about filling the hotel. Instead, it is important to consider which occupancy level is optimal in light of the current situation at the hotel. The goal should therefore be to achieve an optimal balance between price and occupancy in order to generate maximum revenue, while at the same time considering the operational reality," according to Sebastian.  

Price amendments with increasing costs? 

Meanwhile, inflation has affected practically all industries. It has not even spared the hotel industry. Many hotels have therefore considered the extent to which they can pass this on to their guests.  

"Costs are currently increasing for all companies, and most of them are passing this on to their customers. Hotels should proceed accordingly, otherwise, their margins will shrink. This may initially irritate travelers. However, if they continue to book, this indicates that they have accepted the higher price,” explains Sebastian.  

One way of justifying the new price would be to offer the guest an additional benefit. This can be achieved, for example, by introducing more flexible cancellation conditions. However, Sarah warns that this approach requires caution: “Offering additional benefits increases costs for the hotel in most cases. This can swiftly neutralize the price increase. Besides, many hotels currently lack the staff to provide additional benefits. That is why it is important to bear in mind that the lowest price is not always the most important factor and that guests also focus on aspects such as ratings and hotel amenities." 

Approaching new systems 

Revenue managers previously needed to manually collect and analyze data in order to adapt prices accordingly. Today, due to the dynamic markets and almost infinite volumes of data, it is worth using revenue management systems and also considering operating with business intelligence platforms.  

"These new revenue tools save time and provide hoteliers with more time for other tasks. This is particularly beneficial for small hotels that do not have a separate revenue management department. RMS also provide reliable data and pricing suggestions that support a well-informed strategy," says Sarah.  

Nevertheless, skepticism towards RMS and other automated systems remains high. There is often a fear of inadvertent alterations by the system. However, these can be prevented quite easily. Instead of immediately switching to autopilot, you can initially work hand-in-hand with the system to understand its decision-making processes and the parameters it takes into account. Once you feel more confident, you can gradually hand over control to the RMS," explains Sebastian. This will save you time and optimize your results, even under difficult circumstances.  

Although everything goes haywire in times of crisis, some things always remain constant in the area of revenue management.  

The constant monitoring of internal data and new market developments is extremely important, especially during phases of uncertainty. The courage to introduce new systems and maintain price levels is also a crucial factor for your immediate and long-term success.  

At the start, it may sound difficult to implement all of this. However, if you heed the advice of our experts, you will be able to face this crisis (and those in the future) confidently and successfully.