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Wednesday, June 29, 2022

Breaking out of the silo: How hotels can redefine commercial success

Perhaps no hotel job role has transformed as much throughout its short tenure as the revenue manager. A few decades ago, hotels could afford to change their rates every few days – now rates never seem to stand still.

First the entrance of the online travel agencies and advance pricing remade the landscape. Now, in the era of COVID, it is being remade again by an unprecedented level of uncertainty and the redefinition of guest value.

There is a need for speed inherent in revenue management, and this need continues to accelerate as technology improves and budgets shrink in light of the extraordinary pressures created by the current environment. The barrier between revenue management and the operational side of hospitality is slowly being eroded amid the need for greater efficiency in an erratic economy that continues each day to move the goalposts that determine business success.

Hotel revenue managers are not alone in their siloed isolation. Sales, marketing, distribution and operations continue to be considered separate aspects of a business that makes use of all these tools in concert. This separation, coupled with an economy that changes at a breakneck pace, is creating an environment hoteliers are struggling to keep up with.

Hotels are now required to change their rates based on a wide variety of factors, from hotel occupancy to current events. It is not possible right now to succeed if your hotel’s team has tunnel vision. Everyone must be speaking to each other, sharing data and leveraging their property’s technology to the best of their ability.

Many operators likely feel they are pushing a rock up a hill only to watch it come tumbling back down. The only way for any hotelier to achieve the nirvana of “total profit optimization” is to break down the barriers between sales, data, revenue management and hotel operations. Hotels that fail to create a forward-looking commercial strategy beyond the confines of revenue management will struggle against the inability to create necessary efficiencies inside their organization.

The problem is, hoteliers are still hesitant to invest in technology despite its necessity for success.

A different approach

Following the 2008 financial crisis and subsequent downturn, hotels naturally scaled back their team sizes in order to cut costs just as they are doing now. It was only after this crisis that hotel companies began to seriously consider investing in technology capable of improving operational efficiency and increasing revenue. Considering the way business intelligence tools and revenue management technology have improved hotels’ performance during the past business cycle, I’m willing to bet many of these companies would have invested earlier if we could turn back the clock.

This time around the hotel industry has the benefit of hindsight. They know what succeeding looks like during a downturn. “Success” right now hinges on a hotelier’s ability to react to changes in their business mix and keep their property operating. It also means being able to capitalize on rapidly changing customer segments across the industry. Once again, none of this is possible without a comprehensive strategy aligning revenue management, operations, marketing and sales.Short-term survival while planning for long-term success is the name of the game right now.Mike ChumaShare this quote

Recovery of any kind doesn’t happen overnight, even when things take a turn for the positive. Hoteliers are preparing to plan for the long term, as well as what is happening in their property this week. It can be a challenge during periods like this not to lose sight of the future simply because the present has become a priority.

If COVID is expected to curtail business for an extended period, hotels then need to be forecasting their potential opportunities one or even two years down the line, and use the best tools at their disposal to ensure they have enough resources to take advantage of those opportunities when they come. These new tools should set the pace for how hotels run their businesses in the near future, as well as how they are deployed going forward.

One major success for hotel operators over the past decade was their use of data and forecasting technology to understand their business mix and who their customers really are. These efforts have paid off, and in many cases this new way of understanding travelers is keeping hotels in operation today. It’s a good start, but there is more that hotels can do to understand the fundamental makeup of their revenue centers, and how they will shift in the coming years. The time has come seriously to look beyond the guest room in search of greater revenue opportunities.

Wax and wane

Hotels across the United States managed to muster a 46% occupancy rate at the beginning of July before it recoiled slightly as a new spike in coronavirus cases emerged. Events such as these, where the market posts 11 solid weeks of recovery before hitting a wall, could become commonplace for the foreseeable future.

Short-term survival while planning for long-term success is the name of the game right now. In this environment, hotels are going to be forced to rely on better, more frequent forecasting tools to take a proactive approach to modeling their business mix. But how can hotels take a tactical approach to revenue management and strategize based on events that can’t be predicted 18 months in the future when all of their time is being spent on reacting to events taking place hours from now in order to stay in business?

New business intelligence tools are currently being developed across the industry to help hotels remain competitive and viable amid the difficult market conditions we’ve seen, but they can be operationalized only if hotels are willing to embrace new technologies and make appropriate investments.Get a dose of digital travel in your inbox each day

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Hoteliers should be most focused on any technology capable of improving hotel performance. Operators need to know how their property is faring against its competitive set, and quickly forecast potential market conditions based on historical data. These tools should also be able to compile key data points to help hoteliers understand where their revenue and lift is coming from.

Hotels cannot rely on competitive rates alone to make it out of this downturn and succeed afterward. This became readily apparent following the explosive spread of COVID in March, when hotels closed revenue-generating areas such as F&B and event spaces in order to contain the pandemic and slash costs. Finding ways to generate revenue outside of rooms will be a key driver for competitive success going forward.

Planning for the next stay

In today’s economy it’s easy to see how the concept of “success” is relative. There are few hotels thriving at the moment, with average daily rates down 20.9% while revenue per available room hovers around $46, and this is following more than 11 weeks of recovery. Clearly a lot can change in six months.

This is why preparations must be made now in order for hotels to remain competitive when the tide turns. Hoteliers have long lamented the insular, distinct ways both hotel departments and technologies work together, but this doesn’t have to be the case. Six months from now a hotel could be on its way to installing an integrated system for revenue management, central reservations and customer relationship management, but the decision to do so must be made now.

Consider how quickly the hotel landscape changed after those in the industry began mandating a greater investment in technology. That wave is coming once again, and those businesses refusing to keep pace with the rate of change risk being left behind when guests return.

Travel is beginning to resume across the country despite myriad economic challenges, even as the U.S. remains locked into an extended “first wave” of the virus and a potential second wave lurks somewhere in the distance. The travel and hospitality industries could be set up to navigate a prolonged period of extreme uncertainty, volatility and turmoil. However, with the right strategy and a commitment to agile technology, it is possible to find success even in this market – by any definition.

By breaking out of the siloed ways of doing business and embracing the tools available to improve efficiency and increase profitability, hoteliers can remain competitive as travel resumes and the industry slowly marches toward recovery. The time for change has come. Hoteliers and commercial leaders have an opportunity to learn from the past and set themselves up for future success, today.

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