Mr. Ellis

Revenue Management

Why Increasing Stakeholders Helps to Increase Profits

Extending Revenue Forecast Visibility

By Bernard Ellis, Vice President of Industry Strategy, Infor Hospitality

Today's hotel managers face the challenge of growing revenue while simultaneously combatting continuously rising costs. While the hospitality industry has always been vulnerable to short-term impacts from global or regional events, new buying patterns encouraged by Internet booking channels, as well as the costs of using them, continue to be extremely unpredictable. In this increasingly uncertain environment, hoteliers have no choice but to constantly predicting future outcomes and adapt to them as they change.

According to STR, the United States lodging industry set new records for most rooms sold, highest room revenue and highest revenue per available room (RevPAR) in 2013, so why are commensurate gains in gross operating profits or net operating income not becoming the standard? Rising costs, such as labor, distribution, food, energy, and interest expenses, are major factors, but something else has to be going on.

With costs on the rise, owners and operators must ask themselves - what additional actions can be taken to improve profitability? The first stop is the top line - employing advanced revenue management techniques and strategies, often through industry-specific technology applications, is one essential method to help pinpoint areas for increased return.

There are three steps that hoteliers should take when formulating revenue management strategies in order to improve profitability:

  1. Forecast ancillary revenue streams in addition to traditional room revenue using advanced revenue management techniques and technology.
  2. Educate multiple levels of the organization on how to not only read forecasts, but interpret them in a way that derives greater meaning for their respective departments.
  3. Encourage a forward-thinking mentality that relies on forecast accuracy for right-now decisions, but employs forecast performance to create long-term benefits.

In traditional revenue management, only a select few within the organization were given the opportunity to truly understand the RMS forecast output. Since technology allows the forecasts to be recalculated at least once a day for the entire booking window, this was simply too much of a moving target to keep all the other departments in the loop. While these decision-makers, often limited to just sales and marketing directors and the revenue managers themselves, do have the expertise and knowledge to derive critical insights from the latest reports; teaching managers at all levels how to also formulate meaning from them to drive their operational and financial forecasts is critical. By extending more dynamic forecast visibility to a wider variety of employees, organizations gain unique perspectives of future outcomes that can help to grow profits.

Having a clear picture of the future allows hoteliers to determine what course of action will yield the best results. Bringing this view to more employees within the organization then enables front office, housekeeping, restaurant, and other functional managers to better align their staffing and supplies with fluctuating demand levels. By forecasting revenue streams outside of standard room revenue, such as spa and catering outlets, and then teaching these managers to read forecasts, organizations are taking the first steps toward identifying revenue and savings opportunities.

For example, if the housekeeping manager is granted this perspective, he or she will not only see the very latest forecast of arrivals, stayovers and departures, but also the market segmentation that is expected. A week dominated by a single-occupancy business certification group will have very different staffing and cleaning supply requirements from a boys' sports group, sleeping four to a room. Without the additional insight, the first week would have likely been overstaffed, and the second one would have required paying overtime to recover from the trashed rooms.

This challenge is made worse by ever shortening booking windows. Employee schedules are often made, and supplies ordered, before the business is even on the books. What if demand does not materialize as expected? What if marketing then does what they are supposed to do and distributes a last-minute bed and breakfast promotion that fills the house with leisure guests wanting their free breakfast, but the restaurant has no way to see it coming?

Instructing managers at all levels of a hotel enterprise how to read forecasts is the first important step, but more importantly, they must be taught the meaning and implications behind these reports. Revenue managers typically create room forecasts, and then set pricing and inventory controls accordingly to optimize top line performance. If they did not understand how to interpret the overwhelming amount of data generated by various forecasts, then they would not be able to make these decisions effectively. Thus, it is equally as important for decision-makers connected to ancillary revenue streams to employ this type of critical thinking. Forecasts without context are meaningless, so it is essential to define processes and tools to support forecast analysis in order to improve the bottom line.

When interpreting forecasts it is also critical to differentiate between forecast performance and forecast accuracy. For short-term operational decision-making, forecast accuracy is crucial to help mitigate costs. Inaccurate reporting works against profitability improvements by painting an incorrect picture of supply versus demand. Organizations should encourage managers to closely examine profit and loss statements (P&Ls) to identify where financial efficiency improvements can be made within their department. Urging employees to pinpoint opportunities for upsell can also directly influence guest spend levels to help further enhance profitability.

In comparison, forecast performance refers to integrating forecasting into the culture of an organization to facilitate a longer-term view, and thus long-term decision making. Hoteliers must be responsive to varying demand conditions from both a revenue generation and cost containment perspective in order to effectively respond to forecasts. Organizations with the agility to quickly react to varying predictions can more easily mitigate profitability risks, as they have the flexibility to change course if current processes and procedures become ineffective down the line.

To further demonstrate the juxtaposition between forecast performance and forecast accuracy, consider this illustration. Hotel X, one property of a multi-chain hotel, bases all of their fall revenues on football season. This year only 20 percent of the games are away, but the previous year 80 percent were away, which obviously changes the long-term forecasting for that year. By using state of the art forecasting technology and identifying the additional games as events that should behave similarly to the prior year's, Hotel X was able to forecast its performance for the year and automatically update that information to its system when the football schedule was released. This provided an accurate view of what the year would look like well in advance, so they could closely align staffing to the new occupancy levels. Those additional weekends where the team is in town means that six months in advance, the hotel knows they can uphold a two-night minimum stay, maximizing revenue for the regional event. Then closer to that fall, as forecasts continue to be automatically updated and transmitted through the organization's systems, they are able to more accurately order sundries, hold room promotions and offer discounts at the spa, knowing that they have the space and time to bring more non-football fan guests to the property on the away game weekends. Having insight into short-term and long-term needs is of utmost importance when looking to make up revenue in other months throughout the year.

But, being able to pull data is one thing. Successful hospitality organizations also need to have a technology partner who can help to accurately analyze these historical events into future competitive advantages. The ability to effectively forecast budgeting, staffing and scheduling, inventory and financials is a key differentiator, particularly when many forecasts can be inaccurate in the hospitality industry. A software partner that delivers innovative methods and to-date mathematical formulas, and truly understands the past, present and future industry needs will be the best choice when beginning to implement this exercise across a property. Forecasting is undoubtedly one of the most challenging aspects of good revenue management, but with the right people and right tools, it can be executed to make quite an impact on bottom line results.

With these methods, and a solid technology partner as noted above, organizations can combat rising costs by extending beyond standard forecast interpretation to implement a new culture of forecast performance. This "culture" will create a more agile enterprise that assesses relevant factors to formulate a reliable prediction of future revenue. Hoteliers can then make necessary changes quickly and efficiently to reduce spending and diminish potential dangers to profitability. By using forecasting as a tool to optimize inventory, better match staff levels with demand and proactively manage assets, revenue management can become the number one weapon for the hospitality industry to combat rising costs. Involving decision-makers across an organization only helps to increase the power of forecasting performance, creating a collaborative enterprise that relies on the knowledge of many, rather than few.

Bernard Ellis, Vice President of Industry Strategy for Infor Hospitality is responsible for defining the global go-to-market strategy for the entire Infor solution suite for the hospitality, travel, and leisure industry vertical. In addition to general product positioning, brand messaging, and industry relations, Mr. Ellis directly oversees product management of Infor’s hospitality-specific PMS, RMS, and POS industry applications, and pursues their tight integration with Infor’s world-class solutions.. Mr. Ellis also guides these other solution groups on the “last mile” functionality required to achieve specialized hospitality editions that outperform best-of-breed industry solutions, yet are still cost-effective to implement. With his launch of Infor CloudSuite™ Hospitality in 2014, Mr. Ellis marked over 15 years of evangelizing SaaS solutions. Mr. Ellis can be contacted at 202-232-3839 or bernard.ellis@infor.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
RESOURCE CENTER - SEARCH ARCHIVES
General Search:

JUNE: Sales & Marketing: Who Owns the Guest?

Emanuel Baudart

Social media opens the doors to conversations about experiences – good or bad. Twitter gives hotel guests the option to air their grievances while Instagram gives them the bragging rights on their best days. Customers are giving out their feedback and it’s up to the industry to take it seriously in how hotels engage with their guests. A guest’s social media is an opportunity for hotels to work better and more efficiently to target and enhance the guest experience. Coupling the data that guests give through social media with the data we have from years of growing AccorHotels, we are focusing on using the right tools to best access the guest. At AccorHotels, we are moving away from the transactional model of hospitality and focusing on building relationships through social engagement and bolstering the benefits of our loyalty program. In order to do both, we’ve invested in building better tools for our hotels to succeed on the promise of hospitality – great service, attention and comfort. READ MORE

Wendy Blaney

In a world where almost everything is done digitally, it is important to remember how impactful a two-way conversation can be for consumers interested in booking travel. There is no denying that it has become easier and easier to plan trips online, and purchase products almost instantly – yet there are still many customers who want the personal touch and assurance that they truly understand what it is that they are buying. They want someone to provide direction, answer questions, and give them “insider” information. This is especially true for a dynamic destination like Atlantis where there are an abundance of options. Our guests aren’t just interested in a resort, they are seeking a coveted, catered experience. READ MORE

Mustafa Menekse

Though it seems that online travel agencies have been a part of the hotel booking landscape for eons, the reality is that just 25 years ago, brick and mortar travel agencies were the norm. Travelers would visit an agency for trip planning advice, printed brochures, and to speak with actual travel agents to assist in booking airfare, hotel accommodations and rental cars. Travel agencies had the knowledge and information about the destination and, of course, the tools and connections to book hotels and flights to begin with. The support these agencies provided put traveler’s minds at ease, especially for international trips. This was the foundation of why OTAs are in existence. READ MORE

Scott Weiler

A guest of a hotel or chain books with an OTA. Terrific for everyone, right? The OTA is grateful for the transaction, and hopes to get a nice share of that customer’s travel bookings for years to come. The hotel is happy to get a (let’s say) first time guest. Sure, they paid a commission for that booking, but the GM and their team is ready to do their stuff. Which is to say – deliver a great stay experience. Now what? Now it’s a battle of the marketers! READ MORE

Coming Up In The July Online Hotel Business Review




{300x250.media}
Feature Focus
Hotel Spa: Measuring the Results
As the Hotel Spa and Wellness Movement continues to flourish, spa operations are seeking new and innovative ways to expand their menu of services to attract even more people to their facilities, and to and measure the results of spa treatments. Whether it’s spa, fitness, wellness meet guest expectations. Among new developments, there seems to be a growing emphasis on science to define or beauty services, guests are becoming increasingly careful about what they ingest, inhale or put on their skin, and they are requesting scientific data on the treatments they receive. They are open to exploring the benefits of alternative therapies – like brain fitness exercises, electro-magnetic treatments, and chromotherapy – but only if they have been validated scientifically. Similarly, some spas are integrating select medical services and procedures into their operations, continuing the convergence of hotel spas with the medical world. Parents are also increasingly concerned about the health and well-being of their children and are willing to devote time and money to overcome their poor diets, constant stress, and hours spent hunched over computer, tablet and smartphone screens. Parents are investing in wellness-centric family vacations; yoga and massage for kids; mindfulness and meditation classes; and healthy, locally sourced, organic food. For hotel spas, this trend represents a significant area for future growth. Other trends include the proliferation of Wellness Festivals which celebrate health and well-being, and position hotel spas front and center. The July issue of the Hotel Business Review will report on these trends and developments and examine how hotel spas are integrating them into their operations.