January 08, 2012

Is revenue management art or science?

In Gulf country markets, small chains and independent properties continually face the challenges of limited resources and budget to invest in revenue management development and technology. Without it, are you at disadvantage against the large brands?

For every property and every revenue manager, there is a different definition of what revenue management is and how to achieve success. The concept of yield or revenue management was then introduced to measure the revenue more accurately and the unit of RevPAR was established to calculate the performance of each and every room in the total inventory of the property. A collective average of RevPARs of hotels in a specific area would reflect the strength of business in that market.

As a concept, revenue management has been adopted for airlines, but technically any business with limited or fixed supply of product sold in units of time (perishable) can benefit from it (Limo Transportation, Bus Coach, Concerts / Event tickets, Spa, Health Club, Parking, Rental Car, Outdoor advertising, Hairdressers...).

There are still many hotels who does not understand the RevPAR metrics. In the past, the success of a hotel was measured in units like average occupancy followed by ARR (Average Room Rate). However, a closer look at these units reveals a uni-dimensional approach - a reduced ARR may result in increased occupancy but fails to make the overall business a success.

No matter your definition, likely customized to the individual property, market demand pattern and rate structure, the revenue management development must fit the operation and goals of the hotel. Only then will it have the desired impact on the bottom line.

With Starwood, Radisson, Hilton and Accor moving to historical independent and small chain markets, particularly in Deira, Bur Dubai, Ras Al Khaimah, the perception towards revenue management is changing.

General Manager's conference meetings and small gathering of Revenue Management professionals, organized every quarter in Dubai or Abu Dhabi, help revenue management discipline to evolve, by including strategy, by understanding the customer behavior and by improving how to work effectively with the Sales department.

Today, the revenue management leader must be analytical and detail oriented, capable of thinking strategically, managing the relationship with sales and a good communication person.

So, which will make you flourish—the art or the science? How can you make the art more scientific? What is the right fit for your property? Who will take ownership for leading that practice?

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