January 22, 2012

Maintaining Rate Integrity to increase hotel gross operating profitability

In the last 10 years of Gulf Countries growth, Hotels behaved with healthy profit line until 2008. Revenue management was put into practice, in the Gulf within the hotel industry, nearly 7 years back, most of the philosophies and techniques that had been learned were from a strong economy (2005-2008). This presents a very challenging problem in today’s environment because hotel revenue managers are non-equipped to deal with it.

There is very little historical data that will show how yield management behaved during the tough times. Because of this, many hotel revenue management staff are still feeling their way and are committing trial-and-errors. Gathering some historical statistics is not enough, if reports are lying on the side of an office. Reading professional press information is rarely in place. The important key for revenue managers is to analyze it, and make recommendations and decisions. Mr and Mrs Revenue Manager, you are invited to challenge your General Manager. Believe it, they will appreciate it.

One regular mistake is that many properties engaged in the hospitality industry are dropping hotel rates in order to increase demand. This trend can be observed everywhere from Dubai to Cairo. I was discussing recently with a Finance Manager, 4-star Independent Hotel in Dubai, who is in charge of controlling rates (huh why not?), and he shared his experience that when increasing is BAR level from one day to another, he could not observe pickup room nights after 24h, so he was constantly changing to lower BAR rates. When I questioned him about its booking trends, cancellations factor and statistics line, there were no particular backup".

Fortunately, there is still a significant number of hotel revenue management teams that has the current crisis in perspective. Even during the worst of times, many hoteliers strived to maintain rate integrity as not to compromise their future positions.

It should be noted that dropping prices is never an appropriate response:
- Point 1: it will show that you don't know your hotel property booking pace behaviors,
- Point 2: you might undercut your Travel Agent and Corporate partners resulting in dropping of business activities,
- Point 3: it will take a lot of effort on the part of the hotel revenue management team to bring the price up again,
- Point 4: it will hurt the brand value so the hospitality establishment might not experience the full benefits of recovery once it happens,
- Point 5: The lower the rates, the most demanding clients you will experience, as they feel they had a great deal, so they would like 100% service attention to them.

Occupancy challenges can be solved with creativity, innovation, and appropriate yield management measures. In the Revenue Management discussions, a strong emphasis should be given to the investment in tools, process technology, and people. This is the best way to cope with the downturn or slow economy. Going back to basics is important. It does not only apply to operational aspects. If you get this right, then the hotel is operating on solid basis. In no time, the hotel can experience more bookings, increased RevPAR.

1 comment:

  1. Wonderful blog & good post.Its really helpful for me, awaiting for more new post. Keep Blogging!

    Yield Management


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