Smart Prices

28th June 2009 (Last Updated June 28th, 2009 18:30)

Optimising yield is a must in a tough financial climate. HMI looks at how the hospitality industry is embracing revenue management and what hotels can learn from best practice in the airline industry.

Smart Prices

Selling rooms and services at the right price, at the right time and to the right people is the bottom line of successful revenue management in the hotel industry.

The introduction of more sophisticated computer programmes and data processing, managed by dedicated revenue managers in large chains, has seen RevPAR increase accordingly.

However the industry may still have more to learn from airlines, the pioneers of revenue management, which have long adjusted prices for fluctuating demand and market segments.

Richard Burgess, vice-president of Air Promotion Group (APG), which represents 200 airlines worldwide, believes that good revenue management can make the difference between a profitable and a loss-making airline.

“Customers have the power in their hands and if we are not offering the right price they won’t book.”

"Revenue management allows an airline to fully maximise its ability to sell its product at the highest yields possible in any market conditions," Burgess says. "Almost without exception, any reasonable revenue management system will drive up yields and have a positive effect on the profitability of an airline."

The challenge for hotels, according to Jeanne Frensky, InterContinental Hotels Group vice-president, revenue management, is adapting systems to suit their complex and competitive market. IHG, one of the world's biggest hotel companies with brands including Holiday Inn and Crowne Plaza, introduced its proprietary system, PERFORM, in 1993.

Last year IHG rebuilt the system, which has resulted in revenue managers taking more action and "getting the right prices out there. Our revenue management is seeing on average a 3-4% uplift in RevPAR," Frensky reports, "with some hotels up 20%, depending on their type and dynamic."

An additional challenge for IHG is that the group is run on a franchised basis, with each hotel or unit responsible for managing its top and bottom line. To overcome this, the group developed an "RM for Hire" service to which units can sign up.

Frensky explains: "We can offer our expertise and training and the hotels take advantage of the technology. There is a good uptake and we see an improvement in the hotels who sign up."

IHG also invests in its managers, offering a Revenue Management Academy and a master's degree co-hosted with Cornell University in New York. "Any revenue management system will be better with a manager who knows how to use it and can do the best thing with the outputs," Frensky says.

"The systems are smart but there will always be things humans can be aware of before the system processes the data."

“Any reasonable revenue management system will drive up yields and have a positive effect.”

And what of the customers: do they benefit from revenue management? Burgess says that airline customers are sometimes put off by the complexity of revenue management and don't understand why the same product can be sold at ten prices.

"The internet has given the public its introduction to how airlines revenue manage their product," he says, "as we have all experienced the fluctuating prices available on the internet."

IHG's spokeswoman Emma Corcoran agrees that the internet has made the system more transparent to customers. "Customers can now gain more information and make an informed decision," she says.

"They have the power in their hands and if we are not offering the right price they won't book. It's crucial we grab the potential to compete with our rivals at the right time."

IHG is testing a new module addition to its revenue management system for pricing in five of its hotels in the UK and the Republic of Ireland, which will be able to react in real time.

Hotels may have come a little later to revenue management than the airline industry but, with new technology, they are learning how to reap its benefits for a more profitable future.