Properly executed revenue management fundamentals can serve as a foundation for success in achieving this goal.
Of course, the efforts of a highly effective sales team are also critical to a hotel's financial performance. But layer on a robust revenue management program with the sales team's efforts at a hotel, and the group, transient and contract room sales will be made even more effective. Why? Because the hotel will be selling the RIGHT room, to the RIGHT customer, at the RIGHT time, for the RIGHT price, and via the RIGHT distribution channel.
In the early days of revenue management in hotels, the emphasis was wholly on selling sleeping rooms. In more recent years, additional revenue streams have been added to the responsibility of the revenue manager. From spas and golf courses to marina slips and banquet menus, revenue managers began dabbling in operational departments far beyond the confines of sleeping rooms. The brutal days of the pandemic changed things dramatically, because suddenly there was nothing to yield! In the early lockdown of 2020, guest demand cratered, which jump started a new day in revenue management, again.
Necessity Drives Change
The unprecedented times of COVID-19 harshly taught revenue management veterans and rookies alike to adapt and be nimble for survival. The revenue game was no longer about primarily outperforming your competitors but instead literally keeping the hotel's lights on.
To survive when demand and occupancy plummeted to nearly nothing, hotels and hotel companies looked for other ways to generate revenue. The ancillary revenues noted earlier in this article became equally depressed as travel shut down. Banquets and catering revenue, along with all food and beverage operations, were shuttered as hotels furloughed employees to preserve cash.
I have the opportunity to oversee the revenue management and distribution efforts of Atrium Hospitality, one of the nation's largest hotel operators. In April 2020, due to the pandemic, Atrium's revenue management team was reduced in size, accordingly. In the peak of the pandemic, companies across the industry quickly changed their structures to have each revenue management professional taking on more properties, and their strategic focus shifted to maintaining inventory and pricing for hotels. Although groups were canceled or moved, keeping the property inventory clean was important, since eventually the world would once again travel. But until that day, revenue management would have to quickly adapt and look at things differently. Generating revenue (and demand) became the priority.
Immediately Adapting to Limited Demand
During the early days of the pandemic, only essential travel was allowed in certain U.S. jurisdictions. With so few markets generating any new leads, rethinking target markets was an obvious move for revenue managers. While sales staffing levels were reduced, companies deployed their remaining limited resources to government agencies, medical staffing companies, and virtually any entity that may have travel needs associated with providing support during the pandemic. Rethinking who to sell to and what to sell was the commercial challenge of 2020.
Hotels sold sleeping rooms and event space to National Guard regiments, who were deployed to help local authorities deal with the needs of the pandemic. Also, spacious, clean hotel ballrooms were repurposed and transformed into COVID-19 test sites. Then void of demand for elaborate corporate meetings and stylish galas, the event space successfully served a public health function and generated some much-needed hotel revenue and cash flow.
Also, some high Average Daily Rate (ADR) hotels accepted business that in pre-pandemic times would not have passed muster of a disciplined daily business review meeting. They gratefully did so for the simple reason that it was typically the only customer. For example, in Washington, D.C., during the pandemic, luxury hotels competed for rooms for National Guard troops deployed to the region to offer protection during the presidential inauguration. Generally, that would have been a peak time in that district, where average rates soar to new heights, but January 2021's demand was entirely different, and revenue management adapted, again.
Focus on Drive Market
Mode of travel also changed during the early days of the pandemic. Hotels started considering markets much closer to home for customers. These potential sources of revenue were previously traveling by planes, trains and automobiles to visit outside the market but were only opting to do so again in late 2020 and 2021.
Early in the downturn, industry veterans mused that the leisure segment would be the first to return, as it had during other financial hard times. The experts were right. As if a switch had been flipped on the weekend of February 12, 2021, leisure demand spiked.
This demand on weekends continued for several months and finally there was something to revenue manage once again. Travelers were hitting the road and taking advantage of government stimulus checks to enjoy a change of scenery. Customers were buying through Online Travel Agencies (OTAs) in greater numbers. Hotels that had been focused on driving direct bookings had to adapt, again. They had to embrace the one distribution channel with more demand. Brands relaxed distribution guidelines, and revenue managers welcomed the new leisure demand and fought for their fair share by running promotions that improved visibility and helped hotels to win new customers. Weekends, holidays and spring break helped hotels reach occupancy levels that hadn't been seen in a year.
Repurposing Spaces
As travel started returning during the pandemic, the needs of travelers were different than they had been in 2019. Some amenities, like spas, were still closed due to local ordinances or staffing issues. Hotels started considering whether the space that was allocated to different operating departments was being maximized. For example, some hotels in non-resort markets opted to close spas that were operating with thin margins and strategically repurpose that valuable space as event breakout rooms. While the return might not be immediate with meeting demand still depressed, the long-term potential was bright. Plus, the operator no longer needed to struggle with staffing expertise or operating at the sudden changes of local restrictions that might open or shut down the spa services-related business.
In addition, kitchen spaces became a new opportunity for hotels to generate income. In hotels with more than one kitchen, the potential to rent that kitchen to a third-party restaurant operator became attractive. While there was little demand for dine-in restaurants during the early days of the pandemic, there was a great surge for take-out and delivery orders. Dormant banquet kitchens in hotels could be brought back to life with a new, productive purpose.
During the height of the pandemic, hotels also looked for innovative opportunities to support the communities they serve, including leveraging the reduced demand of large meeting spaces to make a difference. For example, Atrium Hospitality formed a national partnership with the American Red Cross during the pandemic to address the nation's blood supply crisis. Atrium-managed hotels across the United States hosted numerous blood drives in our large, high-quality meeting spaces, surpassing blood drive goals and potentially saving thousands of lives.
The Power of Data and Analytics
Observing the data from group cancellations and rebookings, along with transient cancellations and the slowing of new bookings, was unprecedented during the pandemic. Atrium Hospitality heavily invests in quality data and technology and operates well-known hotel brands. Thanks to access to robust data programs at all of the major hotel brands and at hotel management companies like Atrium Hospitality, revenue managers can make more informed decisions.
Data has always played a critical role in revenue management; analyzing multitudes of data points with a goal of making more informed decisions is a tenet of the discipline. From the very first moments of the pandemic, hotels and hotel companies relied on data and analytics to understand how the world was quickly changing and shutting down.
Global companies watched trends in China to help predict what would happen in the United States. Monitoring reservations bookings and cancellations helped hotels plan their short- and long-term futures. The pandemic reinforced the importance of data, and as the months passed, using business intelligence tools helped hoteliers monitor changes in demand and prepare for the return of travel.
As demand picked up, revenue managers were eager to learn more about the customer segments and distribution channels that were fueling demand. Business intelligence tools can provide almost real-time data to help analyze market penetration and future market share, thus helping hotels evaluate their strategies so that they can pivot, if needed. The ability to be nimble has proven invaluable as subsequent COVID waves and surges have caused stops and starts in guest demand.
One of the most tracked segments is negotiated business, as hotels are quite eager for the return of the business traveler. Business intelligence systems help hotel salespeople to target accounts that are starting to travel again.
The demand for data will never cease, but the desire to continuously refine and make the consumption more efficient and agile is evident. Newer competitors are promoting products to compete with some of the most tried-and-true offerings on the market.
Back to Where We Started
Not all of the inventions of necessity born from the pandemic will live on forever. As the harshest effects of the pandemic subside and travel demand increases across the segments (group and transient), revenue managers will have to return to driving sleeping room revenue and RevPAR Index growth.
A return to hosting in-person meetings, family gatherings and social events will swing the revenue management focus back to sleeping rooms. Lessons learned may help to maximize opportunities to distribute differently or with a more diverse strategy, but revenue managers will have to concentrate on the most profitable product hotels sell: sleeping rooms.
As each month passes by and March 2020 becomes a more distant data point, group demand is returning, business transient travel is growing, and leisure travel is continuing to spike weekend and holiday period demand. Our revenue management attention is back on the goose that lays the golden egg: sleeping rooms. Revenue managers must yield demand and make sure that each room sold maximizes profit. This is, again, another adaptation for a new day as revenue managers focus on not only maximizing revenue but also on improving profitability.
By Michael Feldman Senior VP Revenue Management & Distribution, Atrium Hospitality
