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Archive Category: Revenue Management

“2012 seems to be unfolding as a year with a lot of uncertainty”

IN-DEPTH: Uncertainty is once again creeping into market forecasts and turmoil in markets, customer sets and distribution channels is likely to happen in a number of ways. Revenue management systems and processes will need to be nimble to adapt as events unfold, says Frederic Deschamps, Vice President, Revenue Generation, Carlson Hotels

By Ritesh Gupta

Individuals working in revenue management in the hospitality industry often term management of the short term pressures as their major challenge especially when the external forces driving the industry aren’t too favourable.

The obvious RM issues relate to the downturn during the financial crisis and the subsequent upswing. Even as the global economy is facing increased uncertainty over the ongoing turmoil in the financial markets, revenue management specialists acknowledge that the industry on the whole hasn’t learnt the dangers of price cuts. Numerous studies have demonstrated that this is the least profitable strategy for the long term. Yes, it may yield short term gains, but certainly does more damage in the long term. One needs to be smart in how they drive tactical promotions.

2012 seems to be unfolding as a year with a lot of uncertainty, says Frederic Deschamps, Vice President, Revenue Generation, Carlson Hotels.

According to Deschamps, there are a lot of unpredictable forces shaping demand -- external forces such as the continued financial uncertainty in large markets and the internal forces of competition.

Deschamps says where revenue management can contribute the most in a situation like this is to be extremely vigilant on forward developments and have solid reporting in place to monitor the outlook, to have a process in place to help steer revenue activity in other areas based on a sophisticated view of the outlook and to have a price elasticity-based revenue optimisation system that can handle the complexity of treating every location and every day as a different pricing situation.

EyeforTravel’s Ritesh Gupta spoke to Deschamps about major developments pertaining to RM in 2011 and the outlook for 2012. Excerpts:

What according to you have been the major developments this year as far as revenue management is concerned? What do you think stood out in this discipline?

Frederic Deschamps:

The most consistent development across the hotel industry has been the increased prominence of revenue management.. This has been driven by a strong but uneven recovery where hotels face a complicated pricing situation where every market and every day can be different and therefore need assistance from systems to price correctly. Everyone’s brought their own solution to this challenge, but everyone’s brought some kind of solution.

How do you think the onus is going to be on revenue management to deliver considering the business environment and other external factors, and also the maturity level of RM? What do you think should be the focus of RM professionals going forward?

Frederic Deschamps:

The task of revenue management is going to be to be prepared for any eventuality. Uncertainty is once again creeping into market forecasts and turmoil in markets, customer sets and distribution channels is likely to happen in a number of ways. Revenue management systems and processes will need to be nimble to adapt as events unfold. That implies that revenue management needs to be put in a position to steer the overall revenue activity, armed with detailed forward-looking reporting on segments and channels at the hotel level.

What do you think are the major challenges today for RM professionals in order to optimise pricing, maximise inventory, and drive higher revenue while improving operational efficiencies across the organisation? How do you think RM is going to increase its significance from where it is today?

Frederic Deschamps:

In my estimation there are at least two major ways to increase revenue management’s contribution to the hotels’ bottom line. One is to start evaluating the worth of a booking on a profit basis and not just a revenue basis and the other is to start evaluating a booking on a lifecycle and not just marginal basis. By profit, I mean that all revenues and not just room revenues (i.e. including food and services) can be included and the costs of distributing rates and servicing the customer can be included. By lifecycle I mean that the repeat business or lower price elasticity of a customer can be taken into account to prioritise inventory access, rather than just looking at the single booking transaction. Revenue other than room revenue can represent 25 percent or more of a hotel chain’s revenues, and guests have an average of 2.5 stays in hotels, these are significant multipliers on the typical “room revenue only, single stay” approach of revenue management systems today.

Recently, Amadeus highlighted that price management thrives in an environment where revenue management does not. It is possible to realise a vision of a market tied to customer personalisation in place of more limited customer segmentation. It also indicated that the fluid, dynamic model of price management, and this multi-variable model works much more effectively with the complexities of the hotel industry. How do you assess the situation?

Frederic Deschamps:

Price management, or rate optimisation, claims to maximise revenue by setting the rate just right to truncate demand at the optimal level. Traditional management looks for the combination of customers paying different rates that maximises revenue. To the extent that pricing is becoming more transparent and more and more customers are converging onto a single rate, price management is becoming more in line with market realities. Carlson Hotels has adopted this approach and uses rate optimisation worldwide with strong results. However, it must be said that in price management (or rate optimisation) a lot rides on the quality of the rate calculations so the devil is in the details with that approach.

Within an organisation, RM professionals will not only need to invest more time and effort in liaising with other disciplines, but it is also being mentioned that the more ambitious the RM department and RM system become, the harder it will be to know that every single commercial decision contributes to overall profitability, i.e. to carry out RM’s main task. Keeping profitability as the guiding principle for all these new initiatives will require vision and discipline. What do you make of this assessment?

Frederic Deschamps:

I think that’s essentially correct, but not all that different from what revenue management tries to do today. Revenue management is uniquely positioned to steer the revenue process, because their expertise is about setting rational expectations of what lies ahead and about the customer. What lies ahead is the actionable window for all other revenue-contributing departments, so revenue management is the natural scout for this activity. Organisations that embrace this view tend to involve revenue management in virtually all their activities, so revenue management itself needs to prioritise effectively to ensure their activity remains productive. Most revenue management organisations develop solid tools and processes to increase their throughput without significantly increase resources to deal with this challenge.

Do you believe that revenue managers seem to still follow too easily the principle of dropping price to generate more demand?

Frederic Deschamps:

Good question! Overall I believe that the last few years where we’ve seen significant drop-off in demand has had a sobering effect on price-dropping. Revenue management has been reminded that there is a limit to customer elasticity. My perception is that revenue managers today are more discerning with their prices and fairly disciplined about calculating their break-even point before they initiate or respond to pricing activity. I believe that overall this is to the hotel’s as well as the customer’s benefit. A rationally priced market provides both a reasonable return to the hotel and a fair price to the customer.

The hotel industry has witnessed the emergence of price optimisation tools that incorporate real-time competitive rates with a hotel’s demand and booking patterns to recommend the best price. Overall, the industry is focusing more on price elasticity and price optimisation as part of its overall revenue management strategy. What do you make of the situation?

Frederic Deschamps:

I believe that’s correct, and Carlson Hotel is an enthusiastic early adopter of this approach. Our assessment is that with increased transparency between distribution channels, and the proliferation of instant-information tools (PDA’s etc); it is no longer realistic to price segments of demand discreetly. Therefore, the question is no longer how to prioritise inventory to customers paying different prices in a revenue-maximising way, it is to find the single rate most customer will essentially pay that maximises revenue, taking the customer’s alternatives into account. I believe that this approach brings a lot of rationality to the pricing in the market place which is to the hotel’s and the customer’s benefit.

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Amadeus to help revenue managers dynamically monitor market trends

Amadeus has added a new feature in Market Pricing to its hotel Revenue Management solution. The Market Pricing component gives hoteliers an insight into competitor rates, sourced from the major web rate shoppers.

The new offering combines publicly available rate information from both major web rate shoppers and the Amadeus system enabling hotel revenue managers to have a holistic view of the market through the analysis of price trends, price fluctuations and benchmarks. The focus is on enabling hoteliers understand and react quickly to the complex factors that influence markets and customers’ behaviour, and respond rapidly to optimise the hotel inventory and rates.

According to Amadeus, Market Pricing is an industry-first competitor rate analysis tool, helping revenue managers to dynamically monitor market trends.

Key benefits:

• Provides users with a unique view of the marketplace to analyse both direct competitors and activity in the city destination.
• No other RM solution takes into account market demand and market pace in their price optimization.
• Extensive content: rates are imported from the major web rate shoppers.

“In this highly competitive industry, there is a growing demand for intelligence products that permit hoteliers to track market trends and react quickly,” said Jérôme Destors, director, Amadeus Hotel IT. “Using advanced forecasting models combined with detailed booking data and market trends, the Amadeus Revenue Management solution innovates with unique technology evolution giving hoteliers another competitive advantage to maximise their hotel revenue contribution.”

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Maximising the benefits of customer data insight as a travel company

A survey has indicated that many travel industry businesses anticipate a change in ancillary revenue strategies next year, with more emphasis on up-selling and cross-selling.

According to Collinson Latitude’s survey, which featured loyalty and ancillary revenue managers, particularly across the airline industry, the industry is seeking to maximise the benefits of customer data insight. Nearly half of respondents (49 percent) believe cross-selling and up-selling through the booking process will be the fastest-growing area of ancillary revenues for travel businesses in 2012. Furthermore, 30 percent of respondents predict that non-travel related product sales will play a pivotal role in the future of ancillary revenues.

“With travel companies holding so much knowledge about their customers, cross-selling and up-selling strategies can be tailored to match benefits and promotions to customers’ wider profiles. This targeting can increase the attractiveness, perceived value and ultimate success of ancillary revenue programmes,” said Collinson Latitude director Janet Titterton.

The survey also indicated that conventional travel-related offers will remain important in ancillary revenue programmes. Among respondents, 19 percent predict greater cross-selling and up-selling of travel-related products through the booking process, while 21 percent predict an increase in on-board ancillary revenues for airlines.

Traditional travel-related ancillary revenues will clearly remain important, said Titterton. For example, 22 percent of survey respondents currently implement ancillary revenues by unbundling previously packaged products and services.

“However, this process needs to be handled carefully: although ancillary revenues can bring costs down for customers – as unwanted services are no longer paid for – the perception is often very different. As services previously viewed as ‘free’ become billed separately, the travel industry needs to demonstrate to customers that such services really do provide choice and value for money,” added Titterton.

Targeting

As highlighted in the survey, it is important to note that “targeting” can place a travel company in an advantageous position.

Travel businesses continue to gather customer preferences and have been looking to provide improved personalised features for travellers.

In its regular interactions with specialists in this arena, EyeforTravel has found that travel companies are attempting to better serve their most loyal customers while also working to differentiate themselves from competition on features other than cost. A lot of these efforts are focused online in gaining a deeper understanding of the plans that a user has already made, and then using that information to market travel enhancements, upgrades, or add-ons.

Challenge

The fact that consumers have moved away from traditional digital assets and moved to social space has posed a major challenge to travel companies. For their part, marketers have become a lot more attuned to using data and presenting personalisation and customisations in digital assets.

The critical step to developing true one-to-one marketing communications is in organising analysing and segmenting the database.

Many companies make the mistake of rushing through these strategic steps in order to implement the tactical portion of their marketing plan. This is a critical mistake, according to John Gardner, President and CEO, Integrative Logic (Gardner was a speaker during one of EyeforTravel’s conferences in Miami last year). According to Gardner, a one-to one marketing communications plan goes much deeper than finding out what your customers last clicked on and their name. It is a 360-degree examination of the customer: their intent, motivations, demographics and psychographics, geography, media consumption, as well as transactions. The key to one-to one communications is developing true attitudinal segmentation methodology that ties into a segmented channel strategy that allows you to take advantage of ways consumers utilise content and make sure the content they receive is as relevant as possible.

One has to understand what is uniquely important to each customer to enable messaging to be created that is timely, relevant and useful to them.

Making use of data, garnering relevant information from analysis of that data, and then using that knowledge to take profitable actions is a challenging task. The travel industry has acknowledged the same and travel companies are working with many internal and external resources to refine this approach.

Personalised Experience

Travel companies are also taking initiatives to tailor their customers’ online experience.

For instance, Finnair recently became the first airline to implement Amadeus Dynamic Website Manager. With this move, the airline is expected to improve revenues as a result of optimised up-sell and cross-sell opportunities, and its ability to benefit from market opportunities through faster deployment of promotions. Using the customer’s frequent flyer information, travel history, preferences and cached user’s browsing activities, the offering will propose relevant offers or services that fulfil the unique needs of Finnair customers. For example, offering lounge access at off-peak times to frequent flyers that do not usually have access or a massage at a connecting airport if the duration of the connection time is longer than two hours. This way the airline is working on delivering a personalised online experience that recognises the unique needs of every customer.

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Virgin Australia group closer to becoming one integrated airline

Virgin Australia group of airlines is set to realise its strategic vision of becoming one integrated airline and providing a seamless travel experience for guests across its global airline network.

The group is to make transition to ticketed operations by introducing the new reservations system, SabreSonic Customer Sales and Service (CSS) system.

The Virgin Australia group of airlines expects to have migrated to Sabre by March 2013. It also mentioned that this initiative is a key step in its Game Change Program strategy of becoming the airline of choice in Australia.

“The Sabre system will enhance our performance capabilities across our business, enable us to support integrated ticketing with our Alliance partners and provide an elevated level of recognition for our customers,” said Virgin Australia group of airlines chief financial officer Sankar Narayan.

The platform will deliver a complete end-to-end business solution for guest reservations and ticketed operations. It will incorporate sales distribution and merchandising; guest recognition; electronic ticketing; e-commerce; inventory and revenue management; check-in and departure control - all in a single integrated platform.

The solution leverages a service-oriented architecture enabled by an advanced platform for data and application integration.

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Making the most of dynamic pricing to fill rooms at the most profitable price

IN-DEPTH: Understanding customers’ needs, behaviour, location, and individual price sensitivity are key to any pricing strategy and related tactics

By Ritesh Gupta

The hotel industry has witnessed the emergence of price optimisation tools that incorporate real-time competitive rates with a hotel’s demand and booking patterns to recommend the best price.

Overall, the industry is focusing more on price elasticity and price optimisation as part of its overall revenue management strategy.

Commenting on how hoteliers need to look beyond the tricks and quick fixes and instead focus on dynamic rate optimisation for pricing strategy, Jean Francois Mourier, RevPar Guru says one aspect of the same is dynamic pricing, which is essential.

“Dynamic pricing is an umbrella term that encompasses others, and is an effective way for revenue managers to evaluate multiple pricing metrics in real time. This includes real-time price comparisons to competitor hotels, as well as monitoring instant changes that affect those rates. Another component is a hotel’s historical prices. But it’s important to note that this metric is increasingly less of a factor when figuring a current or future rate. Historical prices are very good at faithfully reporting back to the revenue manager a past room rate, but is a very poor predictor of what the new rate should be, i.e., the future,” says Mourier.

He added that other pricing systems partially determine rates based on room rate elasticity, or the flexibility of price based on consumer demand. For instance, travellers regularly expect room rate hikes during peak seasons like the upcoming holidays. Travellers accept and pay those rates and rather than diminishing demand over higher prices, demand actually peaks. Thus, holiday hotel room rate prices are said to be relatively inelastic, or inflexible.

“Another component to modern software-driven hotel room pricing is rate optimisation. And part of that fair rate is based on your hotel’s clout relative to the competition. Increasingly that clout is based on where your hotel lands in basic Google searches as well as online travel agent (OTA) rankings. Other factors that are part of the pricing mix include: booking patterns by day of the week, time of day booking patterns, special events, room size, guest reviews, and booking pace. Seven days a week, 24-hours days, all of these factors, and others, are re-evaluated in real-time in order to establish the perfect rate at the very moment a room is booked,” added Mourier.

He also says automated pricing programmes and their intelligence-gathering abilities will grow increasingly complex – and importantly, extremely helpful to the revenue manager, pulling in and analysing greater and greater amounts of data to make more informed decisions.

Recently, Amadeus highlighted that price management thrives in an environment where revenue management does not. It is possible to realise a vision of a market tied to customer personalisation in place of more limited customer segmentation. It is possible to move effectively from just inventory management to channel management. By discarding the traditional capacity allocation models inherited from the airline industry it is now possible to address, at a macro-scale, the pricing issues that hoteliers are facing, and at a micro-scale provide pricing solutions, including dynamic pricing, real-time group quotations, with more granular competitive intelligence. And this enables systems to reveal many more opportunities for increasing revenue for hotel companies.

With dynamic price management techniques hotel rooms can be filled at the most profitable price according to learned demand patterns. By looking ahead using future booking data, and back with detailed historical records, advanced forecasting models can make intelligent rate and inventory recommendations. This can be done in real-time, adjusted dynamically to changes in the hotel environment, ensuring accurate and reliable ‘always on’ business intelligence.

Redefining RM

Out of the many recent developments, the ones related to price-sensitivity modelling are probably the most significant in re-defining RM, says Pieter Dorhout , founder, Pieter Dorhout Consulting, who is scheduled to speak at the forthcoming Revenue, Yield & Pricing for Travel Europe 2011 Conference, to be held in Prague (29-30 November) this year.

“Rather than accepting demand as it materialises, RM now aims to influence demand to materialise in a profitable way. Or in sports terms: RM is evolving from being a neutral, passive referee to becoming an active player in the market,” says Dorhout.

This, according to Dorhout, has profound implications for the RM algorithms, processes and people.

“There are great examples of companies who have taken on the related challenges and reaped rich rewards. However, as with most investments, a higher return is usually accompanied by a higher risk. In this case, the appetite for sophistication needs to be balanced against the ability to deal with complexity, and getting this balance wrong can be extremely painful,” says Dorhout.

Dorhout mentioned that it’s a shame that the phrase ‘change is the only constant factor’ has become such a cliché, because it has actually never been more true than today.

“In this context, revenue management can help travel operators adapt very quickly to changing market conditions. In fact, sophisticated players will automatically adapt their presence in the market: when demand is falling short, incremental cost become the relevant benchmark for pricing, but when (or where) demand is soaring, opportunity costs become the price threshold. In other words, especially in these uncertain times, RM is crucial to the core business of every travel company: making profit,” said Dorhout.

It is important to distinguish between market segmentation and channel management. Distribution has effectively become a commodity, and the low barrier to entry has resulted in a wealth of economically viable channels. For the operator, it is now neither effective nor efficient to put significant effort into managing individual channels, and rate parity is a generally sensible outcome. However, as Dorhout points out, that does not mean that market segmentation has lost its profit-generating power.

“For example, it would be tempting to say that network airlines will soon adopt the low-cost airlines’ one-way pricing practice. And some already have. But I know for a fact that the ability to distinguish between leisure and business demand by means of duration is still extremely valuable for other airlines. For hotels, I think the message is: don’t throw the baby out with the bath water; rate parity across channels is fine, but commoditisation of your product probably isn’t,” concluded Dorhout.

Ideally different product options with differential pricing based on customer’s characteristic should be offered to capture the real amount that consumers are willing to pay. However this is only possible as long as the overall market does not offer new products/innovations “for free”. Unless the customer feels being “ripped off” by the marketplace there is a clear win-win opportunity. Key for any seller’s success is a value statement that clearly articulates why customers should make this purchase.

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AFI to offer a snapshot of future airfares worldwide

Airfare shopping solution provider Vayant Travel Technologies has announced the release of Airfare Intelligence (AFI).

AFI is a snapshot of future airfares worldwide, according to the company.

Boyan Manev, director of product marketing, Vayant said AFI takes the customer specific origin and destinations (O&Ds) and calculates the total price (base fare, IATA taxes, YQ/YR, CAT12, etc.) on a per carrier basis. The results, which can be delivered up to multiple times per day, are then pushed to the customer in a choice of standard formats.

During the development of AFI, the company conducted sample studies of a few major carriers.

“We found that our unique view of the total priced fare showed significant revenue leakage in the tens of millions range,” said Brannon Winn, CCO of the company. “Even if a carrier were to recapture 10 percent of that we are still talking about over $1 million per year in incremental revenue for a mid-size carrier. That’s the kind of value AFI brings to the market.”

All pricing calculations occur outside of an airline’s host or a GDS, and therefore, do not affect Look-to-Book ratios. This allows airlines to lower host transaction fees and online travel agencies (OTAs) or meta-search engines to utilise their transactions for productive booking activity.

Referring to the marketing potential of this data, the company mentioned that AFI will allow for significant marketing campaigns to abide by the latest DOT regulations without a hit to booking productivity.

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US airlines collected $1.5b from fees in Q2

US airlines collected $1.5 billion from baggage fees and reservation change fees in the second quarter of 2011, according to the airline financial data released by the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS).

The largest network, low-cost and regional airlines reported operating revenue of $38.6 billion and operating expenses of $36.6 billion. These airlines collect virtually all the fees collected by the airline industry.

The airlines received $887 million from baggage fees and $612 million from reservation change fees in the second quarter. These are the only fees paid by passengers that BTS can currently identify separately. All other fees paid by passengers are combined in larger categories with other types of revenue.

In July, the Department issued a notice of proposed rulemaking that is proposing to require airlines to report 16 additional categories of fee revenue in addition to the baggage and reservation change fees to provide additional airline pricing information to consumers and airline analysts.

Airlines ranked by 2011 baggage fee revenue, dollars in thousands (000)

Airlines ranked by 2011 reservation cancellation/change fee revenue, dollars in thousands (000)

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hotels.com’s HPI reports a continued rebound in business travel

Prices in major business and convention cities, including New York, Chicago, London, Paris and Beijing, has increased year-over-year, indicating that business travel is rebounding, according to hotels.com.

In common with most Western economies, global hotel prices continued their path of unspectacular recovery from the pricing trough reached in 2009. After stripping out currency changes and new hotel openings, the price hotels actually charged customers in the first six months of 2011 rose by just three percent globally, shared David Roche, global president, Hotels.com as the company released the new version of its Hotel Price Index (HPI).

Another BRIC in the wall?

If prices are sluggish in the US and Europe, or falling from external shocks, they are rising rapidly in the world’s economic hotspots.

Brazil, up seven percent, is a case in point, exacerbated by a lack of new hotels in its major cities with rates in Sao Paolo rising 27 percent. In Asia Pacific, destinations from Singapore to Sydney posted double digit price increases.

Last year’s Hotel Price Index found Asian cities to be gaining popularity amongst business travellers, a trend that is continuing. Average prices for hotel rooms throughout Asia fell by eight percent from the first half of 2010 to the first half of 2011, however individual markets in the region increased dramatically. Hotel prices in Singapore increased 18 percent year-over-year, and room rates in Hong Kong jumped 24 percent, from an average of $142 per night in 2010 to $176 in 2011.

Another part of the world that has attracted business travellers in recent years is the Middle East. However, this year’s political and social unrest related to the Arab Spring had a significant negative impact on countries in the Middle East and beyond. Falling prices were seen throughout the region, even in areas not directly involved with the uprising.

Following is a list of global cities popular with business travellers:

(The HPI is based on bookings made on hotels.com and prices shown are those actually paid by customers (rather than advertised rates) for the first half of 2011. The report largely compares prices paid in 2010 with prices paid in 2011).

“We’ve been following what has driven this in the last two HPI reports. Business and convention travel has staged a revival, filling hotels and prompting recovery. Global spending on business travel is projected to grow another 9.2 percent in 2011, according to the GBTA Foundation’s latest report, with all four BRIC countries outpacing the more developed economies,” shared Roche.

He added, “However, as demand has increased, so has supply, which acts as a brake on prices.”

There are still nearly 6,000 new hotel projects in development around the world, adding more than 900,000 hotel rooms.

Another feature of this report is how currency exchange rates have created huge variations in whether prices are rising or falling for your pocket.

“The relative weakness of the US dollar and Pound Sterling is great news for travellers paying in Euros, Australian dollars or Swedish Krona but relatively higher prices in their own countries mean that many visitors will have been deterred,” said Roche. “Thus UK hoteliers can breathe a complacent sigh of relief at the relative weakness of sterling, knowing that their own countrymen are more willing to stay domestically, and that overseas visitors find the UK more affordable.”

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Placing the customer at the heart of revenue management

Revenue management, with its roots in the airline industry, was traditionally based on capacity. However, by 2000, its application in the hotels sector was proving not to be as effective as hoped. Today, it is price management based on many factors that is superior to revenue management based on capacity, according to Amadeus, which has developed a spotlight paper outlining its vision of revenue management.

Looking forward, it is the complete integration with multiple systems and an approach more aligned to CRM which is what hotels of the future need.

Excerpts from Amadeus’ article:

The importance of price management not just revenue management

Price management thrives in an environment where revenue management does not. It is possible to realise a vision of a market tied to customer personalisation in place of more limited customer segmentation. It is possible to move effectively from just inventory management to channel management. By discarding the traditional capacity allocation models inherited from the airline industry it is now possible to address, at a macro-scale, the pricing issues that hoteliers are facing, and at a micro-scale provide pricing solutions, including dynamic pricing, real-time group quotations, with more granular competitive intelligence. And this enables systems to reveal many more opportunities for increasing revenue for hotel companies.

With dynamic price management techniques hotel rooms can be filled at the most profitable price according to learned demand patterns. By looking ahead using future booking data, and back with detailed historical records, advanced forecasting models can make intelligent rate and inventory recommendations. This can be done in real-time, adjusted dynamically to changes in the hotel environment, ensuring accurate and reliable ‘always on’ business intelligence.

Beyond revenue management

“We live in an exciting time where the speed and breadth from which we are receiving data opens whole new possibilities regarding to revenue management. We can expand our data collection beyond the PMS and really start to abandon old archetypes we’ve used to pigeonhole consumer behavior patterns used for our revenue management strategies. Imagine optimisation techniques where you’re holding inventory for soccer moms from Tennessee or setting pricing tiers for iPad users searching long tail keywords on Google. The rapidly growing availability of information will eventually allow us to paint pictures of our customers with striking accuracy. Those who’ve developed or implemented the systems and processes to take advantage of the multitude of data sources will have a very real competitive advantage,” Andy Grinsfelder, Director of Business Intelligence & Marketing Technology Services, Delaware North Companies Parks & Resorts, Inc.

In essence, the fixed, disconnected and disparate model of revenue management has now been overtaken by the fluid, dynamic model of price management, and this multi-variable model works much more effectively with the complexities of the hotel industry. By employing price management techniques hotel revenue can see improvements of up to five per cent which is a convincing argument for any hotelier worried about how best to survive in an ever more competitive marketplace.

In many ways what we are looking at are models that share a lot with sophisticated trading systems. Like the rocket scientists who analyse price movements in a trading market, today’s systems also look at markets and try to establish the influences on a price point within that environment. By using a combination of elegant algorithms and the sheer force of computational power to predict where that price is likely to move in the near future – the Holy Grail of trading – and make the most competitive offering available. The technology really is affording us this deep look at both when and where a customer is, and this environment will come to be dominated by whoever has the biggest computing engine, the most effective systems and the capabilities to effectively merchandise the hotel product.

Where is the future headed?

“We see three key areas for development in the coming years: (Managed) Automation - increasing automation in order to free up analysts for more strategic actions and decision-making; PSRM (Price Sensitive Revenue Management) - emphasis must be on utilising the huge amount of rich data available online; and, CCRM (Customer Centric Revenue Management) - this should be linked to the above and requires coordination between revenue management and CRM systems,” Darryl Piggott, Pricing and Yield Manager, Center Parcs Limited.

‘When’ and ‘where’ are good, but it is possible to think further – to look at ‘who’, that is, the individual preferences of a customers. Technology is allowing a greater focus on individuals and helping hotels to better cater for their personal preferences. By analysing booking and stay data in detail and moving beyond traditional segmentation to personalisation, of channel bookings, lead times and combinations of rates and activities, the prospects for driving up revenue whilst retaining guest loyalty are significantly improved.

This goes beyond revenue management, and beyond price management, to become customer-centric revenue management, a very close cousin of Customer Relationship Management or CRM. This is akin to the Facebook of travel, in which the ‘atom’ of processing is not the time or place, but the person. What could be lost in the quest to create dynamic pricing models that take everything into account except the individual, can be regained with this approach.

So for example, if you are booking a hotel room through such a system, it will recognise that you like golf and Chinese food and recommend local golf courses and restaurants. It might know that you generally like to hire a car, so it will offer car hire company options as a package. It could even choose the type of car you prefer. And the system can even charge a premium for these services, so that while the customer benefits from a uniquely tailored experience, the vendor also makes more money, whilst the customer feels more loved.

Now take a different season. Suddenly tennis is not as attractive, so the system needs to take this into account. How about a local shooting range? And instead of Chinese food, now that the customer is booking into a hotel in Europe, the system can recognise this and recommend local cuisine instead.

As we start to zero in on the customer we also start to ask interesting questions. For example, if systems are geared to the preferences of a small group or even to the level of the individual, how can the concept of brand value be incorporated? It is also important when we move beyond quantitative factors such as price, location and date, to start thinking about emotional factors around the service experience and the perceived value for the guest.

Towards a customer centric RM system: getting it right in a world of increasing expectations

This is critical in the hotel industry. While an airline operator will be looking at fairly limited competitors and alternatives to price, a hotelier is in an extremely tough market with many more competitors all adjusting their offerings based on seasonality and market demand. So in the hotels sector, absolutely the most important factor is becoming the hotel’s value proposition and brand, and how this is perceived by the customer alongside the competition. It’s not just about matching rooms to people or prices to segments, it’s about matching a hotel’s entire operations, from rooms, amenities, location, perceived quality and loyalty programmes, to the expectations of the right person in the right place at the right time. It’s a formidable logistical task and why deploying enormous computational power is critical to addressing this challenge.

Talk about customer-centric revenue management also acknowledges that revenue management is moving closer to marketing. And, in the same way marketing pervades an organisation and essentially sets its direction, so could and should customer-centric revenue management become integrated across a hotelier’s systems, throughout the distribution systems, from the point of sale through to after-sales follow-up.

Greater customer insights, and the proliferation of new channels for interaction with those customers such as email and social media, means it is vital to offer them the best possible deals for them as individuals rather than just their broad behaviours.

“The future of revenue management must be tied into gaining sustainable competitive advantage in our highly complex and diverse hotel business where the customer perception of value will be the king. Hoteliers will be required to focus on one consumer and their experience even when they serve 100 million consumers. In our opinion, the future vision of revenue management and distribution marketing is a day when each guest is a market segment of one and the access and availability of rates for a requested stay would depend on a guest's past history or forecasted future with the hotel or brand,” Puneet Mahindroo, Corporate Director of Revenue Management & Global Distribution, Taj Hotels Resorts and Palaces.

It’s probably fair to say that the movement from RM to PM (Price Management) to CRM is the result of a symbiosis between market competition, customer choice and technology. If the environment in which you work is becoming more complex, then make sure you have the right tools and technology to enable you to lead it. If the customer is becoming all-powerful, then it is important you know how best to meet their needs.

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JetBlue’s Q3 results driven by strong revenue performance

JetBlue Airways reported net income of $35 million in the third quarter. The airline continued to focus on revenue diversification during shoulder periods and aggressive cost management, helping it to mitigate the impact of escalating fuel prices.

Dave Barger, JetBlue’s president and CEO, said, “Despite challenging economic conditions and severe weather, we generated record revenues while reducing non-fuel unit costs. These results demonstrate that our business plan is working.”

Focus

The airline stated that an important objective of its strategy is to improve revenue performance during shoulder periods. Barger believes improving revenue performance during off-peak travel periods is essential to sustained revenue growth.

“As such, we’re very pleased with our year-over-year increase in PRASM of 13 percent in September, historically an off-peak travel period for JetBlue,” said Barger. “Our long-term goal is to consistently achieve a return on invested capital that exceeds our cost of capital. While we clearly have more work to do, we believe moving to an ROIC (Return On Invested Capital) metric is appropriate for us, and we anticipate measuring ourselves accordingly,” said Barger, as per the airline’s earnings call transcript available on SeekingAlpha.com.

“Our focus on improving revenue performance during shoulder periods by, among other actions, better accommodating business traffic in Boston drove solid unit revenue growth during the third quarter,” said Robin Hayes, JetBlue’s chief commercial officer.

Ancillary Revenues

During the third quarter, ancillary revenue for passenger was about $19, a year-over-year increase of 7%. This increase was driven primarily by the airline’s Even More Space product.

“Even More Space is on track to generate more than $100 million in 2011 revenue. In response to the strong customer demand for this offering, we recently added up to 6 seats to the Even More Space inventory on our aircraft,” said Mark Powers, JetBlue’s CFO.

“On a unit basis, third quarter total revenue did not grow as quickly as passenger revenue. Due to the lingering nature of Hurricane Irene, we voluntarily waived significant change fees for our customers, resulting in lower change fee ancillary revenue,” said Powers.

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