Study highlights changes in hotel revenue management

By Sheryl E. Kimes, professor of services operations management

By: Demola Kehinde Ogunnaike

Hotel revenue-management (RM) strategies continue to evolve as the hospitality industry seeks new and better ways to generate and evaluate profits. Among the latest action plans are applying RM practices to all aspects of hotel operations, including function space, and creating separate, centralized RM departments.

To determine the status of these strategies, I conducted a study that examines emerging trends in hotel RM practices. My research suggests that total hotel RM will be critical going forward, and that technology and data analytics will increasingly inform RM decisions in the hospitality industry. The findings are based on surveys I designed to identify anticipated changes in hotel RM over the past six years and where it is headed.

While there has been some progress in fulfilling these expectations, I found that it has been slower than expected.

Some 400 hotel RM professionals participated in my study, titled “The Future of Hotel Revenue Management.” It represents an update of similar research I conducted in 2010.

My latest survey results show that total hotel revenue management is considered the wave of the future. While this was identified as a key trend in my earlier report, most hotels have not made much progress with implementing RM in non-rooms departments.

In comparing results from the 2010 and 2016 studies, I found that changes in RM practices have come more slowly than expected in other areas as well. Six years ago, poll participants thought that the future performance measurement for hotels would be based on some formula of total revenue per available room, and that social media would emerge as major distribution channels, but my latest findings indicate that neither development has occurred.

Progress has been made in some areas, however, with mobile technology becoming a more important distribution channel for hotels, as projected, and there is wider acceptance of creating stand-alone RM departments that may be integrated with marketing efforts.

Poll participants in my current research project suggest that, going forward, RM practices will be more strategic, more centralized, and more fully integrated into all hotel operations, including function space. Other projections include a belief that pricing will be affected by advances in data analytics and that gross operating profit, or a similar profit-centric measure, will replace total revenue per available room as the performance metric of the future.

When asked to evaluate which non-rooms areas of hotels RM would be applied to in the next five years, survey respondents identified function space as the most likely, followed by restaurants and spas.

This research offers valuable guidance for improving hotel RM practices. Among my recommendations: It’s important to look at all revenue streams within the hotel and consider ways RM can be applied to each of them. The revenue manager should be a strategic thinker, be part of a separate RM department, and report to the GM or managing director. If your hotel is in a chain, think of regionalizing some of the RM functions.