Hotels and airlines share many of the same issues; perishable inventory, customers booking in advance, lower cost competition and wide swings regarding balancing supply and demand are a few of the many. Both also use websites, apps and reservation channels to sell rooms and seats and must manage their occupancy. It is also integral for both to be aware of their competitor’s rates, in order to maintain their competitive edge.
Although both industries are so similar, the hotel industry is far behind in comparison to airlines. Most hotels have not yet adopted the sophisticated algorithm-based revenue management technology that airlines have. If you haven’t, here are three of the most important lessons that hotels can learn from the airline practice of yield management:
Lesson #1: Don’t use fixed pricing
It’s 2016 and airlines and hotels have been around for decades. Consumers are aware that rates fluctuate, so use this to your advantage and continuously update your rates to ensure that you are charging as much as the market will bear.
Lesson #2: Get comfortable with technology
Airlines’ yield management and hotels’ revenue management processes are undeniable similar and most of the factors they must consider when setting rates are the same. So why are hotels still collecting data manually, whereas airlines use sophisticated algorithm-based systems?
Wait, did you think that American Airlines uses a channel manager? Nope, they’re more high-tech than that. And your property should be too. There are fully-automated, algorithm-based revenue management systems that will update hotel rates in real-time (getting you back on par with the airlines).
Lesson #3: A high occupancy rate shouldn’t higher prices
One of the outdated revenue management techniques that hotels often use is to offer a fixed rate for rooms when their occupancy is less than 50%, then increase prices after that. Not only is this an outdated practice, it’s ineffective as well. As soon as the property reaches a higher occupancy level and the rates are increased, it is likely that consumers will stop booking. They were booking in droves before because the price/value was appropriate for the market, but now that the rates have increased, it has probably been priced out of the market.
Airlines’ prices are based on what the market will bear all the time, from 0 to 100% capacity. Hotels should be doing the same. Hotels should price their rooms based on the market (not their current occupancy) – and continually update their rates in real-time as market conditions change. This will yield the highest ADR and RevPAR for your hotel, which are actual numbers that you can take to the bank.
About the author
Jean Francois Mourier is the CEO of REVPAR GURU. Since 2004, REVPAR GURU’s software solutions are used by hotels worldwide to increase occupancy and RevPAR. REVPAR GURU’s solution offers dynamic rate optimization, real-time pricing, integrated internet and extranet yield channel management and GDS sales distribution, to increase a hotel’s RevPAR intelligently and effectively, while maintaining rate integrity and automated rate parity.