HOSTEC Article - Revenue management slowly moves to the Web

For those hearty enough to face still another potential wonder of Web, we humbly offer: revenue management.

The idea of revenue management has been floating around the hospitality world for some time, and in fact nearly every hotel puts the notion into practice every day - mostly via old-fashioned spreadsheets but occasionally also through advanced yield management software.

By automating the revenue management process, hoteliers bring a new level of sophistication to the equation. Revenue management software looks at transient bookings in relation to group sales, optimal overbooking ratios, and contract accounts. It allows an operation to forecast stay patterns and the distribution of rates within each stay pattern. It helps hoteliers make quantifiable decisions as to what to have available for sale and at what price, at any given time.

Vendors of such systems say the next big wave is the Internet.

They want to help IT executives use the Web to access revenue management software, and they want to apply the principles of revenue management to bookings coming in via Web. While still slight today, such bookings are expected to grow exponentially, and some see revenue management playing a key role in maximizing the return on those reservations.

As usual, however, the hotel industry lags behind other areas in its embrace of this promising new technology.

It's worth taking a moment to explore the nature of that resistance, since many hotel IT executives will still need to sell the very notion of automated revenue management before they can start nudging hotel management teams toward anything as newfangled as Web-based software delivery of same.

So, what's the objection? In short, it's all about perception. Revenue management is one of very few software systems designed with the sole intent of making money for the hotel. As such, it still seems vaguely distasteful to traditional, service-oriented hoteliers.

While the airlines have shown themselves willing to sacrifice service for price, the hospitality industry still shies away from a nickel-and-dime approach to the bottom line.

As one hotel IT executive put it, "these kinds of calculations do take place in hotels, but it is all done very intuitively. It is not as scientific as many of us would like, and that's partly because people just don't like the sound of it."

Many of the largest hotel chains have managed to overcome such objections. Marriott and Starwood, for example, both have made substantial investments in automating their revenue management processes.

Whether or not a hotel chain has made the leap into automated revenue management already, vendors say, the next wave of innovation in this area will be of significant interest in this era of increased competitiveness.

"Hotels are very interested in the power of the Internet to connect with customers. While it is an attractive source of business, however, there also is a certain amount of fear that the Internet marketplace is comparatively undisciplined. It is an anarchy, and people are concerned about the potential for Internet bargain-booking practices to begin to cannibalize the market segments they have cultivated through other channels," explains Tom Walker, product manager for the hotel-industry offerings of Talus Solutions, a major vendor of automated revenue management software.

To resolve this dilemma "people need to have the prices they make available though the Internet be an output of their revenue management processes. They need to impose the same logical discipline on that availability and pricing as they do to their availability and pricing through their property management system," says Walker.

To that end, Talus presently is developing an Internet-bookings component for its hotel revenue management system.

There is some dissent in the ranks, however, and IT leaders may want to pause before rushing to embrace automated revenue management for their Internet bookings.

"A Web-based booking is not different in terms of its value to the hotel. It has no greater or lesser or value than any other kind of booking. The only difference is that it is a lower-cost booking for the hotel," notes Orkin, president of Opus 2 Revenue Technologies Inc., a wholly owned subsidiary of Micros Systems Inc. and a major player in the revenue management arena.

His point? A basic yield management equation will tell a hotelier that the income is the same on a $90 Internet booking and a $100 travel agent booking, and that rooms therefore can be sold cheaper through the Web.

But do you really want to go there? Probably not.

"Our system can apply revenue management to Internet reservations, but to date most people have not chosen to do that," says Orkin. "They don't want to make it more expensive to book through a travel agent. In fact, what most hotels are looking for right now is the highest degree of uniformity across all channels. That is the Holy Grail they are looking for."

That being said, Orkin does see the Internet playing a significant role in revenue management in the near future — as a software distribution channel.

In the near future Opus 2 will release a Java-based system that will allow hotels to achieve true regional revenue management functionality via thin client technology.

Up to now, hotels have been able to glean regional snapshots mostly through client-server setups, with individual properties running revenue management software and reporting their findings back to headquarters, where such findings are re-analyzed analyzed across brands or geographic areas.

Under the new Opus 2 system, all the processing of data will be done at a central server, with thin clients throughout a chain all feeding information directly to a single repository. Orkin says he has a contract to link up some 700 Starwood properties this way, with beta testing scheduled for mid-year and full deployment set for September.

In addition to removing a layer of processing, the system also should be simpler than current models to deploy and maintain. "We have moved all the business logic into a centralized server, so now if you come out with a new version or an upgrade you don't have to go around and install that new version at all of your properties," he says.

At Wyndham International, Senior Vice President of Distribution and Revenue Management Christopher Heinz says he has been talking to Opus 2 about the possible deployment of such a system.

The Wyndham situation is worth noting. In so far as this major chain is only just now beginning a serious effort to automate its revenue management, it gives a hint of just how ingrained has been the industry's resistance to these practices.

"Everything we do in this regard is very manual right now. There are a lot of Excel spreadsheets, a lot of pulling out the calculator and filling in the blanks. Our hotels spend way too much time trying to capture data, and by the time they are done they don't have a lot of energy left to analyze that information," Heinz says.

A former Starwood executive, Heinz is hoping to change that situation. He's looking to increase his national and regional revenue management staff from six to 14 people in the coming months, and hopes to completely automate Wyndham's revenue management in one and a half to two years.

To do that, he said, he will first have to implement a dramatically enhanced central reservation system.

Heinz puts it this way: the whole point of a central reservation system is that it is CENTRAL. So why not get all the booking information that exists to flow through the CRS, and then simply apply revenue management to that single pool of data? You get instant regional and national capability, while retaining the ability to break down data on a local basis.

Sounds logical, but it will take some work.

As with many hotel chains, Wyndham reservations made at the property level today are logged into the PMS, but never make their way back to the CRS. Before Heinz can make his revenue management aspirations a reality, he will first need to build full two-way functionality in the central reservation system.

Orkin meanwhile suggested that thin-client delivery may be just the beginning of what the Web can do in this arena. In the not-too-distant future, he said, hoteliers may be able to subcontract out their revenue management functions altogether.

"I would predict that the Web will soon enable vendors like us to sell revenue management services on an Application Services Provider basis. People will just load the client software and buy revenue management on a transaction basis or a monthly lease basis," he said. In addition to reducing in-house tech requirements, such an arrangement would give a hotel ready access to the vendor's own revenue management experts.

The technology will be available by year's end, but Orkin still isn't sure about market demand.

"We have to test the waters," he said. "It's clear that independent properties would buy into this. The question is, would the large chains want to do this?"

Even as the Internet expands the boundaries of revenue management, experts across the board agree that there are some things these systems will not be doing any time soon. Topping the list: non-room revenue.

Not too long ago, industry insiders were speculating that revenue management would some day be brought to bear on items other than room revenue. After all, they said, the same techniques used to set room rates could be used to manage the pricing and inventory of dining room reservations, golf tee times, pay-per-view movies and telephone usage.

The latest word on the subject: No.

For one thing, it is hard to imagine that the couple of pennies saved or won that way could have enough impact on the bottom line to make it worth the investment.

"I am not convinced that in the grand scheme of things, those kinds of issues would necessarily make a major dent. You already have a code for your corporate traveler, but unless you come up with some major demographics to show that he is going to be using the phone a lot more than some other traveler, I can't see that playing a major role," said Dave Werkley, president of Yield Management TriCorp Inc., maker of Yield Management WERKS software.

As Orkin points out, there also are technical hurdles. It is likely the revenue management processes could not be brought to bear on non-room revenues until the moment the reservation is made, "and the reservations systems at this point would not have the ability to collect that data fast enough and still respond to the inquiry in a timely way," he says.

One final hurdle: the omnipresent hotelier resistance.

In an industry where the rational and quantitative management of room pricing and inventory still is a novelty, experts say, the application of those processes to the dining room, health club or golf course are surely some ways off.