Rate integrity in a down market

July 02, 2009 | Hospitality Industry

Participants of a recent Cornell-Nanyang Institute of Hospitality Management Thought Leaders in Revenue Management Roundtable discussed ways to avoid price dropping and issues of managing rate integrity in current market conditions in Asia.

Over the twenty years that Revenue Management has been in practice in the hospitality industry, most of the principles have been learned in a sound economy, commented Dr. Sheryl E. Kimes, Singapore Tourism Board Distinguished Professor of Asian Hospitality Management, who recently led the Revenue Management Roundtable in Singapore, hosted by the Cornell-Nanyang Institute of Hospitality Management (CNI), along with iDeas, a SAS Company.

One of the participants, Mr. Patrick Andres, Managing Director Asia-Pacific of SynXis Asia-Pacific, rose to the bait, and asked the rest of the participants as to whether or not revenue managers had learned anything from the previous Asian economic downturn in 2000-2001.

In the ensuing discussion, there was a strong emphasis placed on the fact that this is the first significant downturn where Revenue Management exists as a discipline in hotels in Asia.

It was agreed that there has been a much greater investment in tools, technology and people.

In the past few months, the participants concurred, the industry has stuck to the basics, keeping a longer term perspective, striving to maintain rate integrity.

Furthermore, they agreed that dropping prices at all costs was not appropriate because not only does it take a long time to get prices to come up again, but it also undermines brand value. Hotel Revenue Managers need to overcome occupancy challenges with creativity, emphasising value, not price.

Some guidelines they laid down for in review of current revenue management practices were that to maintain rate integrity, some measures to be taken are:

- A strategic approach to Revenue Management

- Getting the basics right, making sure that all of the distribution channels are properly open and demand is not being turned away through a process. Otherwise, a system failure is inevitable.

- Revenue Managers should ideally analyse cost reductions and capacity reductions, for example, taking a floor out of operations to reduce overhead and other costs

- Revenue Managers should assist General Managers to take a holistic view, focused on cost reduction

- Revenue Managers should be responsible for demand generation and fencing; that is, look for new markets, analyse how to attract new markets, ascertain what deals should be offered to new markets

- Understand the customer; for example, like airlines, charge a premium for walk-in traffic, not best rate

- Do not let third parties control your inventory.

- Leadership and manpower were deemed the most critical elements of sound Revenue Management in a downturn.

As Mr. Frank Trampert, Executive Vice President of Revenue Generation for Carlson Hotels Worldwide – Asia Pacific put it, “these days Revenue Managers need to be ‘someone who can interpret strategically.’”

Dr. Kimes mentioned that, “This year, people are overreacting. Last year they were thinking about more of the issues that are strategic for the long term, such as people related issues. If you do not invest in people, the rest of it will not really matter. We need to focus on what we do and not panic.”

Mr. Jos Weejes, Vice President, Distribution Marketing and Revenue Management, Asia Pacific at The InterContinental Hotels Group summed it up with the comment, “It’s an amazing time to be observers. True leaders will survive. To optimise revenues in a downturn and make the decisions that have to be made, that is where the leaders will stand out”.