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The Covid-19 pandemic has upended the hospitality industry and the basic operations of hotels. But even before the shake up, the way industry leaders thought about strategic revenue management was beginning to shift.
Over the years, hotels have started to recognize the benefits of achieving “total profit optimization,” or leveraging all hotel functions and maximizing their profits in unison. Instead of just seeing hotel revenue through a lens of guest room rates, this holistic approach takes other revenue streams — such as food and beverage, meetings and events, and spa and wellness, among others — into account, with a goal of coordinating the property’s mix of revenue and profit centers more strategically.
While achieving total profit optimization might seem difficult, especially now, it’s not impossible. SkiftX spoke to Sherri Kimes, revenue management expert and professor emeritus at Cornell University, about why small steps are key and how the coronavirus pandemic might offer an opportunity for hotels to take a step back and refresh their revenue operations.
SkiftX: What is the difference between total revenue management and total profit optimization?
Sherri Kimes: Revenue streams, such as food and beverage, spa and wellness, and meeting and events, have different profit margins. Total profit optimization looks at those streams, but considers their costs as well. It requires breaking down silos between these various hospitality departments and taking a more holistic approach to revenue planning and strategy than only hotel revenue management does.
SkiftX: What have been the biggest challenges for hoteliers to deploy total profit optimization?
Kimes: While achieving total profit optimization is ideal, it’s definitely aspirational. A lot needs to change before the industry gets there. The silos between the different departments are the main problem. Each department has its own key performance indicators, culture, social and technical skills, general mindset, and often, IT system. It’s very challenging to significantly change those. Additionally, one department might consider something like food and beverage or spa and wellness to be an amenity, while another might see it as a profit center. The other big issue is related to data and systems. Hotels may not be looking into the right data points to measure revenues effectively, their backend systems may be unable to handle such large data sets, or their employees may not have the right training.
SkiftX: How can revenue managers benefit from better system integration and consolidated resources? And how can this integration become a reality?
Kimes: The benefits of having integrated systems are huge, but the challenge is getting there. It’s true that integrating data systems means spending money. Understandably, such spending isn’t a reality for many properties right now. But if it is doable, it’s likely a good investment. I think the slowdown caused by Covid-19 gives hotel properties a good opportunity to really look at how they can improve and integrate their systems and plan ahead for what comes next.
SkiftX: What are some other steps hotel commercial leaders can take toward total profit optimization?
Kimes: Because this is such a different way of thinking about hotel revenue, it’s a mistake to approach total profit optimization by trying to tackle everything at once. The key is to start with small, basic steps. For example, the different departments should work to develop a rapport so they can exchange ideas and begin working together. And it’s important that you don’t try to bring every department together at once. Start with one or two, and once there are some small successes and takeaways, apply it to other departments.
SkiftX: How does the role of the revenue leader need to change to help drive this initiative forward?
Kimes: Revenue managers are traditionally more tactical and analytical than strategic, which is something that is going to have to change. This new way of thinking also requires them to have strong interpersonal skills and enough industry experience to successfully communicate with different types of people and other department leaders. Additionally, they need to be able to manage all of the new data sources, as well as be comfortable with the technology needed to make sense of it.
SkiftX: How will the revenue manager and commercial organization’s metrics change with this new focus on total profit optimization and more holistic metrics?
Kimes: To be honest, I don’t think we’ll see a big change in the near-term, which can make achieving total profit optimization somewhat aspirational right now. RevPAR, or revenue per available room, is still the most instilled metric in the industry, though industry leaders have been talking about wanting to change that for more than 10 years now. I think it would be smart to look at a metric such as Profit Per Available Square Foot, for example. But every hotel has a different way of reporting and measuring its costs and profits, so we will see a series of metrics that relate to the hotel’s specific situation, along with RevPAR.
SkiftX: How does all of this factor into a post-Covid-19 hospitality landscape?
Kimes: We don’t know what the industry is going to look like, so it’s difficult to say. But this time does provide an opportunity for hotels to take a step back and reimagine their business and revenue operations. For example, are guests going to want their hotel spa experience to be the same as it was? Are there other ways food and beverage can be deployed? Being able to think about the big picture is going to be essential.
SkiftX: In the wake of macro-factors such as the economic impact of coronavirus on the travel industry, how can revenue managers better plan for uncertainties and things that are out of their control?
Kimes: One of the things that I’ve found quite striking is the small percentage of hotels that had a contingency plan in place. Most of those who did said their plans were useful. So at the very least, a plan for a catastrophic event should exist. Revenue managers should collaborate more closely with marketing as well. Some market segments might disappear, but new ones might appear. Working with marketing departments can help better plan for ‘What happens if…’.
SkiftX: What do you think we can expect to see over the next few years in hotel revenue management?
Kimes: The hospitality industry has been so upended, so it’s not going to be the same as it was. The traditional inventory control, pricing, and distribution management systems aren’t going to cut it. But in every challenge lies opportunity. Brands can use this down time to make the changes that they’ve always wanted to make, but have been too busy to make. In order to do so, we need strategic leaders in the industry who are adaptable, open to change, and can think several steps ahead. We need chess players rather than checker players.