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HSMAI Section: More than Room for Profit - Revenue Managing Beyond the Hotel Room

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June 30, 2016
Frank Pitsikalis

Like airlines, hotels have continued to do a great job of revenue managing their perishable hotel room inventory. As an industry, every year continues to bring new innovations, players and strategies to the art and science of revenue management. It has evolved into a very mature business practice today. For many full service hotels that offer high-end spas, dining and activities such as tennis or golf, almost nothing is done relative to revenue managing those operations. In fact, for some of these hotels and resorts, rooms aren't even close to the largest contributor to revenue for the property. In many cases, why people go to that particular property has nothing to do with the room reservation at all, they may actually be there for the spa, golf or dining experiences – the room actually becomes the amenity.  Despite this, 100 percent of the effort continues to focus on revenue managing room rates only.

The other operations, such as spa and golf, also have identical reservation characteristics that would make them ideal candidates for revenue management.  They have perishable inventory – if an hour goes by that a spa treatment room is not sold or golf tee time filled, that revenue opportunity is gone forever. They have periods of peak demand – there are days of the week that a spa may be empty and other days where during certain times of the day they could fill three or four times the number treatment rooms they have each hour with the demand.  They also take reservations in advance, they have low variable cost for an additional service or tee time and they have enough pricing power in their margins to drive booking behavior.

So what can this revenue management look like in these nonroom revenue hotel departments?  Let’s consider a few examples:

Spa Department: A spa typically has a fixed number of treatment rooms and periods of low and high demand.  During periods of high demand, a spa could set dynamic availability rules in its software to shrink the menu offering to its highest margin services only. It could also choose to shorten the maximum service time (i.e., making only 30 or 60 minute services available and not allowing 90 minute or longer services) – this could lead to more guests being serviced in the spa, resulting in more product revenue opportunities and likely yield a higher profit per minute on shorter services than longer ones. Spas can also charge a premium during known peak demand periods such as Fridays, Saturdays and Sundays and position the standard rates during the lower demand periods on Mondays through Thursdays as their discounted rate. There will always be guests available to fill the high demand periods and you will also train customers looking for a deal, to come during your non-peak times – a real win-win for the guest and the spa operation. If the hotel also includes a salon, ensuring that promotional series packages (i.e., blowout club) can only be used during certain days of the week or times of day will maximize revenues during peak times for revenue generating services. If you have a mix of stylists and there are a few that are the most sought after, making sure they are not being booked for the promotional services and restricting the types of services booked to the highest margin services is also key.  In a salon, it is also important to vary the length of services specifically for each stylist to ensure gaps are being left in their schedule due to standard length services.

Golf Department: Golf also has varying periods of low and high demand. Golf operators typically serve various segments of golfers in the operations which can drive revenue and profitability in different ways – these may include golf members, resort guests or public play golf. Neither segment should completely dominate the tee sheet as it typically leads to lower satisfaction for the other segments – resort guests who can’t book golf during their stay or paying members who are not able to book their own course.  With that said, resort guests or public golfers typically drive more retail revenue per round than members do and members typically don’t pay extra for the rounds they play. Golf operators must find the right balance in this mix. Revenue management can also play a big part in driving additional revenue as once the member booking rules are accounted for (days in advance, maximum round etc.), golf operators can charge premium rates for tee times (for resort guests or public play) during peak demand periods.  As hotels do, spa and golf operators book in advance and can track booking pace to effectively project forecasted occupancy levels to drive availability and pricing rules dynamically.

F&B Department: Some F&B outlets in certain hotels are a feature attraction for hotel guests and the public. These restaurants sell out their prime reservation times quickly and sometimes days or weeks in advance. With a fixed capacity of table reservations and more and more restaurants booking through digital channels, restaurants can also implement some yield management strategies to maximize revenue during peak times. A restaurant could restrict table reservations of parties of three or less on all their four-tops – by taking a reservation of three, they could be limiting their revenue on that reservation by up to 25 percent.  Also, analyzing the pattern of reservations closely to have the best mix of 2-tops, 4-tops and others – having too few two-tops could cause you to leave larger tables empty, or worse fill many of those tables with reservations of two, again limiting the maximum revenue they could generate. Something that is not yet expected in a restaurant is like airlines, charging a premium (i.e. for a certain items) during peak times – what a restaurant could do is offer a discount during non-peak times (which some do with happy hour specials) thereby increasing revenue during non-peak times and maximizing revenue capture during peak demand times.

There are many more areas of the hotel that we could analyze and employ revenue management, especially in an activity-based property that includes high-demand tennis court bookings, or scheduled classes such as yoga and seasonal events that are sold-out weeks in advance.  Appropriate cancellation policies on any reservation will mitigate the revenue loss of no-shows as using strategies like over-booking is not typically an option in a highly service-oriented experience.

Another major area that is being looked at more and more by revenue management software systems is group sales and catering.  As this is a whole other topic on to itself and are more closely tied to room rate management, we will leave those strategies for another day.

The key to revenue management in a hotel or resort that offers many more experiences than a “head-in-bed” reservation, is looking at those departments through the same lens of perishable inventory, periods of demand, fixed capacity and pricing power that we do for room rates  – or that airlines and rental car companies do for that matter. As an industry we would never dream of offering the same, fixed hotel room rates every day of the year no matter what the demand.  Therefore, why do we continue to leave so much money on the table in other parts of the business that in some cases are larger contributors to the overall revenue of the property than rooms are? The time has come for our industry to reach its potential and deliver far more superior results by using the same principles we are already employing to maximize our room revenue.

Frank Pitsikalis is the president of ResortSuite, a fully integrated hospitality management solution.

©2016 Hospitality Upgrade
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