One of the greatest concerns for hoteliers is how to get the right price for the rooms they are renting out to customers at the right times, but knowing when demand is up and room rates can be raised or when to lower prices as need falls, can be a challenge.
Revenue management, such as that offered by U.S.-headquartered firm IDeaS, can offer an insight by providing analysis of the market.Fabian Specht (right), managing director of Europe Middle East Africa
for the company spoke exclusively to 4Hoteliers.com about the business and how it applies to hotels.What is revenue management?
Revenue management is a discipline where we apply analytics to predict behavior to come up with right pricing decisions with the right product availability decisions to maximize revenue opportunities in any industry.
It really started in the tourism and trade industry with the airlines in the 1970s when the U.S. flights were deregulated.
You had a lot of different carriers that could fly to different destinations and then they introduced different seating, different cabins, different pricing and that's when they needed to start playing with demand to come up with the right pricing decisions.How does it apply to the hotel industry?
It applies in the sense that a hotel is limited in its capacity. It has 100 or 200 rooms and can only sell the number of rooms that it has. There are obviously periods where the demand exceeds the capacity, so what you need to do is manage the demand to fill those rooms optimally.
You need to make sure you accept the right demand at the right moment in time to fill those rooms ideally on those nights where you have very high demand.How does IDeaS help hotels to make those strategic decisions?
We have different approaches. A system is not always the ideal solution for everyone, but the discipline is still the same whether you do it in a manual environment or with a system.
It analyses the demand, data from the hotel and analyses historical data and whatever else we know about the market on those particular days - is there perhaps a trade show, or anything else impacting the demand on those days? Then it tries to extract a behavioural pattern of the past and use it as a prediction for the future. What challenges do you think are facing hotels?
There are different ones. There's obviously on a broader scale the economic challenges and what's happening in which regions and that typically translates into the uncertainty in the markets and the volatility of demand, so it becomes very difficult to predict demand.
Typically the booking windows become shorter and shorter the more uncertain it is that something will unfold. That is when people decide to book last minute, so they don't have to incur any cancellation fees, etc.
With booking windows becoming much shorter for the hotels, it's difficult for them to predict. Another challenge is definitely the data and the volume of data that hotels have available today through the internet.This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.
Louise Osborne is a correspondent and editor based in Berlin, Germany. She began her career working at regional newspapers in the UK and now works with journalists across the globe as part of international journalism organization, Associated Reporters Abroad (ARA). Living abroad for the second time, she continues to be fascinated by places both near and far, and boards a plane eagerly, as often as she can.
Besides the ITB Berlin 2014 live coverage, Louise also writes a weekly exclusive column for 4Hoteliers.com