Travel & Hospitality Tech Outlook | Monday, August 14, 2023
The focus in the hospitality industry should be on driving profitability rather than just revenue.
FREMONT, CA: In the hospitality industry, the key to success lies in driving profitability rather than focusing solely on revenue. Hotels must employ smart decision-making based on the right data to achieve this. The revenue manager and their team are central to this effort and are pivotal in optimizing strategies based on forecasted demand.
Making a hotel more profitable requires a collaborative team effort, with each department taking ownership of its activities. The revenue manager should act as a catalyst, encouraging the adoption of proposed strategies rather than facing resistance. Investing in human capital and educating each department on profit maximization mechanics is essential to achieve the desired outcome.
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A critical challenge for hotels, regardless of being independent or part of a chain, is to develop a sophisticated, data-driven segment profitability model. Accessing data has become more efficient with technological advancements, but there is a need to re-engineer the data collection process to ensure the quality and relevance of raw data. The focus should shift from conventional Property Management System (PMS) architecture, designed for reporting and accounting purposes, towards producing segmented information for maximizing profitability.
Advanced technologies like AI and ML can be deployed. These technologies help identify customer behavior patterns, quickly adapting to trends and enabling real-time pricing for different segments. This can be achieved through Revenue Management 2.0 systems.
In today's competitive environment, market dynamics may influence product prices beyond the marketer's control. Therefore, the focus should be on decision-making related to product and system efficiencies, emphasizing operating cost management. PMSs should incorporate activity-based costing and allocate undistributed operating expenses to specific recipients, a product, or a customer segment.
The tools used should rely on financial or statistical formulas and models data analysts validate to determine the degree of operating leverage (DOL) at various forecasted occupancy levels. The granularity of this information should extend from the property level to operating departments, subdepartments, and even down to individual work packages.
A comprehensive understanding of the flow-through rate from revenue to operating profit and reliable demand estimations empowers revenue managers to develop effective strategies. This knowledge allows them to maximize gross operating income during peak seasons and mitigate potential losses during off-seasons. Hotstats and STR reports serve as valuable sources of profitability information. Additionally, this information can guide expansion plans and product diversification and maneuver the organization across the conservative and leverage operating structure axis.
Pursuing profit over volume is crucial in the hospitality industry, and revenue managers play a critical role in achieving this goal through data-driven decision-making and collaboration with various departments. By embracing advanced technologies and refining data collection processes, hotels can enhance their profitability and optimize performance across different operational scenarios.
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