Hotel Owners Put Revenue Management in the Spotlight

by Jason Q. Freed, Managing Editor | June 24, 2016

There are some hotel owners who want to be fully involved in the operations, management and decision making at the property level. Then there are others who simply consider themselves real estate investors and stay out of the operations side of the business.

For the latter group, hiring an asset manager allows the owner to remain distant from the operations yet still keep tabs on management and ensure they’re operating as efficiently as possible. Asset managers conduct a comprehensive study of the hotel’s competitive market and operating environment, benchmarking metrics like financial performance, labor productivity, and sales and marketing strategies.

And according to one such asset management company, HotelAve, the revenue department has become a critical part of this process. HotelAve founder and industry veteran Michelle Russo, speaking on a panel at the HSMAI Revenue Optimization Conference in New Orleans this week, said hotel owners and asset managers care more about a hotel’s Revenue Strategy each day.

“When we get involved with a hotel, we’re very analytics- and data-driven,” Russo said Wednesday during a breakout session. “While as an industry we’ve become more institutional from a real estate investment standpoint, owners continue to get more sophisticated in revenue management and the tools. The data gets better and better. Smart owners, just like smart managers, are going to want to understand how the data is affecting the bottom line.”

Russo gave four reasons why today’s owners are putting the revenue management department in the spotlight.

Revenue Management and Hotel Budgeting

The purpose of a hotel budget is to understand the business and realistically manage revenue and profit expectations. A hotel’s budget should closely resemble its forecast. Both require revenue managers to analyze how future market conditions will affect certain segments of demand so they can begin setting hotel-wide revenue goals.

When an owner is contemplating a sale, a budget is often used by perspective buyers and lenders to underwrite the mortgage.

Russo was candid about many potential pitfalls surrounding a hotel budget. It is easy for interested parties who work on the budget to have an agenda, she said, and often times that agenda will shape the budget outcome.

Pushing an aggressive budget and setting higher goals might make certain stakeholders step up and achieve more. But, in some cases, management might want a conservative budget because they aren’t eager to explain to owners why the hotel might be falling short each month. If the manager or management company is at risk of being terminated, the budget usually ends up looking like a slam-dunk, Russo said.

Russo suggests revenue managers be as transparent as possible when turning the budgets over to ownership. You want a budget that’s realistic — one that’s a reach but is still attainable, she said.

Owners Care About Guest Satisfaction

Outside of rate and occupancy data, do hotel owners and asset managers actually care about the travelers who are staying in the rooms? Conventional wisdom might say ‘no’ – that they leave customer satisfaction to operators, who can have the biggest affect.

But Russo says there is a direct correlation between good service and driving bottom-line revenue.

“Unless you’re in a super high-compression market, you need people to come back,” she said. “In our revenue management function, we’re not just tracking RevPAR penetration, we read every single review in real time.”

Russo’s team works with revenue managers at each of HotelAve’s properties to set goals on how those properties are ranking in various customer-driven lists.

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RM and Asset Valuation

So how exactly do owners, buyers, sellers and real estate brokers assign a value to hospitality real estate? Valuations tend to be based on net income, but calculating net income always starts with top-line revenue data. And who’s directly responsible for the revenue performance? The revenue manager, of course.

“When appraisers value hotels, they start with what’s the right RevPAR penetration for that particular hotel,” Russo said. “A good revenue manager can influence what that RevPAR penetration is.”

Manage the Management

Smart, active owners and asset managers have the ability to understand complex Revenue Strategy issues like distribution and channel management, Russo said.

For example, she pointed to the management team operating one of HotelAve’s luxury assets that refuses to participate in third-party distribution. By not giving OTAs inventory, she said this hotel is “basically dark in 25% of the available occupancy into this market.”

HotelAve felt management should change their strategy, suggesting activity on some OTAs will actually benefit the traffic and visibility on other channels.

“We try and go up the food chain, and we bring our data and try and rationalize why the brand should be editing its strategy for this hotel, regardless of the brand’s macro strategy,” she said.

In another example, HotelAve was working with a property in the Miami market where the revenue manager worked Monday through Friday and was home on the weekends. Because revenue management is not a “set it and forget it” discipline, and because Saturday business was so critical for this hotel, HotelAve ended up asking management to rework the revenue manager’s schedule to include Saturdays.

Lastly, Russo said buyers of independent hotels also will rely on data from the revenue management department to determine whether or not to add a flag to the property. She cautioned that independent hotels don’t really save on brand fees because they should be allocating those dollars toward bigger sales and marketing strategies that could offset what’s lost from not being part of a brand.

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Jason Q. Freed, Managing Editor

Jason joined Duetto as Managing Editor in June 2015 after reporting, writing and editing hotel industry news for a decade at both print and online publications. He’s passionate about content marketing and hotel technology, which leads to unique perspectives on hotel distribution and revenue management best practices.

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