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Hotel Revenue Managers Adapt to Unpredictable Demand Patterns

Hotel News Now

The unpredictable travel demand patterns of 2021 caused many hotel revenue managers to work harder and smarter to capture business.

Part of that refined strategy meant going back to the basics, said Dury Kim, vice president of revenue strategy at Ocean City, Maryland-based Real Hospitality Group.

"The strategy for revenue management has been turned upside down. A lot of us have gone back to the basics [of] looking at what kind of demand is out there," Kim said, adding the COVID-19 pandemic has resulted in this being the first time in her career where she's had to search this hard for demand.

What revenue managers were able to realize pretty quickly, though, was how market-dependent the demand was and who the traveler was. The realization was that beach and leisure markets experienced a huge influx of revenge travel while urban locations struggled, she said.

Assessing the Demand and How it Shifted

Cheryl Huhn

Cheryl Huhn, corporate director of revenue at Rochester, New York-based Essex Hotel

Management, said her company's hotels realized pent-up demand spiked mid-spring through summer and continued into the fall. "In comparison, 2019 saw the typical gradual increase during the same time frame. A lot of the bookings we saw were very short-term with a larger number of rooms picking up in a four-day booking window," she said in an email

interview. Huhn said 2021 was more about monitoring demand. "At times, we relied less on systems for pricing recommendations as pickup in that short-term window was strong. As revenue managers, we were overriding system rates to maximize opportunities created by demand, often making changes multiple times a day," she added.

Acting quickly was key, said Jihad Lotfi, vice president of revenue management at Tampa, Florida-based McKibbon Hospitality. "When you look at 2020, when COVID really hit, we essentially had everything open, all distribution channels, all discounts qualified, and it really became more of who could get in front of the customer first, quickest and really be top of mind when it came to that customer," he said. "That customer for us at McKibbon was really the leisure customer." He said many markets evolved in 2021, with performance metrics either equal to or exceeding 2019 levels. "We have been very fortunate when it comes to the type of markets that we have assets in. That destination, drive-in customer has been a big support for our hotels over the last six to eight months," he added.

Reworking the Revenue Strategy

McKibbon's revenue-management strategy in 2021 has become more of a selling job than a revenue-management job, Lotfi said, meaning there's still many unknowns. The best information his team has is what the revenue-management systems from the brands provided. His team then spends time walking general managers, property leaders and sales leaders through why the systems are predicting certain forecasts or revenues and whether McKibbon agrees with it or not. "It's not as much button pushing anymore as it is really taking the time to understand how did this complex algorithm gets us to a certain value or number," he added. "If we agree with it, how do we sell that and how do we convince the team that it's the right strategy to take." Lotfi feels no strategy is worth throwing out, though. It's about going back to the basics, getting creative and thinking outside of the box.

One new strategy in particular that's proven to be successful for McKibbon is going beyond the typical segmentation a hotel would see. His company began targeting new industries, markets and segments. "That has really allowed us to incrementally grow revenue, while still maintaining the relationships that we've had in the past," he said, noting negotiated travel isn't prominent now. "Regardless of what you do, you can't get IBM or Apple to [travel]; they're just not traveling." As a result, McKibbon has found success with some third-party partners.

Huhn said things like longer booking-window prepay, nonrefundable rates and restrictive rates are a thing of the past. Guests no longer feel comfortable committing to anything in advance now. "We adopted more lenient cancellation policies along with shorter booking windows for prepaid rates, and added more value-add packaging that I feel will stay in our selling strategies going forward," she added. Essex Hotel Management also became more careful on what segmentation demand it took in order to grow overall revenue and revenue per available room.

Kim said the strategies that Real Hospitality Group had to pivot from included how her team looked at competitive-set data. "We stopped looking at comp-set pricing, especially at the start of COVID because a lot of hotels have been either closing [or] reopening ... so it was hard for us to say the competitive set is a sound strategy," she said. "We had to look at our own hotels individually, what kind of demand is out there and how can we steal share."

Kim said some of Real Hospitality Group's assets didn't always seek out free and independent travel but has since widened its distribution to fill occupancy.

Seasonality and location affected demand and price sensitivity, Huhn said.

"In markets during low seasons without the corporate base and with low demand, guests were much more price-conscious. In our markets with strong leisure demand, the hotels were much more resilient," she said.

Kim added that "depending on the hotel's needs, if you're talking about New York City, it's going to be way different from a beach market. In 2020, beach markets saw a huge shift in revenge travel. Drawing the parallels there, seasonality is a big part of it."

Setting Rates for Weekday and Weekends

Calling out the New York City market, Kim said weekend travel began to pick up, while in a "typical" year it would see stronger midweek, corporate travel. Not only did that impact Real Hospitality Group's revenue strategy, it also shifted operations by needing heavier staffing on the weekends. "For selling rates on weekends and weekdays in 2021, our team has done an incredible job in pivoting quickly. Once we started to see a couple consecutive weeks of pace improvement, we started to take a little more risk with our rates," she said.

Huhn said Essex Hotel Management was able to drive rate in 2021 versus 2019 in most of its hotels by monitoring occupancy pace to the competitive set for future dates.

"Most of our [average daily rate] growth came from weekends with higher demand in the leisure market. We also used a lot more multiple-night-stay restrictions to reduce one-night stays to take burden off our operations and housekeeping teams," she said. "With labor challenges, we were comfortable driving rate in lieu of occupancy points."

Essex Hotel Management also put in more ancillary fee drivers in several of its hotels to help find pockets of revenue outside of topline revenue or rooms revenue. Huhn said there was an appetite from guests willing to pay premium dollars for upgrades.

McKibbon's Lotfi said the process of setting rates in 2021 remained the same as it did in any other year.

"What's the demand for your property, what's happening, what room type is picking up. The customer is always going to tell you what they're willing to pay — that's my biggest philosophy. If you're priced at $100 and you've got a lot of demand for it, you can probably charge a little bit more. If you're priced at $300 and no one is willing to pay it, you're overpriced," he said. "We had a TownePlace Suites that I couldn't believe it, they sold three to five rooms at about $1,000 for a football game."

New Sources of Data

Lotfi said his team at McKibbon has been looking at external sources, such as websites that track drive-to trips by state, which helps them capture that demand. TSA data, hotel rankings and positioning were also helpful.

Huhn said Essex paid attention to its growth index over the competitors in its markets, as well as future market segment pace.

"By monitoring this daily, we were able to make quicker pricing strategies in a volatile market to ensure we had the right mix of business to achieve our revenue goals," she said. "In addition, we really focused on monitoring what market segments were booking what specific room types so we could price our rooms based on the demand for them to gain additional revenue.

Hotels' positioning and ranking was something that used to be put on the back burner for many revenue managers, Kim said. However, her team now knows they must be hyper-focused on the first web page the guest sees when they search for a hotel.

"We make sure that our guest reviews are coming in at the levels [we] want it to, focusing on those hotels at the 3.9 level that could really be in the 4-star bucket," she added.

Additionally, Real Hospitality Group does room-type analyses and will set a room-type hierarchy. For rooms that are most popular, it will flex the rates depending on the demand and booking channel. It was evident that direct bookings saw more single-bed room demand while the online travel agencies saw more double-bed room demand, Kim said.

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