Revenue Management for Enhance Profitability: An Introduction for Hotel Owners and Asset Managers

Abstract

[Excerpt] Most hotel managers are familiar with the term revenue management (RM), but RM for the hotel industry has evolved considerably from the original practice, which was developed two decades ago by American Airlines. As that company stated in its 1987 Annual Report, RM's goal is to maximize revenues by selling the right seat (or room, in the case of the hotel business) to the right customers and at the right time. While that definition states the essence of RM, as we discuss in this chapter, the hotel industry has refined the concepts of what is the right room, who is the right customer, and when is the right time. At its most basic level, RM is about a hotel's ability to segment its consumers and price and control room inventory differently across these segments—in essence practicing some form of price discrimination. In. many instances, RM used in the hotel industry has been shown to increase revenue by 2 to 5 percent. The high fixed cost and low variable cost typically associated with the hotel industry means that a large portion of this revenue increase flows directly to the bottom line. As an owner or manager, it is important that you understand what RM is, how it works, how it is typically organized, and how you measure its success. In addition, it is essential that you know the right questions to ask to help ensure that your property reaches its revenue potential. In this chapter, we will highlight the ever-changing face of RM and what an owner needs to know about RM. The purpose of this chapter is to provide a broad overview of RM, enabling the reader to be knowledgeable enough to understand the underpinnings of today's RM systems.