25Aug

Total Profit Optimization: It’s Time to Walk the Talk

Author: Tammy Farley

For all the discussion about profit optimization in the hospitality industry, there’s been very little action. In fact, Info-Tech Research Group just released a 2015 study revealing that fewer than 10 percent of hotels today are using an automated revenue management system.

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According to the Info-Tech study: “In today’s market, the focus is less on filling every room each night and maximizing the revenue per available room (RevPAR), it’s about flow through to the bottom line – total profit. Are you prepared to decline a guest an open room on a same-day booking if the system expects a more profitable client to come in later? If not, you should be.”

Rainmaker pioneered this approach. In 2001 our own guestrev became the first RMS to factor Total Guest Value into the optimization process, taking into consideration not just room revenue but potential profits from gaming, food and beverage, spa, and other revenue streams as well.

We all agree that yesterday’s “heads-in-beds” approach is not enough to succeed in today’s competitive market. And we agree that, for example, those business travelers who open their wallet to buy dinner and a fine wine during their stay are more valuable to a hotel than those who limit their spend to room only. Yet, the vast majority of traditional hotels today still manage their pricing and yield inventory with a primary focus on driving and increasing RevPAR.

Three years ago at the HSMAI Revenue Optimization Conference, Bonnie Buckhiester, president of Buckhiester Management, cited the lack of progress, saying “total revenue management is the future, and we should be doing it now, but we’re just not there yet.”

And in a Hotel Executive byline, Kelly McGuire, Executive Director, Hospitality and Travel Global Practice, SAS, opined, “I am not convinced, despite how much we talk about these concepts, that as an industry we fully understand them, and we definitely have not yet taken the time to think through how to actually execute.”

What's the Hold Up in Total Revenue Optimization?

Technology is often the target of the finger-pointing. We can complain that we don’t have systems that talk to each other, but until that happens, hoteliers need to get creative about finding ways to capture crucial guest data using the systems they do have in place.

For instance, it doesn’t take very sophisticated technology to implement and leverage a loyalty program, and hoteliers can learn a great deal from their gaming counterparts in this area. Since 2001, Total Guest Value has helped boost gaming and non-gaming revenues from 5 to 15 percent at many casino hotels.

The Cosmopolitan of Las Vegas, for one, puts a big push behind training staff on its Identity program, which is a loyalty card rather than a gaming card. Guests earn points for spending throughout the hotel – room, dining, spa, and shopping. When they eat at Blue Ribbon Sushi or another on-site restaurant, for instance, they are prompted for their Identity card with the check.

Wynn Las Vegas was the first to combine a room key and frequent player casino card. The same card that opens the guest’s door is the one that goes into the slot machine.

Atlantis Paradise Island is another great example. At one time, the room key was the only form of payment allowed on property, a policy that allowed management to capture every detail of a guest’s spending habits.

A strategic loyalty program is an excellent way to incentivize guests to reveal how much they spend at a hotel. And it enables the hotelier to give access, when room demand is high, to those who typically spend more and close out those at the low end.

I do believe the tide is turning, as more traditional hotels look beyond rooms and fully appreciate the value of knowing the profit margins of their other revenue streams and knowing the demand for each during peak or slow periods. And I think, as an industry, we’ve been talking long enough. It’s time to get creative and, taking a page from Nike, “just do it.”

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