A New Era Of Yield Management

Record High Hotel Occupancy, Rigorous Revenue Management Collide With 2016 RFP Season - BusinessTravelNews

Excerpt from BusinessTravelNews

Airlines have used yield management strategies to maximize revenues for decades, while hotels have, for the most part, been playing catch up.

"For almost every other product out there, when you've purchased it, you've committed to buy it," said Duetto co-founder and CEO Patrick Bosworth. "With an airline ticket, if you decided you didn't want to travel, they may credit the [ticket amount] back to you, but there's usually some sort of a fee attached to it and you have to reuse that money with the airline, whereas hotels have historically had an incredibly flexible cancellation policy. Usually within 24 hours of arrival, you can cancel with no fee whatsoever, and in many cases even if you just no-show without telling the hotel, they wouldn't charge you."

In January, however, Marriott International and Hilton Worldwide both enacted stricter cancellation policies, stating reservations not canceled at least 24 hours before scheduled arrival would be subject to a penalty of one night's room rate. "Our cancellation window … was 6 p.m. the night of your stay, which just actually means you can cancel until the absolute last minute," Marriott CEO Arne Sorenson said during an April earnings call. "In a high-occupancy market, that created greater risk of overbooking. [It's] harder to predict, harder to revenue manage the hotels."

Other revenue management strategies include overbooking, segmenting inventory to limit discounted business, implementing minimum-stay restrictions and reducing the volume of discounted business in favor of higher-rated retail business.

"When you have fixed-price contracts, it incentivizes the hotel to do whatever they can to try to eliminate as much of the demand as they can that's at a very low fixed price in favor of much more lucrative demand that's coming last minute on their own website or through other channels," Bosworth said. "Anytime you can be selling a room, let's say, for $499, it's painful to be taking a room at $199 through a corporate contract. So obviously, it creates a big incentive for the hotel to look for different strategies to try to improve that mix of business."

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