Revenue Management: An Evolving Science in the Hotel Industry

By Matthew Engel Managing Partner, T.R. ENGEL Group | October 2023

Awhile back, hotel teams would price nightly guest rooms by calling the competition, asking what they were charging that night, and doing likewise.

Also, a core strategy would be sending sales team members to check the competitive hotels meeting’s reader boards intel on which corporate or SMERF groups were meeting with the primary and market competition.

This nuts-and-bolts stuff has now gone the way of the buggy whip and the pay telephone booth.

Today, “revenue management” reigns supreme with revenue managers occupying a position of strategic decision and influential power within the hotel executive committee team – particularly with the focused service chain scale of top 25 markets.

Why is this? What is revenue management all about today, and with the advent of AI’s non-stop growing software, what will revenue management and revenue managers at the helm likely look like in the future?

To address and answer the above questions, revenue managers and hotel experts across the country were presented the following three inquiries as a guide for feedback on revenue management today:

1.  What current revenue management program(s) do you utilize?

2.  How effective do you find this current revenue management program?

3.  What does the future of revenue management look like to you?

Each of their answers are featured below.

Intercontinental Hotel Minneapolis-Saint Paul Airport

Ken Delecki, Director of Revenue Management [Graves Hospitality]

The Intercontinental Hotel Minneapolis-Saint Paul Airport currently uses IHG’s Concerto as the main revenue management platform. Of course, we use other platforms to help supplement decisions and to effectively manage how we use this program. Demand 360 and Online Travel Agency (“OTA”) insight are valuable tools we use to evaluate our performance and positioning within the market.

Concerto is a fantastic platform overall. It is very easy to learn, it contains a wealth of information, and it allows you to drill into specific information to evaluate pricing decisions and overall performance. When used correctly, it has proven to be reliable at making pricing recommendations.

On the downside, it takes a lot of effort to validate information included in Concerto. Discrepancies between Concerto and the PMS system are frequent and render some of the reports useless. Furthermore, it relies heavily on accurate settings and programming by a revenue manager to make pricing decisions. In a volatile environment, it can take a while to see adjustments made. It is difficult to manage the pricing recommendations in a market where some competitors may not always be apples to apples to your own property.

Adjusting the system and its recommendations takes time and approval at the corporate level. This creates a challenge when a new hotel enters the market, or there is a disruption to market demand.

Understanding how the system works isn’t always clear either. It relies on accurate and extensive data, so if a hotel is newer, it takes a while to fully learn and understand market and hotel demand. System accuracy relies heavily on correct coding, so coding errors by the front office can make a drastic impact on the system’s behavior.

The future of revenue management will continue to rely heavily on data evaluation and overall strategy direction. While artificial intelligence can be a great tool in regards to pricing recommendations and group evaluation, these systems cannot necessarily validate that data.  Directing and evaluating strategic initiatives will continue to be a key component of the revenue manager’s job. Revenue managers can more easily evaluate the impact of an anomaly much better than any artificial intelligence program can. If systems are being fed incorrect data, they will make recommendations and decisions that may not be in the best interest of the hotel.

Large events like the Super Bowl or the Olympics will require evaluation from a revenue manager that can set goals and adjust strategies accordingly. If a strategy isn’t working, it takes a nuanced review by the part of a dedicated revenue manager to make appropriate decisions based on environmental factors that a computer may not see. While A.I. may play in increased role in hotel management, the revenue manager will play a more active role in managing the A.I. than in the past.

Hampton by Hilton and Homewood Suites by Hilton Chicago West Loop

Matt Colony, Complex Director of Commercial Strategy [Hostmark Hospitality]

The Hampton by Hilton/Homewood Suites by Hilton West Loop dual-branded property uses Hilton’s Global Revenue Optimization (“GRO”) system. This system analyzes the market and sets room pricing day by day, based on its proprietary algorithm.

Over the past few years GRO has improved dramatically, as we would expect. Like all revenue managers, human and otherwise, it has its biases. In GRO’s case, we have found it to have a bias towards driving rate at the expense of occupancy. This can be adjusted by influencing GRO, but it seems to always want to pull in the direction of higher ADRs – even if that means leaving unfilled rooms.

AI pricing software is here to stay. The key for revenue managers will be to understand both the market and the software well enough to identify and predict inefficiencies. At least for the foreseeable future, the AI software will function well within a consistent market dynamic. When new and unexpected things happen in the market, human revenue managers are able to see that change earlier and more clearly than an AI system. A human revenue manager is able to do so as AI systems are built to understand the market based only on past performance. Identifying and understanding changing market dynamics before the competition has always been of primary importance in revenue management.

The mission now is learning how to interact with the pricing software in a way that helps it understand upcoming changes in demand, upward as well as downward, and as quickly as possible. Having the AI learn to understand upcoming changed will drive the program to adjust its decisions in order to find an optimal new paradigm before the competitor.

Boston Seaport – Hampton by Hilton and Homewood Suites by Hilton Boston Seaport District

Richard Martins, Revenue Manager [Hilton Worldwide Hotels]

The Hampton by Hilton and Homewood Suites by Hilton Boston Seaport District currently uses Hilton’s Global Revenue Optimization (“GRO”) system, Online Travel Agency (“OTA”) insight, and TravelClick.

OTA Insight provides a cloud-based platform for hotels to optimize revenue and pricing strategies. Advantages of this program include access to market data and a user-friendly interface. This is so crucial as data accuracy is vital to creating a competitive strategy against other hotels in the market. Minuses include the need for constant rate adjustments and determining proper resource allocation.

TravelClick offers demand forecasting, pricing optimization, and channel management tools for hotels. Advantages of TravelClick include streamlined revenue management and demand forecasting. Disadvantages for TravelClick include its cost and data reliability concerns.

GRO utilizes advanced algorithms for data-driven pricing recommendations. Pluses of this system include forecasting and dynamic pricing. Potential minuses of GRO include learning curve for implementation.

The future of revenue management looks data-driven with AI and automation, personalized pricing, real-time insights, and a focus on customer experience. It will involve multi-dimensional strategies, cross-functional collaboration, and consideration of sustainability and social responsibility.

Frank Otero, Managing Director, T.R. ENGEL Group

In today’s ever-changing and often volatile economic landscape, hotel revenue management is a strategic process for maximizing full revenue potential. The process is a team approach involving data-based analytics that offer the right room, at the right price, for the right customer.

Key members in the team approach include the hotel’s Sales Director, General Manager, and periodic input from the hotel owner’s Asset Manager. Together they analyze a combination of factors such as inventory levels, historical rates, and market dynamics to predict optimal pricing for their specific competitive market.

In the future, hotel revenue management is likely to become more centralized. Many of the large hotel companies have Revenue Management Centers with teams throughout the country that support multiple hotels. This centralized approach allows access to high level expertise and guidance. This expertise and guidance assist individual hotels in understanding industry trends and customer preferences to maximize sales and adapt to the industry.

Matthew S. Engel, Managing Partner, T.R. ENGEL Group

In the lodging business, resources must be allocated to assets in a way that prioritizes fostering a functional hotel environment. In creating this healthy environment and supporting the needs of your employees, various revenue management tactics can be implemented and their potential maximized.

One strategy to prioritize is emphasizing preparedness for change at all times. These changes may include variances in customer preferences, investor preferences, or completely unexpected curveballs, as was seen with the onset of the COVID pandemic. Demonstrating preparedness will allow for fewer speed bumps and greater success in your hotel.

Another key factor in fostering a functional work environment is investing in your team properly. The hotel industry is a people industry, and it is important that both time and money are allocated in a way that takes care of our people. Creating a workspace where the team feels supported in their job will lead to operations that are more effective overall.

A third key strategy to prioritize is creating a team that knows your property and your market well. Having an onsite team that understands the ins and outs of your physical hotel and its operations can act as a much stronger tool than an offsite team. Being able to use all details, small and large, about the property and its market will allow the hotel team to drive success by using different pieces of information from their wide breadth of knowledge as is needed for each unique situation.

In summation, it is crucial to foster a hotel environment where the team is prepared for change at all times, has access to the proper resources to perform to the best of their ability, and knows their hotel inside and out. A team that feels supported in these ways will be able to drive success and achieve greater accomplishments within the revenue management world.

This article was co-authored by Matt Colony. Mr. Colony has worked as the Complex Director of Revenue Management at the dual-branded Hampton by Hilton and Homewood Suites by Hilton in Chicago’s West Loop since its opening in October of 2016. His prior experience has seen him at various properties across Downtown Chicago since 2007. He has spent time across the country in Nebraska, Minnesota, and New Mexico over the course of his career. Mr. Colony has spent time in many facets of the hospitality industry including in operations, sales, and engineering. Matt brings a well-rounded wealth of knowledge to the Hostmark Hospitality Group team.

This article was co-authored by Ken Delecki. Mr. Delecki is the Director of Revenue Management at the award-winning InterContinental MSP Airport. A graduate of Washington and Lee University, he has worked in the hospitality industry in various leadership fields on both the property and corporate level across the last twelve years. His experience ranges from working with small select service hotels, to extended stay, to convention hotels and to luxury properties. Mr. Delecki integrates his background in operations management with his role to develop a collaborative approach to revenue management that is effective and engaging for everyone.  He embraces the innovative and creative aspects of revenue management and enjoys devising ways that his whole team can share success. 

This article was co-authored by Richard Martins. Mr. Martins is the Revenue Manager at the Hampton by Hilton and Homewood Suites by Hilton Boston Seaport District. With a penchant for embracing fun and not taking himself too seriously, he has charted a career path driven by a unique blend of professionalism and approachability. Mr. Martins has spent the past 16 years within the hospitality industry primarily in operations, in both the front and back of house, across the greater Boston market. Prior to his current role, he has held roles such as Revenue Analyst, Group Reservations Coordinator, and Front Office Manager, giving him a wide range of experience across the hospitality industry.

This article was co-authored by Tom Engel. Mr. Engel leads T.R. ENGEL Group and is credited with creating/co-creating three (3) lodging brands – Embassy Suites Hotels by Hilton, Crowne Plaza Hotels & Resorts, and Hawthorn Suites Hotels. He served as Executive Vice President, Equitable/AXA Real Estate Investment Management Inc., where he created, then ran its $1.8 U.S. billion worldwide lodging and leisure investment and asset management group. Mr. Engel was an Eagle Hospitality Trust (NYSE: EHP) independent board member; Current independent board member, Procaccianti Hotel REIT; Chairman Emeritus, Boston University School of Hospitality Administration’s Advisory Board; Member of the American Hotel and Lodging Association’s Investment Committee. He earned his BA from the University of St. Thomas, his graduate degree from Northwestern University, and is a veteran of the United States Marine Corps, VMA-131 air wing.

This article was co-authored by Frank Otero. Mr. Otero has extensive hospitality management experience overseeing operations of nearly 100 diverse hotels ranging from large convention boxes with over $80M in F&B to small full-service hotels catering to an upscale clientele. During his long career, he spent 43 years with the Hilton Hotel Corporation. In his most recent role with Hilton as Vice President of Operations, Mid-Atlantic Region, Mr. Otero oversaw the management of 25 hotels with total revenues of over $1B. Now at T.R. ENGEL Group, he focuses on operational asset management and advisory hotel assignments. He earned his Master’s in Business Administration from Kennesaw State University.

 

Mr. Engel Matthew Engel, Managing Partner of T.R. ENGEL Group, has over 15 years of diversified real estate underwriting and hotel operational asset management experience. Mr. Engel is responsible for and supervises advisory services and asset management assignments domestically and internationally. Previously, he managed investor relations of three (3) private equity lodging opportunity investment funds as asset manager at The Procaccianti Group. Engel began his career with Holliday Fenoglio Fowler’s New York City investment sales and financing team where he executed over 20 commercial real estate transactions valued in excess of $1.4 billion. Mr. Engel earned his BA from Hamilton College and an Advanced Computer Certification from the University of California, San Diego. Extended Biography & Contact Information