Session Highlights

Yield management is here to stay…so learn to play the game

Praveen K Singh reports on why it makes business sense for hotels to adopt yield management

It's around a decade now since yield management has come into the hotel industry to allow hoteliers to calculate supply and demand and regulate their pricing strategies so as to maximise revenue.

The third session at the 2nd Hotel Investment Conference - South Asia discussed the role of yield management.

Starting the panel discussion Karambir Kang, said, "Taj Hotels has been among the first to start revenue management in India. Yield management, which is an inventory management system, is an integral part of sales and marketing functions in any hotel premise." He said other people concerned with yield management include general managers, financial controllers, room division managers, sales & marketing managers, front office managers and reservation managers in hotels.

Proper training

Grahame Tate observed that Indian hospitality is emerging as a fast growing industry in the South Asian region. He said, "India is embracing technology faster than other competing nations, which is a positive sign towards the industry growth." However, according to him, there is a shortage of revenue managers and the industry needs to impart proper training at the entry level itself.

Talking about the importance of yield management, Dhruva Rathore, stated that the Indian hospitality industry needs to follow a pricing discipline. He said that as early as in 1990s, major hotel chains began experimenting with yield management models. Some chains, including Hyatt, invested in sophisticated computerised systems that tracked numerous sources of data. Others responded with predominantly manual systems combining the reporting capabilities of their reservations and front desk systems with a team of trained managers to direct pricing and inventory issues.

The Internet

CEO of Allcheckin.com, Navneet Bali, said that the Internet has got a great role to play in yield management. The advent of Internet technology has helped expand the utility of Global Distribution Systems (GDSs), allowing end-consumers to directly interact with these systems. Bali, who is in the process of launching a search engine for making hotel reservations, said that the airline industry is primarily responsible for the birth of yield or revenue management. He said, prior to deregulation in 1978, all airlines offered the same government-approved fares; discounts were rare with the exception of night and weekend flights. When People's Express introduced the industry's first low fares nationwide, major carriers were forced to react or go out of business. That's when American Airlines unveiled the first true yield management system, which allowed it to track fares and bookings system wide and adjust fares based on historical and current booking patterns. Once the airlines instituted yield management, the hotel industry gradually realised the potential that this management philosophy and subsequent technology tools offered.

Bali said, that either way, the result was the same: Hotels discovered that they could dramatically increase revenue growth and profitability by committing to yield management systems.

Yield management is being used in the airline industry for the last 20 years and also in hotels internationally for about 10 years. It basically applies to all retail sectors where capacity is fixed and enables the vendors like hotels to price the product differently for different market segments.

Considering profit making trends, Bali explained that the bottomline is that it is now more difficult, but by no means impossible, to find a ‘good deal’ at a hotel. It is, however, more important than ever for the hotel to perceive your convention as being valuable.

Different modules

Kang said, to this day, yield management practices still vary widely from chain to chain and hotel to hotel. Some chains live and breathe yield management, creating entire revenue management teams dedicated to crunching the numbers at the property level. Others utilise yield management but rely more heavily on inputs from the general manager, director of sales, sales managers, convention services managers and reservation manager of each hotel. And others have yet to adopt yield management practices, but these are rare cases.

Yield management has affected contracted concessions as well. Concessions that directly impact REVPAR (Revenue Per Available Room), such as reductions on rate and increases in complimentary rooms, are far less attractive to hotels than soft cost items such as VIP amenities, airport transfers, and food and beverage discounts.

Dhruva believes, yield management is an ongoing, day-in and day-out, week-in and week-out process. The yield management team at a property may meet once a week to review a predetermined period into the future, but on a daily basis team members are most likely evaluating each and every piece of potential business to see how and if it fits into the acceptable business guidelines of the hotel.

Market mix

Kang said, as properties take a closer look at their overall market mix in an attempt to maximise their return, certain hotels may decide to cut group blocks and allocate more rooms to other market segments such as transient leisure, corporate volume accounts, wholesale, and tour and travel. That affects not only the availability of rooms at individual hotels, but also the number of hotels that need to be utilised for citywide events. In addition, due to yield management, cutoff dates have truly become a rate issue, not a date issue. Hotels want the ability to control their inventory after cutoff in order to maximise the return on their remaining rooms. As a result, meeting planners are seeing less flexibility with cutoff dates and contract terms that allow the group rate to be honored after cutoff only if group rooms are available in inventory.

Concluding the discussion, all the panelists agreed that it's easy to understand why hotels invest heavily in both technology and manpower to tackle yield management head on. Yield management allows properties to discount with discretion in order to build market share, uncover hidden demand that promotes aggressive pricing, identify lost revenue opportunities and, most importantly, increase revenue growth without increasing fixed costs.