How revenue managers navigate cancellations, OTAs
 
How revenue managers navigate cancellations, OTAs
08 SEPTEMBER 2017 7:25 AM

Sensible revenue-management strategies sometimes are challenged by the bad reactions of competitors to disruptions like cancellations and OTAs, sources said. 

NASHVILLE, Tennessee—The challenge with revenue-managing a hotel often is sticking to a sensible strategy when the competing hotel up the street does just the opposite.

That might be the case when negotiating fees with online travel agencies or adjusting room rates to make up for a cancellation, according to revenue-management experts who spoke on a panel titled “A revenue manager’s best friend: A profitable business mix” at the 2017 Hotel Data Conference.

“You’re only as good as your worst competitor,” said panel moderator Richard Pastorino, CEO and principal at REVPAR International. “Sometimes it’s not you that’s not playing the game correctly. It’s like sitting at a blackjack table. If somebody’s splitting 10s, you don’t want to hang out at that table anymore. But that’s what happens with our industry, and everybody can see it.”

Cancellation problem
For revenue managers, the biggest problem with cancellations is not being able to rebook that room at the original rate. For a lot of hotels, it becomes “a race to the bottom” with rates dropping dramatically just to get the room booked, said Johnathan Capps, VP of revenue at Charlestowne Hotels.

“For us, on an independent (landscape), it’s knowing what the brands are doing via cancellation. (We look at it) by market and by property, especially in higher (average daily rate) price points where it’s important to maintain a certain cancellation window,” he said.

So what’s the best solution for combating that problem with cancellations?

“For me, it sounds kind of simple and probably scares some of our operators, but it’s overbooking,” Capps said.

If you can overbook a room 21 or 30 days out from a hotel stay, “where you know there’s some peak demand in there, maybe at the highest rates,” Capps said, you’ll be better off than if you have to book within a cancellation window when “the wheels are off and everyone’s going to the bottom.”

Some hotel brands, such as Marriott International, InterContinental Hotels Group, Hyatt Hotels Corporation and Hilton, recently announced changes to their cancellation policies to gain more control over their room inventories.

John Cook, senior manager of revenue management and analytics at Marriott International, said Marriott’s new 48-hour cancellation policy “has reduced the movement (of rates) over that period.”

But “with all of the transparency on pricing,” Cook said, “one of the real keys is to make sure that you set your price right from the very beginning of the booking, and you have a rate that you think you can achieve all the way to the end. If you have a rate out there that you think is a lot too high, then you’ve got to try to pull that back early rather than waiting until the last minute and dropping it down dramatically.”

Now there are cellphone apps that will alert users when a hotel drops its room rates, which present a risk for hotel revenue managers, panelists said.

“If you drop your rates 50 bucks, everybody’s going to know that, and everybody is going to cancel and rebook at that lower rate,” Cook said.

Strategy for dealing with OTAs
OTAs often contribute to that issue of increased transparency to guests, and are another—sometimes necessary—interloper between hotels and their guests.

For companies like Marriott, it’s important to try to push guests away from OTAs and into direct-booking channels, where the cost of customer acquisition is lower.

“We’ve come up with a number of different strategies to impact different segments of the business,” Cook said. “One of the things we’ve done well is utilize the size we have to negotiate with the OTAs to reduce the cost and pay a little less per reservation. That’s still significantly more expensive (to the company) than just someone who books on the brand.com website.”

He pointed to marketing campaigns and promotions with loyalty members that push direct bookings, which he said hasn’t necessarily “shifted the tide, but it’s certainly reduced the flow that we saw going to the OTAs.”

Independent hotels, like those in Charlestowne’s portfolio, are more reliant on third-party OTA channels to drive bookings, Capps said. But the strategy for how much to rely on those channels has to vary by property.

“Some of our independents have shot up and … now we have exposure that it may be unnecessary,” to spend more with an OTA to get that hotel listing higher on the site, he said.

Communication is key
The key to every decision, the revenue managers said, is communication with on-property teams and utilization of all available tools to predict guest booking behavior.

“It’s so critical in today’s world that if you have a revenue-management team, you need the collaboration with the general manager, the director of sales, your front-office manager,” said Mark Kucera, VP of operations at MCR Development. “They all have to be in sync and working together because not one person knows all the answers. Your revenue manager may be 500 miles, 1,000 miles away and doesn’t know what’s happening in that market. If there’s not an open line of communication between all parties, then you run the risk of losing out on an opportunity that you could have had if everybody had been in sync.”

Cook agreed.

“The systems we have in place are great, and they work very, very well,” he said. “But there’s still a human element. And if there’s something going on in the market that is outside the historical trends or maybe a bit unusual, it’s really, really important that the revenue manager proactively reach out to try to understand that.”

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