Home Revenue Manager Revenue Rules Part I

Revenue Rules Part I

Jan 23, 2007  By 

 Cheryl Geib has never met a hotel revenue manager, but she is quite familiar with them.

Just last year, Geib, national travel and meeting manager at Grant Thornton, Oakbrook Terrace, Ill., was informed days before a meeting that she had to walk 150 attendees because the hotel was oversold. That had happened, she learned, because the revenue manager at the property had counted on 10 percent of her attendees not showing up. Geib was furious.

“This was a hotel chain we had a history with, and less than 1 percent didn’t show,” she explains. “The global sales manager was as stupefied as I was.”

Geib’s experience reinforces many meeting planners’ perception of hotel revenue managers as back-room power brokers focused solely on the bottom line. “I think of the revenue manager as the Wizard of Oz,” says Teri Tonioli, senior vice president, central region at Experient, Chicago, “the person behind the screen that you never see.” In many ways, she says, revenue managers are to sales managers what procurement officers are to planners — they set the parameters by which sales managers must perform. And just like the relationship between planners and procurement, the one between hotel sales and revenue management can get sticky.

But the relationship is evolving. As this discipline is incorporated into the sales culture, revenue managers are starting to understand that the value of corporate group business goes far beyond room rates.

“Meeting planners might think that revenue managers are people who sit in a room, disconnected, with a calculator — but that’s not the way it is,” says Barbara Bowden, corporate director of revenue management, Peabody Hotels, with properties in Orlando, Fla.; Memphis, Tenn.; and Little Rock, Ark. “They definitely recognize the overall value of the group business and the importance of building relationships and keeping clients happy.”

Managing High Demand
Revenue management is nothing new. It’s been around the hotel industry for several years, with the goal of maximizing profits based on projected demand. (The airline industry has employed revenue management since the early 1980s.) What is new is how important hotel revenue managers have become.

“Huge,” says David Scypinski, senior vice president of industry relations at Starwood Hotels and Resorts, describing the influence of revenue management within hotels. “Absolutely huge.”

Why? For starters, the hotel market is hot. Rooms are in high demand, and properties are flooded with inquiries. Using sophisticated technology systems, revenue managers evaluate and compare the pieces of business that inquire about a given time period and then forecast the projected demand. Then it’s a question of which groups to book. If demand is expected to be high and a group isn’t willing to pay the standard rates, hotels may wait for a better offer.

This a far cry from the days when hotels strove to get as much long-term business on the books as possible, even if it was discounted, says Scypinski. “If you didn’t get that [long-term business] on your books quickly — and often — you got a little uncomfortable,” he says. Now, it’s the other way around — many hotels are uncomfortable filling their calendars further out with lower-rate business.

Geib has had her meetings passed on because she was told they were less than market value. Whether she was bested by another group or just flatly rejected, she doesn’t know. “No one has said outright that they didn’t want the business,” she says. “But maybe we’ve been rejected without knowing it.”

New Owners, New Pressures
The other factor driving the growth of hotel revenue management is ownership changes. There has been a seismic shift in hotel ownership during the past five years, with many hotel chains selling off real estate to focus on management.

“We don’t own the hotels,” says Charlie Cahill, vice president, sales development and marketing, The Americas, InterContinental Hotels Group. “We have owners with high expectations as to what they want to yield, and we made commitments in striking deals to measure up against these expectations. So we have a strong incentive to perform on their behalf.”

InterContinental owns very few of the properties it manages, which is par for the course among the major chains, particularly publicly traded companies such as Starwood, Marriott, and Hilton. Each owns fewer than 25 percent of the properties they manage (some, like Marriott, much less). For example, of the 861 hotels in the Starwood portfolio, the company owns just 87. In 2006 alone, the company sold the real estate assets of 38 Starwood properties to Host Hotels and Resorts.

“We really reshaped our business model around managing and franchising,” says Cahill. Just five years ago, InterContinental owned most of its properties, but in 2002, when parent company Six Continents PLC, which is based in the U.K., “de-merged” and sold off its hotel unit to create InterContinental Hotels Group, the strategic decision was made to divest. “It became smarter for us to release the capital that we had tied up in hotels that we owned, put it back in the hands of our shareholders, and grow our business.” For managing the properties, the hotel company gets paid an annual fee.

The new owners — private equity companies, private hotel companies backed by private equity companies, or real estate investment trusts — are sophisticated buyers focused sharply on profits. “You have to squeeze out every penny you can,” says Scypinski. “There’s never been more pressure on us.”

Enter revenue managers. Most hotel managers, under pressure to perform, have hired revenue managers, if they didn’t have them already. And if they did have them already, those managers have become much more influential. Some say they have the owners’ ears more than ever before. “In some cases, I’ve heard, more than the GM,” says Tonioli.

About Dave Kovaleski

Dave Kovaleski

Dave Kovaleski  joined  the MeetingsNet editorial staff in 2003, Dave has written for Association Meetings, Corporate Meetings & Incentives, Medical Meetings, and Religious Conference Manager. Prior to joining MeetingsNet, Dave was

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