I recently read a piece about an international resort company that introduced a Revenue Management System (RMS) within the last five years. Like many resort properties around the world, their hotels have a high degree of dependence on contracted tour business and other leisure-oriented distribution channels. Because of the long lead-time associated with forming these contracts, "timing" is a very important focus of Revenue Management as missing a contract season means missing out on bookings that are essential to their performance.
While hotels may not have as much ongoing control as they'd like over structured contracts once they are within their booking horizon, there are still some key decisions and levers to pull at contract time that would benefit largely from having a forecast in place ahead of time. Hotels need to understand and anticipate segment mix by season, length of stay patterns, value associated with each segment (even better if that value extends beyond rooms revenue to look at ancillary streams and profit), and when demand is expected to materialize.
First and foremost, a hotel should have a specific overall volume target they anticipate needing to reach via contracts, driven by the forecast. Perhaps the resort can negotiate guarantees during peak periods, or rates that are percentages of current BAR as opposed to fixed rates. With a forecast of anticipated need periods, the hotel and third party can agree on more attractive terms for the latter in order to drive volume. The more granular the forecast, the more precise the parties can be in negotiating mutually beneficial terms. Finally, a hotel needs to know what other contracts it may or may not pursue, or otherwise fall victim to a "first-come, first-served" result that would favor the first-movers.
One may argue that it is difficult or impossible to formulate an accurate forecast so far ahead of time. That is not a valid reason to forego a forecast entirely, or even discount its importance. Even the least bit of advance information or remote prediction can help shape important decisions in a hotel's favor. If I told you I could roll a pair of dice such that rolling a four, five, or six on each die was even slightly more likely than rolling the other numbers, it would probably lead you to conclude I'll be rolling more nines and tens on the pair. This may not end up as too accurate of a prediction, but it could help out in a craps game. Likewise, your hotel forecast, regardless of its accuracy, will help steer you in the right direction in your third-party negotiations. As with any negotiation, understanding your alternatives is what ultimately prevents you from giving up more than you need.
In summary, your hotel doesn't need to sacrifice forecasting for timing or vice-versa - both will be important in maximizing results. If you share the challenges of the resort company described here, think about the key decisions that you are faced with during contract season and identify as part of your Revenue Management strategy how a forecast will help guide those decisions.
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Dan Skodol is Vice President of Revenue Analytics at Rainmaker. Dan came to Rainmaker with over ten years of Revenue Management experience in gaming, hotels, multifamily real estate, and airlines. He is responsible for researching and designing enhancements and innovations within Rainmaker’s hospitality product suite, as well as supporting thought leadership topics and studies via analytics. Dan previously held Director of Revenue Management roles for two casino organizations in Atlantic City, and Archstone Communities. He holds a BA from Yale University and a Master of Management in Hospitality degree from Cornell. Dan and his wife reside in Denver, CO with their two-year-old son and enjoy skiing, hiking, and travel.