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How (Airlines’) Yield Management is the Answer to Your Revenue Management Problems

November 19, 2016 Headline News No Comments Email Email

Hotels and airlines share many of the same issues; perishable inventory, customers booking in advance, lower cost competition and wide swings regarding balancing supply and demand are a few of the many. Both also use websites, apps and reservation channels to sell rooms and seats and must manage their occupancy. It is also integral for both to be aware of their competitor’s rates, in order to maintain their competitive edge.

Although both industries are so similar, the hotel industry is far behind in comparison to airlines. Most hotels have not yet adopted the sophisticated algorithm-based revenue management technology that airlines have. If you haven’t, here are three of the most important lessons that hotels can learn from the airline practice of yield management:

Lesson #1: Don’t use fixed pricing

It’s 2016 and airlines and hotels have been around for decades. Consumers are aware that rates fluctuate, so use this to your advantage and continuously update your rates to ensure that you are charging as much as the market will bear.

Lesson #2: Get comfortable with technology

Airlines’ yield management and hotels’ revenue management processes are undeniable similar and most of the factors they must consider when setting rates are the same. So why are hotels still collecting data manually, whereas airlines use sophisticated algorithm-based systems?

Wait, did you think that American Airlines uses a channel manager? Nope, they’re more high-tech than that. And your property should be too. But very good news for you… there is one company that offers a full-automated, algorithm-based revenue management system that will update your rates in real-time (getting you back on par with the airlines). Can you guess who that is (wink, wink, nudge, nudge)?

Lesson #3: A high occupancy rate shouldn’t higher prices

One of the outdated revenue management techniques that hotels often use is to offer a fixed rate for rooms when their occupancy is less than 50%, then increase prices after that. Not only is this an outdated practice, it’s ineffective as well. As soon as the property reaches a higher occupancy level and the rates are increased, it is likely that consumers will stop booking. They were booking in droves before because the price/value was appropriate for the market, but now that the rates have increased, it has probably been priced out of the market.

Airlines’ prices are based on what the market will bear all the time, from 0 to 100% capacity. Hotels should be doing the same. Hotels should price their rooms based on the market (not their current occupancy) – and continuing updating their rates in real-time as the market conditions change. That will yield the highest ADR and RevPAR for your hotel, which are actual numbers that you can take to the bank!

So what are you waiting for? Stop using outdated revenue management techniques; get on board with the airlines’ yield management practices and watch your occupancy and RevPAR take off (pun intended) today!

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