Dubai hospitality industry is becoming highly competitive. In order to be successful in the competitive hotel industry in Dubai, one has to be accurate in numbers and assimilation of data to take quicker decisions. Due to the entry of established international hotel chains, independent hotels and hotel apartments into the growing Dubai hospitality industry it is for sure the hotel industry is going to be very competitive in the near future nevertheless the market is also expanding. To get a fair share of the market one has to be accurate enough to analyze the data and take quick decisions to get better yield. The only answer could be proper Revenue management. Many hotels in Dubai do not have Revenue Managers with the exception of five star hotels. This may be due to the lack understanding of the concepts of revenue management in these hotels.

Revenue Management or Yield Management is a specialized field wherein through logical conclusions one can optimize the yield (profitability) of the hotel. Using arithmetic calculation, statistical data and various factors one can arrive at a logical conclusion that helps in quicker decision making and thus better yield.

Revenue Managers are always not liked by the Sales and Marketing and often the General Managers. Various Sales and operational decision taken by Director- Sales and Marketing and General Manager respectively are not synchronized with the workings of Revenue Managers. Revenue Managers analyses the historical data as well as various future events, competition and then come to the conclusion of their tactical changes and strategy in the business that sometimes may not be in the Business Plan. Many times rates structure given by the Revenue Manager is not accepted by the Sales.

General Managers and Sales & Marketing can use the revenue management techniques to their best advantage. This requires conceptual understanding of the revenue management techniques, its usage and benefits. At present, computers can do a fantastic job in analyzing the data to derive logical conclusion quicker. General Manager must allow conflicts between Sales and Revenue Manager that ultimately is advantageous for the hotel. Some of the important aspects of revenue management are discussed in the following paragraphs.

ADR (Average Daily Rate) often called as ARR (Average Room Rate) in some parts of the world and occupancy used to be the basic measurement of hotel performance historically. The relationships between these two factors have lot to do with the revenue they produce. While increasing the occupancy by reducing the ADR or decreasing ADR while increasing the occupancy, one would fail to take in to consideration the cost factor of each room sold, eventually that may reduce the profitability. Many times revenue generated out of various other facilities of the hotel is not considered while taking the decision.

Revenue management is often called yield management plays an important role in the financial success of any hotel. It involves evaluation, analysis, tactics and strategies that make it possible for a property to evolve best selling situations. Basis of revenue management is the law of demand and supply. One can draw a reliable forecast taking into consideration various factors that affects ones business. These factors are apart from demand and supply, competition, discount, long/short stay guests, type of room, costs of room, payroll costs, seasonal changes, market segments, other facilities in the hotel etc.

To make a forecast, one requires information. One has to understand the property and also the competitive market in which the property operates. Also, it is important to understand the future events that may affect business. This helps the hotel in determining the rates to be offered, whether to accept or reject a reservation in order to maximize revenue. The goal of revenue management is to sell right room to right guest at a right price and at the right time. The idea is to pick the business that gives the maximum yield.

Hotel will be happy to have guest who pays the most and stay longest. This can be achieved only by having rate and stay restrictions. To achieve this, one has to monitor continuously on a day-to-day basis and apply different tactics best suited to the property considering the guests, market and demand conditions. In a place like Dubai, customer choice is very high one may loose the customer if decision is not quick. This can be done through capacity management, discount allocation and duration control.

Capacity Management involves various methods of controlling room supply. Capacity management balances the risk of overselling guestrooms against the potential loss of business due to idle rooms. This also involves in determining how many walk-ins to accept on the day of arrival, taking into consideration expected cancellations, no-shows or early departures. The number of walk-ins in Dubai is very high. That is the reason many travel agents have their sales counters in the airport itself. Based on the number of flights that enters Dubai each day one can easily assimilate the data to get right estimate of numbers. Capacity Management strategy must vary by room type.

Discount allocation is managing discounts given for various time periods from the rack rates. For each room type reduced rate-structure below the rack rate is given to reservations. Reservations or Front desk must be able sell at the best possible rates for the day without losing the customer. The primary objective is to sell the room at the best rate possible and at the same time filling rooms that would otherwise go idle. Implementing this scheme requires reliable demand forecasting. Limiting discounts by room type also helps in up-selling.

Duration control is managing to give room requests that are multiple days rather than single day occupancy. Some times it may be advantageous to loose one day room revenue by rejecting the reservation for that day considering the multiple reservations. For example, if Thursday is close to selling out but adjacent nights are not, it would be wise for a hotel to optimize its revenue by requiring multi-days stay for the last few rooms at even a discounted rate rather than accepting reservation only for Thursday. These strategies can be combined with duration control and discount allocation. For example, three nights stay may be given for a discount while one day stay may require rack rate.

Using the revenue management techniques, a hotel may increase the profitability to a great extent. This requires a well coordinated team effort involving General Manager, Revenue Manager, Sales, Reservation and Front office. Many of the three and four star categories of hotels in Dubai do not even have Revenue Manager. Revenue Management requires proper training of personnel involved before implementation. In a severe competitive situation the revenue management may become very useful. Especially in a place like Dubai, where the competition is going high, Revenue Management may play a very important role in increasing the profitability of the hotel. Do you think your hotel should have a Revenue Manager?

Written by NP Chandrashekhar, Group Financial Controller, Chelsea Group, Dubai

NP Chandrashekhar CHA, MHCIMA
Chelsea Group