Revenue Management Webinar Series Improve...
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11/15/2012
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Revenue Management Webinar Series
Improve Your Business AcumenNovember 15, 2012
This webinar series is brought to you by HSMAI University, HotelNewsNow, and STR
Overview of Format and Topic
Kathy TindellProgram Director, HSMAI University
11/15/2012
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POLL QUESTION #1How many people are participating
in this webinar at your location today?
� 1� 2� 3� 4� 5� 6� 7� 8 or more
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Panel Moderator:
Patrick Mayock,
Editor-in-Chief
HotelNewsNow/
STR STR/STR Global
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Today’s Presenters: Panel Moderator: Patrick Mayock, Editor-in-ChiefHotelNewsNow.com/STR/STR Global
Panelists:
Karrie Keen,
Destination & Trend
Operations
STR
Neal Fegan,
Executive Director of
Revenue Management
Fairmont Raffles Hotels
International
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Garth Peterson,
Regional Director of Sales -
The Americas
IDeaS Revenue Solutions
Jack Easdale,
VP Yield Management
The Venetian
U.S. Hotel Industry Overview
HSMAI Webinar Series
15 November2012
Karrie Keen
Director Destination and Trend Operations
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Agenda
• U.S. Overview
• U.S. Chain Scales
• Development Pipeline
• Performance Projections
U.S. Overview
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The U.S. Continues on its Path of Improvement
% Change
• Hotels 52.4 k
• Room Supply 1.3 bn 0.4%
• Room Demand 834.4 mn 3.0%
• Occupancy 63.0% 2.6%
• ADR $105.94 4.2%
• RevPAR $66.79 6.9%
• Room Revenue $88.4 bn 7.3%
Total US - Key Statistics
YTD September 2012
Demand Growing at a Slower Pace
-8
-6
-4
-2
0
2
4
6
8
10
1989 1992 1995 1998 2001 2004 2007 2010
Supply % Change Demand % Change
3.3%
0.4%
Feb ‘11
7.7%
June ‘89
5.3%
Sept ‘09
-7.1%
Aug ‘06
-0.2%
Jan ‘89
4.6%
Mar ‘02
-4.7%
Oct ‘91
-0.9%
Room Supply/Demand Percent Change
Twelve Month Moving Average – 1989 to September 2012
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-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
1989 1992 1995 1998 2001 2004 2007 2010
Occ % Chg
ADR % Chg
June ’91
-3.4%
Jan ’92
0.1%
Mar ’02
-6.7%
Aug ’02
-4.5%
Oct ’06
7.5%
Sept ’09
-9.7%
Jan ’10
-8.9%
Apr ’11
6.2%
4.2%
2.8%
ADR Growth Outpacing Occupancy Growth
Occupancy/ADR Percent Change
Twelve Month Moving Average – 1989 to September 2012
Transient Demand Continues to Outpace Prior Year Demand
5
10
15
20
25
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007 2008 2009 2010 2011 2012
NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).
Mil
lio
ns
Monthly Transient Demand
2007 Through September 2012
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Transient ADR Still Lagging Behind Peak
$130
$140
$150
$160
$170
$180
$190
$200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007 2008 2009 2010 2011 2012
NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).
Monthly Transient ADR
2007 Through September 2012
Group Demand Higher in June than Previous Years
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5
6
7
8
9
10
11
12
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mil
lio
ns
2007 2008 2009 2010 2011 2012
NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).
Monthly Group Demand
2007 Through September 2012
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Group ADR Still Seeing Effects of ADR Declines
$120
$130
$140
$150
$160
$170
$180
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007 2008 2009 2010 2011 2012
NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).
Monthly Group ADR
2007 Through September 2012
Transient ADR Pushes Premium to Group ADR
$120
$140
$160
$180
$200
2007 2008 2009 2010 2011 2012
Transient Group
NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).
US Transient vs. Group Monthly ADR ($)
January 2007 – September 2012
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Rate Disparity Starting to Normalize
$173.76
$149.81
$178.57
$157.07
$150.53$149.07
$153.34
$143.46
$161.04
$146.73
$168.40
$150.52
$140
$150
$160
$170
$180
Transient Group
2007 2008 2009 2010 2011 2012
2007 - $23.95
2008 - $21.50
2009 - $1.46
2010 - $9.88
2011 - $14.31
2012 - $17.88
NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).
Actual ADR ($) by Customer Segment
Year to Date 2007- September 2012
U.S. Chain Scales
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Upper Midscale Reporting the Most Growth
-0.4
0.1
1.8
3.1
-4.5
-0.3
3.02.3
3.9
5.9
-1.4
1.6
-6
-4
-2
0
2
4
6
8
Luxury Upper
Upscale
Upscale Upper
Midscale
Midscale Economy
Supply
Demand
Supply / Demand Percent Change
September YTD 2012
ADR Growth Leading Occupancy Growth
3.4
2.2 2.0
2.83.2
1.9
4.5 4.34.6
3.7
2.8
3.9
-2
0
2
4
6
Luxury Upper
Upscale
Upscale Upper
Midscale
Midscale Economy
Occupancy ADR
Occupancy / ADR Percent Change
September 2012 YTD
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Development Pipeline
Starting to See More Rooms In Construction
Phase October 2012 October 2011 Difference % Change
In Construction 67,640 55,139 12,501 22.7%
“Planned Pipeline” 222,617 255,248 -32,631 -12.8%
Active Pipeline 290,257 310,387 -20,130 -6.5%
Planned Pipeline includes projects in Final Planning and Planning phases
Active Development Pipeline – Rooms
Change From Last Year
Source: STR/McGraw-Hill Construction Dodge Pipeline
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Upscale and Upper Midscale Remain a Popular Segment
3.94.2
22.4 20.7
3.0 1.2 9.4
2.43.1
31.9 35.7
8.5 1.7
16.71.9
4.3
22.8
32.8
7.1 1.7
52.0
0
10
20
30
40
50
60
70
80
90
100
Luxury Upper
Upscale
Upscale Upper
Midscale
Midscale Economy Unaffiliated
In Construction Final Planning Planning
Active Pipeline by Chain Scale – In Thousands
October 2012
Performance Projections
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Supply Slowly on the Rise
-0.1
0.21.2
2.42.9
1.7
0.5 0.50.9
1.72.8
0.4 0.7
-2.5
-6.2
7.2
4.9
2.6
1.2 1.5
-8
-6
-4
-2
0
2
4
6
8
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2005 2006 2007 2008 2009 2010 2011 2012P 2013P 20 Yr
Average
Supply % Chg Demand % Chg
Supply/Demand Percent Change
2005 – 2013P
Occupancy Growing at a Slower Pace
63.0 63.1 62.8
59.8
54.6
57.5
60.0
61.2 61.4
50
55
60
65
70
2005 2006 2007 2008 2009 2010 2011 2012P 2013P
Occupancy Percent
2005 – 2013P
2.8 0.2 -0.5 -4.8 -8.9 5.4 4.3 2.1 0.3
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More Growth Expected for ADR
$91.04
$97.82
$104.32$107.40
$98.07 $98.06$101.70
$106.15
$111.01
$50
$75
$100
$125
2005 2006 2007 2008 2009 2010 2011 2012P 2013P
Average Daily Rate (In Dollars)
2005 – 2013P
5.6 7.4 6.6 3.0 -8.7 0.0 3.7 4.4 4.6
ADR Best Chance to Grow RevPAR
Outlook
2012
Forecast
2013
Forecast
Supply 0.5% 0.9%
Demand 2.6% 1.2%
Occupancy 2.1% 0.3%
ADR 4.4% 4.6%
RevPAR 6.5% 4.9%
Key Performance Indicator Outlook (% Change vs. Prior Year)
2012 - 2013
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Highest RevPAR Growth Expected for Luxury Scale
2012 Year End Outlook
Chain ScaleOccupancy
(% chg)
ADR
(% chg)RevPAR (%chg)
Luxury 3.1% 4.8% 8.0%
Upper Upscale 2.2% 4.5% 6.8%
Upscale 1.7% 4.4% 6.2%
Upper Midscale 2.2% 4.2% 6.5%
Midscale 2.9% 2.4% 5.5%
Economy 1.7% 3.7% 5.4%
Independent 1.7% 4.4% 6.2%
Total United States 2.1% 4.4% 6.5%
Chain Scale Key Performance Indicator Outlook
2012F by Chain Scale
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Jack Easdale
Vice President,
Yield Management
The Venetian
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Improve Your Business Acumen
Total Profit Maximization in a Group House/Casino
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Venetian Palazzo Overview
• Las Vegas integrated resort (Sheldon G Adelson)
• 7,100 rooms
• 2.3 million square feet of meeting space
• 34 restaurants. 11 of which are famous chef restaurants such as Thomas Keller, Mario Batali, Wolfgang Puck, Sammy DeMarco, Luciano Pelligrini
• 235 Table Games (black jack, craps, roulette)
• 2,300 Slot Machines
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Venetian Palazzo Overview cont…
• 1 Billion in annual revenue
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Venetian Palazzo Overview cont…
Revenue Management Department Organization
• VP of Yield Management (Hotel, F&B, Shows, and Casino)
• Remainder of RM department is Rooms-based• Revenue Manager – Yield & Ops• Revenue Manager – Systems & Reporting• Revenue Manager – Channel Management & Booking Engine
• Revenue Analysts to support these three inter-disciplines
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Modus Operandi
The mantra we do business by
• We are “agnostic” to where the dollar of profit comes from
• $1 profit from Rooms =
• $1 profit from Banquets =
• $1 profit from Meeting Room Rental =
• $1 profit from the Casino
• Clearly we need to know what our margins are in each department to calculate $1 in profit, but once we know what revenues result in what margins, we’re able to make optimal decisions
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Optimizing across Departments
A real life example• In our 7,100 room property, let’s suppose we have 7,099 rooms
sold tomorrow night• We have 1 room left available and our RMS determines the fair
market value for that room is $500 for a “Retail guest” booked through our call center
• Let’s say Sam Smith calls the Casino Host and wishes to come play in our casino that night. We know Sam Smith has a theo(probable loss) of $501, but we need to comp him in order to induce his stay with us
• Which guest do you take? One pays you, the other is comped…
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V|PA real life example• We don’t have enough information yet to answer• First of all, let me explain the concept of theo• Theo is synonymous with probable outcome. It is “theoretical”.
It’s what “should happen” given proven mathematics• There are 5 variables used to calculate a person’s theo, and they
have to have played with you in the past to have this intelligence:1. House advantage
2. Average wager per hand
3. Speed of the game
4. Length of time on table
5. Skill of the player (rarely used)
• If we have these five values we know the theoretical value of our guest
• We trust this number implicitly. The true outcome is rarely exact, but over time it exacts
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V|PA real life example• In our example, Sam Smith is worth $501 in Gaming revenue• Sam Smith will pay a $20 resort fee• Sam Smith will see a $200 show 15% of the time. Our margins on the
show are 35%• Sam Smith will dine $100 per night at a 30% margin
• Sam Smith’s CPOR is $50 hypothetically• Marginal casino/mktg labor charged against Sam Smith’s play is $25
• Sam’s profitability is:• Revenues of $501 + $20 + ($200*15%*65%) + $70 = $610.50
• Expenses of $50 + $25 = $75
• Profitability = $535.50
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V|PA real life example• So Sam Smith whom we’ve comped will earn us $540.50 in profitability
• Sam Smith must surely be worth more than the $500 cash paying Retail guest right? Remember, we believe implicitly the theo is correct over time
• It depends! Use your business acumen to determine who’s worth more
• Roger Retail would pay $500
• Roger Retail will pay a $20 resort fee
• Roger Retail’s theo is $30. Retail customers play cards too
• Roger Retail has a slightly higher likelihood of going to a show.
He will see a $200 show 40% of the time. Our margins on the show are 35%
• Roger Retail will dine $150 per night at a 30% margin
• CPOR would be higher as there are slightly higher distribution costs even booking Direct than calling a host directly. Let’s use $55
• Roger’s profitability is:
• Revenues of $500 + $30 + $20 + ($200*30%*65%) + $70 = $659.50
• Expenses of $50 = $50
• Profitability = $609.50
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V|PA real life example - outcome• This was a bit of a trick question
• The Retail cash paying customer paying $500 is actually worth more profit than the $501 Casino player we comped…but how did we know that?
• Research! Analytics! Probability!
• We had to know, within acceptable statistical significance, a tremendous amount about each potential occupant of that room
• We need to know, by market segment (of which there are many) the following data points:
• Theo• Distribution channel costs• Marginal costs of dealers• Propensity to Dine (binomial – yes or no)• If yes, restaurant level, margins at each restaurant level• Propensity to see a show, margins of shows• “Life of the Customer” value. Who’s more likely to return and what’s that worth?
• Note: other factors come in to play such as length of stay which are beyond the scope of this deck in a 1-room, 1-night scenario
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V|PA real life example – outcome
• Can you do this?
• Integrated resorts of this size admittedly invest a tremendous amount of capital into CRM tools, and an equal amount into human capital.
• We have a team of statisticians outside of the Revenue Management spectrum analyzing casino play, casino guests, casino marketing, etc.
• But what to do with that intelligence is all in Revenue Management’s domain
• Revenue Management collects all the inputs and makes the decisions
• Revenue Management, given all relevant variables (because we are the one entity that is unbiased, agnostic, and holistic in our view of profit maximization) will make the best decision for the organization
• In short, there are no Silos!
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Modus Operandi
There are no Silos
• V|P wisely organized/structured Revenue Management to have near-ultimate signing authority on potential Group business
• Remove Moral Hazard!
• Our friends at Wikipedia define Moral Hazard as such:In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk
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Modus Operandi
There are no Silos
• V|P routinely reviews approximately 5-10 pieces of LARGE potential future group business each day
• Sales has a vested interest in having those pieces of business passed
• F&B has a vested interest in pushing the highest amount of contractual banquet spend minimums
• Expo Center has a vested interest in pushing
the highest amount of meeting room rental
• Why? They’re incented to do so
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Modus Operandi
There are no Silos
• So surely I’m contradicting myself. If three department all have a WIIFM mentality, how do we remain holistic and make decisions based on the holistic fiduciary betterment of the company?
1. Give Revenue Management the FINAL say on approval after all opinions and arguments are heard
2. Hire the right leaders in the other departments who have high integrity and will willfully make decisions in the best interest of the company
Example of a situation in my past where this wasn’t the case
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V|P
Final Say?
• So how do I convince my GM, Owner, Asset Manager, etcto give me (Revenue Management) the final say in making important business decisions? Two words: Business Acumen!
1. Prove yourself worthy of making holistic decisions by investing your time and effort in furthered education
2. This can be anything from enlisting in a graduate degree to sitting down with your Controller and understanding all of the margins of all the revenue/cost centers
3. Be confident
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Neal Fegan,
Executive Director of
Revenue Management
Fairmont Raffles Hotels
International
Developing the future leaders of
Revenue Management
Recruitment – Who hires Directors of Revenue?
• Human Resources• Boss
– General Managers and some Directors of Sales and Marketing
• How much revenue management experience do these stakeholders have?
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0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
F&B
Rooms Division
Mgmt Trainee
Admin
Where do GM's Come From?
Source : HVS International
14.8
15.3
16.5
17.3
13.5
14
14.5
15
15.5
16
16.5
17
17.5
Mgmt Trainee Rooms Division F&B Admin
Yea
rs
Road to GM by Department
Source : HVS International
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First year of RM in hotels (if your company was a PIONEER)
Early 90’s
Revenue Management Rookies
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Source : Cornell Hospitality Report Vol. 8, No. 14, August 2008 Hotel Revenue Management: Today and Tomorrow
Recruitment• We shouldn’t rely on
hotel leadership to pick the best RM candidates
• Help hotel leaders choose top candidates by:– Use sophisticated surveys
based upon personnel statistics to help identify RM aptitude
– Interviews conducted by revenue management subject matter experts
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Revenue Management Pipeline
• If people are already a problem, and we become MORE selective, where do we get MORE people?
• Top two US Schools for Hotel Management (US News)– Cornell University - 3 course
offerings in RM and starting to develop significant RM talent
– UNLV (Harrah Hotel College) – 0 course offerings in RM
Fishing for RM outside normal Hotel Pond
• We can’t rely on current hotel talent pool
• We can’t even rely on developing hospitality school talent, as high RM aptitude has already been weeded out
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Start at the beginning…• Start with students
before they have chosen their career path and/or industry
• Focus on students who have economic and/or business aptitude
• Easier to teach hotel lingo to someone with RM aptitude than to teach RM to someone with hotel aptitude
Develop Revenue Management Internship• Recruit mentors
– DRM’s strong in revenue management
– Developer skill set
• Provide mentors framework to cover with intern
– Hotel and revenue management fundamentals
– Day to day application
– Brand-wide applications
– Project ideas
• Recruit interns– Farm in economics and business schools– RM SME Campus Visits– Online presence– Incentives
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Fairmont Revenue Management Academy: an example• RM for Non-Revenue
Managers– Filling the pipeline with 90% of
graduates moving on to DRM roles
• Courseware to challenge top performing DRM’s to keep them engaged
• Material to engage hotel executives
• Self-paced online training for repetitive technical tasks
In Summary
• Help hotel leaders (RM Rookies) choose high quality RM talent
• Fill the pipeline by generating interest prior to people choosing career industry
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Creating aRevenue Management Culture
Garth Peterson
Director of Sales – The Americas
IDeaS Revenue Solutions
"Changing the attitude and behavior of thousands of people is very, very hard to accomplish.”
“You can’t simply give a couple of speeches or write a new credo for the company and declare that a new
culture has taken hold.”
“You can’t mandate it, can’t engineer it. What you can do is create the conditions for transformation,
provide incentives.“
Lou V Gerstner Jr, Former CEO, IBM
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• What is “Revenue Management Culture”?• Positioning of Revenue Management • RM is “Teacher, Strategist and Marketer” • Steps to a Better Revenue Management Life
Definition of Culture
….the set of shared attitudes, values, goals, and practices that characterizes an organization….
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Data Collection
Data Analysis
Forecasting
Inventory Manage
ment
Pricing
Measure Success
Revenue Management
Processes
Which room, which day, how long
Systematic gathering of
historical and current trends
Effective use & communication of the data collected in strategic decision making processes
What price for what day
Unconstrained Demand Forecast for RM purposes
Benchmarking & Performance
Monitoring
People & Organization
Education & Training
Systems & Tools Processes
Revenue Management Vision & Culture
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• A common vision & mission• A common commitment• A common sense of urgency for change• A common belief in the value and benefits
– and in the ultimate success
Great cultures are built around…
Great cultures also include…• A common vision & mission (long & short term),
communicated throughout the organization/Hotel• Clearly defined success criteria• “Rules of engagement”• Providing the right resources to make it happen• Continuous and clear communication• Common/Shared knowledge• Flexibility to change course when required
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Yesterday Today
Achieving Budget
Producing Reports
Managing inventory manually
Setting Rates during Budget time
Managing relationships with indirect channels (& Reservations)
Driven by “the number cruncher”
Achieving the three year strategic plan
Driving Business Intelligence to support strategy
Automated Systems making decisions – and implementing them through all channels
Dynamically managing rates according to demand and cost of sale
Managing many channels, both direct & indirect
Driven by everyone
Revenue Management
Finance
SalesOperation
Marketing
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How do you get there?
Determine Status Quo
AgainstIndustry
Best Practice
DetermineShort & Long
TermVision
DevelopThe Optimal
Approach
Implement&
Improve
ProcessesSystemStructureTools
What are the key priorities?
What are the quick wins?
Where do we get the best ROI?
Standards
Best Practice
Education
Tools
Training
Continuous Improvement
Increased Automation
What is your Revenue Management Culture?
• How do you communicate it?• How do you spread the knowledge?• How do you create support and buy in?• How do you keep it simple and relevant?• In the end, is Revenue Management
embraced and supported?
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LowLow
HighHigh
Cul
ture
HighHighTechnology Adaptation
RevenueBreak
through
RevenueBreak
through
Processes
“It appears that acombination of
technological tools and intuitive/consultative
judgments can help hotels in making financially
prudent rate decisions that lead to stronger financial
performance....”
Cornell Nanyang Institute of Hospitality Management
Who cares?
So remember…- Revenue Management vision & mission (long & short term)- Clear and consistent communication about the benefits and
values of RM throughout the organization/Hotel- Clearly defined success criteria to create focus and alignment- Processes to share and enhance knowledge- Be flexible to make mistakes and course correct as needed
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Everyone is part of the culture!
Photos by Peninsula/Annie Leibowitz
Questions?Panel Moderator: Patrick Mayock, Editor-in-ChiefHotelNewsNow.com/STR/STR Global
Panelists:
Karrie Keen,
Destination & Trend
Operations
STR
Neal Fegan,
Executive Director of
Revenue Management
Fairmont Raffles Hotels
International
76
Garth Peterson,
Regional Director of Sales -
The Americas
IDeaS Revenue Solutions
Jack Easdale,
VP Yield Management
The Venetian
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77
Online Business Acumen Course leading to CHBA Certi fication
4-week course – next open enrollment 2013 – date to b e announced
Register now at www.hsmai.org or contact [email protected] more information
Upcoming Webinars:
#9 in the 10-part Revenue Management series:
Translate Math to EnglishNovember 27, 2012 ♦ 2:00-3:30 pm EST
#10 in the 10-part Revenue Management series:
Keeping Up With TrendsDecember 18, 2012 ♦ 2:00-3:00 pm EST
11/15/2012
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HSMAI’s Newest Certification:
The Certified Hospitality Digital
Marketer (CHDM)
www.hsmaicertifications.org
HSMAI Adrian Awards Gala, January 28, 2013 – Reserve Your Tables
and Seats Today at www.adrianawards.com
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