Analyses showed that hotels with a solid revenue management strategy came out of the Covid-19 crisis better than hotels without. In this article, you’ll learn how successful hoteliers handle pricing strategies for recovery, and how to deal with spillage, spoilage, overbooking, and oversell.

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Hotels With a Solid RM Strategy Came Out of the Covid-19 Crisis Well

As vaccination rates increase and domestic and international travel restrictions lift in countries worldwide, people are eager to travel. As a result, you probably see bookings increase in your hotel.

As you piece together your revenue picture over the past year and a half, you might be surprised to find your property fared better than some. That’s the case with many hotels that stayed open and implemented smart revenue management practices.

Despite the worst crisis to ever hit the tourism industry, some hotels have far exceeded the pessimistic projections analysts shared earlier in the year when they predicted hotels wouldn’t return to 2019 RevPAR until 2023 or 2024.

Now, that pessimistic outlook could be true for hotels that closed or severely curtailed their operations during the pandemic and are just reopening with no effective sales strategy in place.

The Results in June 2021

In this article, we’ll share the difference-maker. That difference-maker is implementing smart sales and pricing strategies while coping with spillage, spoilage, overbooking, and more.

For the sake of this article, we’re referencing hotels in countries with high vaccination rates. We’ve found such hotels that implemented strong revenue management, and marketing practices pre-pandemic and during the pandemic fared better than their counterparts.

In fact, these hotels have already neared or topped pre-covid levels in June 2021 (in terms of both occupancy and RevPAR, as visible in the below graph).

Revenue Mangement results June 2019 vs 2021 Italy

As you read this article, keep in mind that, as with all things successful, there’s no one “magic” solution.

Rather, successful hotels apply a three-prong framework to their hotel strategy.

  • Effective revenue management
  • Smart marketing tactics
  • High online reviews

As this article shows, the hotels with those approaches in place have remarkably outperformed hotels that don’t.

In fact, 2020 found that hotels with solid revenue management and marketing strategy in place remained open, kept a good part of their staff working, and achieved a positive GOPPAR (gross operating profit per available room) and EBITDA (earnings before interests, taxes, depreciation, amortization) despite the pandemic and the restrictions. Hotels that didn’t have those in place struggled or preferred to shut down to cut costs.

Those hotels with a strong 2020 optimized strategy improved their conversion rate getting stronger visibility on OTAs and Google in 2021.

OTA Visibility Favors Those Already Visible

By staying open, they were visible on these channels. As guests booked, that brought much-needed revenue streams to the OTAs and Google during a crisis. Because algorithms favor properties with good reviews and available and bookable inventory, they favor these hotels with higher rankings.

On the other hand, the properties that closed are at a severe disadvantage because they were, in effect, invisible for a long time online.

Of course, visibility on Google and Otas also means more chances to get direct bookings (phone calls, emails, website reservations) through the so-called billboard effect provided by these giants. Plus, such visibility enhances the possible ancillary revenues (f&b, parking, room service, etc.), which are beneficial for the TRevPAR (Total Revenue per available room).

Outlook for Next Months

While the pandemic, unfortunately, is not over yet, and Covid probably will never go away, it’s now clear that science and medicine provide reasons for optimism and a much brighter outlook compared to one year ago. In fact, both natural immunity (after contracting Covid) and vaccines seem to be effective also against novel variants in the sense that they protect from severe illness and risks of hospitalizations. As a consequence, some countries are planning to eventually live with Covid without imposing total lockdowns and quarantines over and over again.

In this context, as overall demand in many areas of the world is gradually coming back to pre-covid levels, it is the right time for hoteliers to re-evaluate their revenue management strategies.

Revenue management outlook - On the books Italy

Booking.com, source markets cities

During high demand, you probably consider spillage, spoilage, overbooking, oversell, denials, and regrets. You’ve probably implemented at least some of these – perhaps with mixed results.

These hotel industry terms can be misunderstood. Let’s define them and show you ways to boost your hotel’s revenue and reputation.

A Deep Dive into Spillage, Spoilage, Overbooking, Oversell, Denials & Regrets!

This section takes a deeper dive into the meaning of spillage, spoilage, overbooking, and oversell. What do these terms mean, and how should hoteliers deal with them.

Spillage and Spoilage: How to Manage Them?

Spillage means that we have sold the rooms available in our property much too quickly and therefore are forced to stop sales well before the check-in date.

Here’s why that’s a problem.

Imagine it’s high season. You’re so eager to be booked months in advance that you sell the rooms for less money than you could get if you waited and implemented revenue management strategies.
Of course, you don’t want a large number of unsold rooms at the end of the day. Yet, you can enhance your revenue if you properly implement ways to combat spillage.

First, what are the most common issues related to spillage?

  • Incorrect starting prices (too low)
  • Lack of control over online quotas through Tour operators, wholesalers, and various allotments
  • Incorrect or absent rate dynamization
  • Lack of sales monitoring and control on booking window
  • Failure to account for probable events on a specific date

You can probably nod your head as you read through these. You recognize them as problems, and maybe you’re actively seeking a solution for them.

The first step is recognizing when these problems tend to occur. Firstly, it’s critical that you have a channel manager that synchronizes the inventory and rates on all the connected platforms. That way, you can see at a glance your options.

Then, it’s critical to manage inventory strategically and cautiously. The further out the date, the less inventory should be loaded on the channel manager. Less inventory minimizes the risks of a starting price that’s too low. You can refill your inventory later when there’s more demand and increase your rates accordingly.

Properties that don’t implement revenue management tend to leave all their online inventory open and bookable. This means they don’t have the chance to increase rates if there’s an uptick in demand.

While spillage references selling your rooms long before the “sell by” date, spoilage is the opposite. You end up with a large number of unsold rooms close to the stay date. Now, you’re in the unhappy position of trying to do everything possible to sell the remaining rooms.

As a result, maybe you set up a last-minute forced rate. If you don’t have an adequate cancellation policy, this could lead to a rash of cancellations (and rebookings) at the new and lower rate.

Another problem is when the hotel starts off with a high rate and misses out on sales. If the rate isn’t aligned with the market, then potential guests book elsewhere.

What are the common issues associated with spoilage?

  • Incorrect starting prices (too high)
  • Too fast dynamization of rates
  • Lack of booking monitoring
  • Possible stay restrictions (Minimum Stay – Non-Refundable Rates)
  • Lack of statistical analysis

In both scenarios, the hotel faces lost revenue.

In the case of spillage, the sales are made too hastily, and the room rates are not maximized for their potential. In the case of spoilage, last-minute price decreases also leave us in the position of potential lost revenue.

What’s a hotelier to do?

Consider implementing revenue management strategies in your hotel management.

There are two more ways a hotel can lose revenue too.

Denials and Regrets: Or, More Ways to Lose Revenue

While these might sound like lyrics from a pop song, they’re firmly entrenched in hotel revenue management. Denials occur when the property cannot accept guests’ requests for a certain date because it is already fully booked. On the surface, that sounds like a great problem to have. Unless it’s too early, and then it can be a problem of “spillage.”

Denials are usually offline requests (e.g., phone calls or emails). When you track and record denials on your PMS or RMS, then you can review your pricing for the next weeks during peak season or for the same time next year and use that as a guide for your revenue management.

If the hotel fully booked out three or even six months in advance at a low rate through offline and online requests, this is a typical sign of spillage combined with denials. Rooms sold too fast at too low rates, leaving loss revenue potential. If you have data from previous years, you can use that information to implement a different approach.

Regrets happen when guests have started the booking process (online or via phone, email, etc.) but do not finalize it because the price is too high (in the vast majority of cases) or for other reasons (sales restrictions, guarantees required, etc.). As described for denials, regrets should be logged as well through the proper tools so you can compare them in the future.

As you know, an excessive number of regrets can indicate potential spoilage. Both denials and regrets offer an opportunity to improve your revenue management approach. Yet, it’s critical that you know which problem you face, so you know how to adjust.

Two more common problems hoteliers face are overbooking and oversell.

Overbooking and Oversell

Now that you have a grasp of spillage and spoilage let’s turn to overbook and oversell.

Overbooking, as it sounds, means the hotel has more rooms booked than the ones available. Now, this is not always a mistake. There can be solid reasons why the person in charge of bookings — or the Revenue Manager — may choose to do so.

For example, there are undesired statistical variables that should never be underestimated. These can include:

  • last-minute cancellations
  • no show
  • early check out
  • late check-in
  • invalid credit cards
  • bad weather conditions

Precisely because hoteliers have to account for such variables, there can be a tendency to sell more rooms than are available in the facility. That way, they can compensate for potential cancellations, and it can work out well.

Overbooking is a moment of transition between going over or under actual inventory. The best way of doing it successfully is to check the guarantees submitted by customers. Do you have deposits or pre-authorized credit cards? If not, are you sure they’re coming? By reviewing other variables, you can account for a percentage of cancellations or no shows.

On the contrary, if we find ourselves in the situation of having to “reprotect” guests – that is, rebooking customers to another hotel – then overbooking turns into oversell, as we have sold more rooms than are available in the facility.

This looks like overbooking. However, in this case, we haven’t screened the reservations. We have miscalculated the variables or haven’t performed an advance check on credit cards (which have all turned out to be valid).

Now, we find ourselves with too many guests coming to our hotel and not enough rooms. That can lead to a bad review and lost guests.

Ways to Forecast Hotel Revenue for the Coming Months

In recent weeks, after improving health and easing restrictions, many hotels had to deal with such problems. Maybe yours is one of them.

Leisure travel has skyrocketed thanks to the warmer weather and pent-up desire to travel. Even city hotels have found themselves facing these situations during the week with some of their business travelers. This is likely to continue through the peak summer travel season.

Here’s an example: Several resort hotels booked up in May for August – during peak season. These hotels stopped their online sales early without maximizing their revenue. So, they have “spillage.” Of course, you want to book up. But you want to fully book out by selling rooms at the best rates you can from a revenue perspective.

As seen in summer 2020, the best reservations regarding ADR (average daily rate) for leisure hotels came in very close to the check-in date. People were booking a hotel within days of their decision to travel.

Those hotels with high online review scores and effective revenue management and marketing strategies in place were able to capitalize on those reservations. Their OTA visibility rewarded them with bookings. Their smart revenue management practice ensured they booked the rooms profitably.

In fact, despite the pandemic, these approaches allowed them to outperform their results for the same months as the previous summer.

To reiterate, the hotels with strong revenue management strategies in summer 2020 exceeded their previous year.

As you know, in the summer of 2020, there were no vaccines, the immunity rate was very low, and there were many international travel restrictions. Yet, despite such obstacles, the revenue management strategies carried these hotels through and even kept them profitable.

We expect the demand for leisure hotels will be even higher this summer. There will be dates with excess demand when everyone wants to travel. When this happens, the goal is not only to get 100% occupancy, which will be super easy but to do that at the highest possible ADR and net margin. That’s the most challenging and fun part of the game.

Boost Your ADR with Data-Driven Decisions

With the right tools, you can achieve the highest possible ADR. For example, when you can review the historical booking window and related ADR, you have a snapshot of the past. You can use past data to inform your actions in the days and weeks to come so you can avoid spillage or spoilage.

As you review your data, consider your cancellation statistics. They’ll guide you to the most suitable cancellation policy and penalties to apply for each period.

It’s also crucial to analyze data about cancellations and no-shows with an invalid credit card. That way, you can apply the proper overbooking strategy and check all the credit cards in due time for peak dates. This helps you avoid last-minute no-shows. If you have no valid credit card or another guarantee for late cancellations and no-shows, then you may be forced to resell the empty room at a low rate. Obviously, you don’t want this loss of revenue.

While the summer travel season tends to focus on countryside, mountain, and beach hotels, these approaches apply to city hotels too, especially during Autumn. City hotels are gearing up for big events, concerts, and conventions in major international cities like Milan, Barcelona, or Amsterdam. Such events are driving a lot of corporate and leisure demand at stellar rates for the next few months. (In some cases, the business on the books for virtuous hotels in these cities is better than what it was at the same point in time in 2019, so pre-covid)

Milan Autumn

All of this to say, it’s not too late to put the right revenue management strategy in place. You need the right approach for your situation with the right tools. They’ll help you avoid spillage or spoilage events that turn into huge revenue losses.

Free Ebook: 5 Revenue Management Tips for City, Beach, Mountain & Countryside Hotels

In the ebook “5 Revenue Management Tips for City, Beach, Mountain & Countryside Hotels”, hoteliers find in total 20 practical tips for city, beach, mountain, and countryside hotels to increase their revenue. Click here to download this free ebook.

Now that we are gradually coming out of the Covid-19 nightmare, the rebound of travel demand appears to be simply astonishing. For hotels that wish to make the most of every single revenue opportunity that the market offers over the next months, smart revenue management is the answer.

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This article is written by our Expert Partner Franco Grasso Revenue Team

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2022-02-18T20:07:23+01:00

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