TECHNOLOGY : REVENUE MANAGEMENT
Now the hotel industry is recognizing the problems of this approach , as the correlation between RevPAR and profitability is imperfect and can distort decision making . It ’ s not what RevPAR measures that is the problem — it ’ s what it doesn ’ t measure . RevPAR ignores ancillary spending and does not consider group use of banquet or meeting facilities . It also does not account for the costs associated with different distribution channels .
In fact , tying RevPAR to the financial compensation of revenue managers has boosted hotels ’ reliance on online travel agencies and other third-party distribution channels whose commissions eat into the profit margin . “ In some ways we are chasing false gods ,” Cross says . “ RevPAR index data was never intended to be aggregated and used as a financial compensation tool . It was never intended to be used in performance tests by owners to determine if hotels were being well managed . There is a generation of revenue directors out there achieving RevPAR index growth goals to achieve a financial bonus by
Consultant Eric Orkin posits a question to the opening panel at the 2012 HSMAI
Revenue Optimization Conference .
opening up opaque channels at near breakeven rates . When your incentive compensation is tied to an index number , it can invite some bad behavior .”
Death of rate parity ? This does not mean that third-party sites necessarily drag down hotel profit margins , though , as revenue managers attest to their usefulness in putting heads in beds when demand is lower . “ If transient business falls over traditionally lower-demand periods , while the group business booked falls over traditionally high periods of the month , then it clearly demonstrates that a higher group segment ADR cannot be gauged in isolation ,” says Kurien Jacob , senior vice president , revenue and distribution , Highgate Hotels , New York City . “ Though the absolute ADR may be higher , it is important to analyze the opportunities that may be missed .”
Indeed , hotels may have little choice but to accept more third-party channels if new players in mobile and social media emerge and capture sufficient chunks of the distribution market , although both remain slivers now . “ The 1990s and 2000s were the decades of the Internet , but this decade will be the decade of mobile and social media ,” Bhatia says . “ Mobile is quickly becoming the primary channel for planning , researching , inspiring and booking travel , while social media will be the prime enabler . SoLoMo ( social , local , mobile ) is the buzzword . Current incumbents will have to find ways to compete with new players .”
The threat to rate parity comes from the diversification of distribution channels that could cause a shift in market share . For example , if Apple were to offer new iPhone booking software that would dominate mobile , hotel companies could find it useful to utilize a price-point advantage , especially given that brand . com websites are more sophisticated now than when online travel agencies established themselves .
There are differing views about how this could affect rate parity . Already cracks in the ironclad agreements between hotel companies and online travel agencies are beginning to appear via flash sales , mobile and social media . “ Hotels are providing discounts lower than the publicly available rate through closed-loop websites such as LivingSocial ,” Jacob says . “ Hotels are also selling different rates through mobile channels like Hotel Tonight and providing special rates on social media networking sites such as Twitter and Facebook .”
However , others are more skeptical that rate parity will be discarded given its importance in preventing wholesalers from cutting into hotel profit margins by offering rates lower than hotels can afford . “ Rate parity is alive and well ,” Cross says . “ Anyone who doesn ’ t think so is too young to remember the online travel boom of 1998 through 2002 . If you did not live through it you simply cannot understand the chaos that was caused by a lack of rate parity as individual hotels continued to shoot themselves in the foot and sign contracts that permitted wholesalers to operate in a retail space with rates lower than the hotels could sell themselves .”
58 HOTELS September 2012 www . hotelsmag . com