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November 2018, Amsterdam
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How AccorHotels is giving a bottom up boost to RM
A cultural shift at Accor, which is taking focused, cross-functional approach to revenue management at the individual property level, is a lesson for all. Tom Bacon reports
Who wants sub-optimal revenue management? Certainly not us revenue managers! Increasingly, we aspire to total revenue management. It is easy to see why. As ancillary revenue approaches 50% of total revenue, we understand that the traditional RM system, built around the base rate or fare only, clearly is suboptimal. However, most travel companies today don’t properly manage ‘total revenue’.
The good news is that some practitioners are seeking a new algorithm, a new analytical model that will account for ancillary revenue. Adam Hayashi, VP of Revenue Management & Analytics at AccorHotels, who spoke at a recent EyeforTravel event, who sees ‘total revenue management’ in a different light, is one of those. For Hayashi, the concept of TRM is an innovative way of thinking and a cultural shift, rather than just a new mathematical goal. He encourages RM – and virtually every other function at his hotels – to think in terms of meeting customer needs on a broad scale and maximising the use of every square foot at his properties.
Of course, in the airline industry, ultra low cost carriers theoretically have a culture of total revenue. Much of their focus, however, has been on unbundling services to permit lower ‘bare bones’ fares. But customers often view this negatively, seeing it as service degradation, or extreme nickel and diming, rather than an attempt to better meet their needs. At Accor, Hayashi is approaching ancillary in a far more entrepreneurial way by considering what new value-added services can improve the customer experience and drive new revenue streams.
At the recent conference in Las Vegas, where Hayashi was speaking, he provided multiple examples of how the group has grown ancillary revenue. Here are four he cited:
1. Wedded bliss: At one upscale property, the large back lawn became a popular new wedding venue in the city. The property was well known as an elegant setting in town; converting the space to a wedding venue became a significant new revenue driver, utilising an asset that had previously generated no incremental revenue.
2. Water wonder: Similarly, another property was adjacent to a world-renowned vista, a lake surrounded by a stunning mountain range. New canoe rentals created an opportunity for hotel guests to experience the vista in a dramatic way. The hotel leveraged its world-renowned neighbouring asset, charging $160 per hour in the summer for a total of $3 million.
3. ‘Winterisation’: Another property attracted a huge summer crowd, but was much less popular in the winter. By investing in a skating rink the hotel generated a new source for ancillary revenue. Then it went further by creating fire pits near the skating rink that could be rented for $450 for a two-hour period – a tremendous new revenue opportunity!
4. Business focus: One hotel had a swimming pool on its top floor with a grand view of the city. Although the pool was popular with weekend leisure travellers, who often secured low rates through OTAs, it was not used much by higher revenue business customers who frequented the hotel during the week. The pool was replaced by new meeting space with a 360-degree view of the city, becoming a new focal point for businesses and a major differentiator from its competition.
3 lessons in ‘total revenue management’
Each of these examples of TRM delivered new value-added services for Accor customers that resulted in incremental revenue. What is more, each required a change in perspective, and a change in culture. Here are some of the lessons learnt.
- Take a bottom up approach: Ancillary opportunities can be found by meeting previously unmet customer needs. Interestingly, each example above was location specific; the focus was on the individual properties. Rather than Accor HQ taking a top down approach, instead, hotels were given the freedom to hone in on the value of their own properties and customers.
- Knock down silos: Total revenue management cuts across functional silos. Each of the opportunities identified required a cross-functional approach. In other words, no specific department was tasked with, for example, maximising revenue from the back lawn. Instead of thinking narrowly about the customer needs – do they need a spa, a restaurant or a room upgrade – departments got together to brainstorm, and the feedback from frontline employees helped to identify new opportunities.
- Sweat your assets: An obsession with ‘profit-per-square-foot’, rather than traditional travel company metrics like occupancy or REVPAR or RASM, helped Accor to realise assets that were either not used at all or were not being fully exploited.
So, TRM is not necessarily a new revenue management optimisation model, nor is it just the unbundling of existing services. Instead, it represents an exciting new corporate culture that can be both customer-friendly and profitable!
Tom Bacon has been in the business 25 years, as an airline veteran and now industry consultant in revenue optimisation. He leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Questions? Email Tom or visit his website