By Luis Miguel Sanchez and Bhanu Chopra

RM explained

Revenue management is usually associated with the suppliers of travel products - such as Airlines, Hoteliers, and car rental companies and cruise lines. However in the broader perspective, it applies to any entity that has a perishable commodity and would like to maximize revenue given its perishable inventory.

However something that is not often talked about is Revenue Management for Travel Agents, Travel Consolidators and third party online travel agents. Although practiced by all travel agents in some sense, there are very few travel agents that have either set revenue management processes or sophisticated revenue management applications to make price recommendations for their own travel inventory. Though working as a third-party, you have limited control on inventory; the allocated or contracted inventory is nevertheless perishable - an allocated room not sold is certainly lost - and demands for Revenue management principles to maximize profits. Anything that has a variable demand and fixed supply can use Revenue Management principles.

Is Revenue Management for Travel Agents?

Revenue management is critical for travel agents, online intermediaries as the suppliers have increasingly taken control of inventory and engage in direct distribution through their own websites. With the increasing pressures on travel agents and online intermediaries, it is also time to start giving some attention to Revenue Management.
“In an industry like online travel with such wild competition and volatile demand, the importance of Revenue Management is infinite. By developing, interpreting, and implementing complex pricing and inventory management actions we manage to compete effectively and maximize potential revenues.

Travel corporations are increasingly being forced to compete on price. Price intelligence reports is a tool which allows us to stay on top of our competition, ensure that our prices are being optimized on a daily basis to reflect market changes and variable demand, and accurately estimate hotel traffic for future dates.”

Nick Tsimbidaros, Business Development Manager, OctopusTravel USA

How does one begin to think of Revenue Management in this context? The goal of the hotelier is to maximize RevPar, and airlines to maximize onboard revenue. For a travel agent it is to maximize revenue based on product available to it. Adding to this, a travel agent will hold a position of strength in next-round negotiations with its suppliers whenever he achieves a Revenue Management strategy.

So how should you price your product? Designing a capable revenue management tool is a daunting task.  Here are some thoughts:

Price: Typically the business model for travel agents is on Net Rates - Wholesalers and TTOO - or commissionable rates - mainly Retailers. In the first case, they however have the flexibility to decide what the final price the end customer is going to pay. A good Revenue management system for Hoteliers takes into account the historical rates and occupancy levels for the hotel’s competitor set and then recommend rates. Nowadays, software applications enable hoteliers to react on real-time, by pulling all data together and distributing their inventory into the different Rate Groups accordingly. For Travel agents, it is essential to benchmark against your competitor set in terms of price and market share. In order to screen/track/trace competitor pricing, this would involve either manually checking competitor websites or a more systematic approach would be to use a technology partner that can help in using their search engine technologies in tracking the price and availability of competitor firms. One very likely outcome of implementing revenue management principles is establishing dynamic real time pricing of travel inventory for the online intermediaries.

Availability - A travel aggregator that has more depth and breadth of inventory can at times of high demand, afford to charge a higher price as the travel inventory. Pricing will be set according to the market trend, prices will increase as capacity decreases and vice versa, in such a dynamic way that Revenue obtained will be maximum. This requires that the travel agent keep a constant tap on competitor’s availability and pricing.

Elasticity of demand:  The key is being able to determine customers’ elasticity of demand - how badly they need the product or service and how much they’re willing to pay. This requires an investment into web analytics software to determine the customer preferences, their navigational behavior, the frequency and interval of visits to your website. A thorough study of visitor behavior should be followed by an implementation of a personalization strategy (CRM strategy) that is capable of delivering an airfare or hotel rate based on the customer needs and preferences. Studying demand elasticity is critical for hotels and intermediaries as it is not yet become a commodity as Airlines have. A real-time application to apply discount policies and promotion programs based on visitor behavior can be judicious.

Demand forecasting - A true RMS product would focus on a forward-looking report. And as such, the balance between historically based assessments and a current analysis of marketplace provides the basis for creating an accurate forecast. A system must be dynamic, accounting for current alterations in the marketplace, and increasingly accounting for this information as the actual booking date draws near.

 

In summary

A Revenue Management system should only be followed after Revenue Management processes and principles are established. Revenue Management is not the magical answer to travel agents woes but it is worth a deeper look to maximize revenue given your current resources. The first step is not a big investment into a sophisticated RMS but establishing revenue management principles across your sales and product teams.

About the Authors

Luis Miguel Sanchez works as Assistant Head of Product at Hotelbeds. For more information visit www.hotelbeds.com or email [email protected].

Bhanu Chopra is the CEO of RateGain. RateGain provides Internet based competitive pricing intelligence to the global travel industry. The mission is to deliver a comprehensive view of Internet based travel airfare and hotel-rates information to travel portals, airlines, hotel chains, travel inventory consolidators and travel industry related market research firms. The availability of this market intelligence enables our customers to reach their price-decisions faster and remain ahead of the market by deciding appropriate sales strategies. This in turn helps our customers increase their sales and enhance efficiency of Internet as the preferred and low-cost medium of transaction. For more information visit www.rategain.com
or email [email protected]
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