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 during the post-covid era, and how to deal with spillage, spoilage, overbooking, and overselling.
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Hotels With a Solid RM Strategy Came Out of the Covid-19 Crisis Well
As you piece together your revenue picture over the past years, you might be surprised that your property fared better than some. That’s the case with many hotels that stayed open during Covid and implemented smart revenue management practices.
Despite the worst crisis ever hitting the tourism industry, some hotels had far exceeded the pessimistic projections analysts shared earlier in 2020 when they predicted hotels wouldn’t return to 2019 RevPAR until 2023 or 2024.
That pessimistic outlook could have been true for hotels that closed or severely curtailed their operations during the pandemic and reopened with no effective sales strategy.
In this article, we’ll share the difference-maker. That difference-maker implements smart sales and pricing strategies while coping with spillage, spoilage, overbooking, and more.
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 have remarkably outperformed those without.
In fact, 2020 and 2021 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 interest, 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 the following years.
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 closed properties were 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 benefit the TRevPAR (Total Revenue per available room).
During post-covid 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 hoteliers should 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 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 many 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 the 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, you must 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 many 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 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. Potential guests book elsewhere if the rate doesn’t align with the market.
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 with 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, 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, you can review your pricing for the next weeks during peak season or 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 also be logged 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 understand spillage and spoilage, let’s turn to overbooking 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
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 to do it successfully is to check the guarantees customers submit. 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 have 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).
We have 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
Post-covid 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 faced 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 from a revenue perspective.
As seen in previous summers, 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 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.
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.
In the experience of Franco Grasso Revenue Team, 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. You may be forced to resell the empty room at a low rate if you have no valid credit card or another guarantee for late cancellations and no-shows. 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 Spring/Autumn. City hotels are gearing up for big events, concerts, and conventions in major international cities like Milan, Barcelona, and Amsterdam. Such events have driven much corporate and leisure demand at stellar rates for the past and next few months.
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.
