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What’s ahead in revenue management in 2017?

by Ed Watkins, Contributing Editor |

As we all dive into the new year, hotel owners, operators and revenue strategists are probably a bit perplexed as they try to determine what kind of 2017 it will be. Will the hotel industry’s long upswing continue with further increases in occupancy and higher levels of average rate? Or will the merry-go-round finally come to a stop and everyone need to devise ways to gain bigger shares of declining or flat markets?

The revenue and channel management niches of the industry are in for some drastic and some subtler changes in 2017. Here are a few possible trends to look for in the world of Revenue Strategy:

A downward trend. According to STR, 2017 will be the year the supply and demand pendulum swings to the supply side. While in 2016 supply and demand were at equilibrium (both up 1.6%), in 2017 new room supply (forecast to increase 2%) will outpace the increase in demand (forecasted up 1.5%). As a result, the industry will experience a 0.5% decrease in occupancy, which combined with a 2.8% rise in rates will result in an anemic 2.3% increase in revenue per available room.

Of course, as every revenue manager lives with daily, the hotel business is a street corner war, so some markets, sub-markets and street corners will perform better or worse than others. An RM should never look at national averages, except as benchmarks. Whether your specific market is up or down next year will dictate your tactics and strategies. 

The revenue and channel management niches are in for some drastic changes in 2017. #hotelnews… Click To Tweet

More consolidation. While 2016 was a year of significant consolidation in the hotel industry, none was bigger than Marriott International’s purchase of Starwood Hotels & Resorts, creating the biggest hotel company in the world and causing every revenue manager to rethink its rate and distribution strategies.

Many analysts believe more consolidation is on the way, with companies such as InterContinental Hotels Group, Choice Hotels and Hyatt Hotels often mentioned as merger candidates. Each change in the industry’s landscape will further complicate how RMs approach their own strategies.

Airbnb continues to soar. Very few people had heard of Airbnb five years ago, but as we approach 2017 this sharing economy site (and a few others) represent a big threat to the hotel industry. And Airbnb in particular is determined to move beyond its current model to become a travel supermarket that could threaten the success of OTAs, as well as the pricing power of many hotels.

Some hotels and hotel companies have chosen to keep this enemy close to them by placing some inventory on the site and finding other ways to coexist with Airbnb. In 2017 and beyond, Airbnb seems destined to find additional ways to siphon business away from traditional lodging and OTAs.

The king of all that’s online. Another major threat to the hotel industry’s distribution practices will probably come from Google, the dominant player in the worldwide Internet. To date, the site’s management claims it doesn’t want to make Google into a traditional OTA, but rather a partner with travel suppliers, such as hotels.

 
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And while these kinds of partnerships can help hotels keep a lid on their costs of customer acquisition, it also binds the industry closer to Google and its pay-to-play advertising model.

Crucial year for direct booking. The biggest story in hotel distribution in 2016 was the launch of marketing campaigns by several brand companies—Hilton Worldwide, Marriott International, IHG and others—that reward their loyalty club members with lower rates if they book direct.

The programs are aimed at lowering costs of customer acquisition for branded properties and blunting the power of the OTAs in the marketplace. The economics of encouraging direct bookings is compelling, but it might prove difficult for even the most powerful hotel brand companies to break consumers’ knee-jerk reaction to use OTAs because they believe they can find the best hotel deals on these platforms.

The brand companies are spending millions to promote these programs, and some hotel owners are griping about having to offer lower rates to some customers. As a result, 2017 will be a pivotal year in which the brand companies need to generate a critical mass of new customers who choose decide to choose brand.com over OTAs.

Managed travel at a crossroads. Corporate travel programs have been a staple at many medium to large companies as ways to control overall travel costs and to keep tabs on employees as they traverse the globe. That entire system has been under attack on many fronts, and the concept of corporately managed travel might further erode in 2017 and beyond.

Many corporate travelers—especially millennials and millennial-minded individuals—prefer to make their own arrangements, often through OTAs and other intermediaries. A recent Global Business Travel Association study showed 78% of U.S. business travelers would rather use self-service tools to plan their trips than work with an internal travel department or corporate travel agent. And an increasing number of corporate travelers are using Airbnb and other sharing economy platforms for business travel.

The impact of this trend for corporations and travel suppliers, especially hotels, could be wide reaching and significant. Negotiated rate agreements with corporations give some business-oriented hotels nice, reliable cushions of revenue. Without that base of business, RMs will need to find additional ways to lure independent-minded business travelers who are probably looking for new kinds of hotel experiences. 

Social media erupts. While traditional OTAs—and especially those under the umbrella of the three largest companies—continue to be strong, these platforms will remain under pressure from a number of angles.

A number of social media sites in 2017 hope to cultivate additional travel-related business. Both Facebook and Instagram recently launched initiatives to serve as travel facilitators, and 2017 will be crucial years for those efforts.

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Ed Watkins, Contributing Editor

Ed Watkins, Contributing Editor

Contributing editor at Duetto
Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.
Ed Watkins, Contributing Editor

Latest posts by Ed Watkins, Contributing Editor (see all)

Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.