The Revolution is Coming

Revenue management is an amazing discipline. Your commercial impact is huge, across many different areas of the business. Your team uses bleeding-edge technology to discover revenue opportunities and capture them.

We've just described revenue management as we envisage it, and how we think it should be seen. By contrast, the day-to-day reality on the ground in hospitality is often more like the following: your team spends half of their time pulling reports from different systems and combining them in Excel to get an overview of the business. Decisions are taken manually, reactively, and often based on imperfect information.

"We wanted automated, real-time, total revenue optimization, instead we got open pricing and hurdle rates"

Structural Challenges for Hospitality Revenue Management

By contrast to hospitality, other industries invest significantly more in revenue operations or commercial optimization. These functions are considered highly strategic, they deploy state-of-art technology, and their jobs are highly sought after.

Hospitality Revenue Management has a structural challenge – Hospitality is an unusually fragmented industry. Brand owners, equity owners, and operators are separate companies with different incentives.

Hospitality Revenue Management has a communication challenge – Revenue management has historically done a poor job of quantifying its impact. The consequence is that revenue management is often perceived as a cost-centre.

Hospitality Revenue Management has a people challenge – Revenue management has historically been considered an operational role, making it difficult to attract the best analytical commercial strategists.

Hospitality Revenue Management has a technology challenge – The hospitality technology landscape is fragmented, and standards have been slow to emerge. Low levels of technology spend have resulted in a small number of dominant legacy vendors and stifled innovation.

Unique Opportunities are Emerging

A series of macro trends are converging in such a way that hospitality revenue management will undergo an inevitable revolution over the next decade.

• Industry consolidation / professionalisation – Capital markets have opened their eyes to the opportunities in the hospitality category, bringing a trend of consolidation and professionalisation.
• Demand for growth but market competitive – The last 20-30 years have seen a boom in tourism, but growth is now slowing. Focus will turn from expansion to efficiency.
• Cloud technology adoption reduces barriers to entry – Cloud PMS penetration is currently at 10% across the industry, and estimated to be at 30% in 5 years.
• Machine learning (AI) has passed an inflection point – In the world of finance, the majority of trading is today executed by algorithmic decision intelligence.

"An estimated $50-100 billion of revenue in hospitality is left on the table every year. The winners will capture it. The losers will be bought or disappear."

How We Benefit from These Opportunities

Revenue optimization, not revenue management – Management concerns itself with tasks and projects. Optimization concerns itself with improving processes.

Commercial optimization, not revenue optimization – Commercial optimization concerns itself with all commercial functions involved in revenue generation, from sales, to marketing, to reservations. It extends to the entire buying journey and down to the bottom line.

We must partner with technology for solutions – Commercial optimization in hospitality is a highly complex, real time, multi-variant, analytical optimization problem. Our success depends on the application of AI/ML.

"Revenue management is a thing of the past. We're now talking about our field of work as commercial optimization or profit operations."

Outsized Returns for Early Adopters

The early adopters of these principles will generate outsized returns, which will accelerate adoption, and increase pressure on the late adopters. The question for hospitality businesses today is not whether this transformation will occur, but where in the adoption curve they want to be.

"You will not be replaced by AI/ML. But you will be replaced by those who adopt it."