Revenue Management Webinar Series Improve …eoplugin.commpartners.com/HSMAI/121115/121115_Slides.pdf11/15/2012 1 If you need technical assistance with the webcast, contact us at [email protected]

11/15/2012

1

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and we will assist you immediately.

Revenue Management Webinar Series

Improve Your Business AcumenNovember 15, 2012

This webinar series is brought to you by HSMAI University, HotelNewsNow, and STR

Overview of Format and Topic

Kathy TindellProgram Director, HSMAI University

11/15/2012

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POLL QUESTION #1How many people are participating

in this webinar at your location today?

� 1� 2� 3� 4� 5� 6� 7� 8 or more

3

Panel Moderator:

Patrick Mayock,

Editor-in-Chief

HotelNewsNow/

STR STR/STR Global

4

11/15/2012

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Today’s Presenters: Panel Moderator: Patrick Mayock, Editor-in-ChiefHotelNewsNow.com/STR/STR Global

Panelists:

Karrie Keen,

Destination & Trend

Operations

STR

Neal Fegan,

Executive Director of

Revenue Management

Fairmont Raffles Hotels

International

5

Garth Peterson,

Regional Director of Sales -

The Americas

IDeaS Revenue Solutions

Jack Easdale,

VP Yield Management

The Venetian

U.S. Hotel Industry Overview

HSMAI Webinar Series

15 November2012

Karrie Keen

Director Destination and Trend Operations

11/15/2012

4

Agenda

• U.S. Overview

• U.S. Chain Scales

• Development Pipeline

• Performance Projections

U.S. Overview

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The U.S. Continues on its Path of Improvement

% Change

• Hotels 52.4 k

• Room Supply 1.3 bn 0.4%

• Room Demand 834.4 mn 3.0%

• Occupancy 63.0% 2.6%

• ADR $105.94 4.2%

• RevPAR $66.79 6.9%

• Room Revenue $88.4 bn 7.3%

Total US - Key Statistics

YTD September 2012

Demand Growing at a Slower Pace

-8

-6

-4

-2

0

2

4

6

8

10

1989 1992 1995 1998 2001 2004 2007 2010

Supply % Change Demand % Change

3.3%

0.4%

Feb ‘11

7.7%

June ‘89

5.3%

Sept ‘09

-7.1%

Aug ‘06

-0.2%

Jan ‘89

4.6%

Mar ‘02

-4.7%

Oct ‘91

-0.9%

Room Supply/Demand Percent Change

Twelve Month Moving Average – 1989 to September 2012

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-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

1989 1992 1995 1998 2001 2004 2007 2010

Occ % Chg

ADR % Chg

June ’91

-3.4%

Jan ’92

0.1%

Mar ’02

-6.7%

Aug ’02

-4.5%

Oct ’06

7.5%

Sept ’09

-9.7%

Jan ’10

-8.9%

Apr ’11

6.2%

4.2%

2.8%

ADR Growth Outpacing Occupancy Growth

Occupancy/ADR Percent Change

Twelve Month Moving Average – 1989 to September 2012

Transient Demand Continues to Outpace Prior Year Demand

5

10

15

20

25

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2007 2008 2009 2010 2011 2012

NOTE: Data is for upper tier hotels only (luxury chains, upper upscale chains, and upper tier independent hotels).

Mil

lio

ns

Monthly Transient Demand

2007 Through September 2012

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Transient ADR Still Lagging Behind Peak

$130

$140

$150

$160

$170

$180

$190

$200


2007 2008 2009 2010 2011 2012


Monthly Transient ADR


Group Demand Higher in June than Previous Years

4

5

6

7

8

9

10

11

12


Mil

lio

ns

2007 2008 2009 2010 2011 2012


Monthly Group Demand


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Group ADR Still Seeing Effects of ADR Declines

$120

$130

$140

$150

$160

$170

$180


2007 2008 2009 2010 2011 2012


Monthly Group ADR


Transient ADR Pushes Premium to Group ADR

$120

$140

$160

$180

$200

2007 2008 2009 2010 2011 2012

Transient Group


US Transient vs. Group Monthly ADR ($)

January 2007 – September 2012

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Rate Disparity Starting to Normalize

$173.76

$149.81

$178.57

$157.07

$150.53$149.07

$153.34

$143.46

$161.04

$146.73

$168.40

$150.52

$140

$150

$160

$170

$180

Transient Group

2007 2008 2009 2010 2011 2012

2007 - $23.95

2008 - $21.50

2009 - $1.46

2010 - $9.88

2011 - $14.31

2012 - $17.88


Actual ADR ($) by Customer Segment

Year to Date 2007- September 2012

U.S. Chain Scales

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Upper Midscale Reporting the Most Growth

-0.4

0.1

1.8

3.1

-4.5

-0.3

3.02.3

3.9

5.9

-1.4

1.6

-6

-4

-2

0

2

4

6

8

Luxury Upper

Upscale

Upscale Upper

Midscale

Midscale Economy

Supply

Demand

Supply / Demand Percent Change

September YTD 2012

ADR Growth Leading Occupancy Growth

3.4

2.2 2.0

2.83.2

1.9

4.5 4.34.6

3.7

2.8

3.9

-2

0

2

4

6

Luxury Upper

Upscale

Upscale Upper

Midscale

Midscale Economy

Occupancy ADR

Occupancy / ADR Percent Change

September 2012 YTD

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Development Pipeline

Starting to See More Rooms In Construction

Phase October 2012 October 2011 Difference % Change

In Construction 67,640 55,139 12,501 22.7%

“Planned Pipeline” 222,617 255,248 -32,631 -12.8%

Active Pipeline 290,257 310,387 -20,130 -6.5%

Planned Pipeline includes projects in Final Planning and Planning phases

Active Development Pipeline – Rooms

Change From Last Year

Source: STR/McGraw-Hill Construction Dodge Pipeline

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Upscale and Upper Midscale Remain a Popular Segment

3.94.2

22.4 20.7

3.0 1.2 9.4

2.43.1

31.9 35.7

8.5 1.7

16.71.9

4.3

22.8

32.8

7.1 1.7

52.0

0

10

20

30

40

50

60

70

80

90

100

Luxury Upper

Upscale

Upscale Upper

Midscale

Midscale Economy Unaffiliated

In Construction Final Planning Planning

Active Pipeline by Chain Scale – In Thousands

October 2012

Performance Projections

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Supply Slowly on the Rise

-0.1

0.21.2

2.42.9

1.7

0.5 0.50.9

1.72.8

0.4 0.7

-2.5

-6.2

7.2

4.9

2.6

1.2 1.5

-8

-6

-4

-2

0

2

4

6

8

10

2005 2006 2007 2008 2009 2010 2011 2012P 2013P 20 Yr

Average

Supply % Chg Demand % Chg

Supply/Demand Percent Change

2005 – 2013P

Occupancy Growing at a Slower Pace

63.0 63.1 62.8

59.8

54.6

57.5

60.0

61.2 61.4

50

55

60

65

70

2005 2006 2007 2008 2009 2010 2011 2012P 2013P

Occupancy Percent

2005 – 2013P

2.8 0.2 -0.5 -4.8 -8.9 5.4 4.3 2.1 0.3

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More Growth Expected for ADR

$91.04

$97.82

$104.32$107.40

$98.07 $98.06$101.70

$106.15

$111.01

$50

$75

$100

$125

2005 2006 2007 2008 2009 2010 2011 2012P 2013P

Average Daily Rate (In Dollars)

2005 – 2013P

5.6 7.4 6.6 3.0 -8.7 0.0 3.7 4.4 4.6

ADR Best Chance to Grow RevPAR

Outlook

2012

Forecast

2013

Forecast

Supply 0.5% 0.9%

Demand 2.6% 1.2%

Occupancy 2.1% 0.3%

ADR 4.4% 4.6%

RevPAR 6.5% 4.9%

Key Performance Indicator Outlook (% Change vs. Prior Year)

2012 - 2013

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Highest RevPAR Growth Expected for Luxury Scale

2012 Year End Outlook

Chain ScaleOccupancy

(% chg)

ADR

(% chg)RevPAR (%chg)

Luxury 3.1% 4.8% 8.0%

Upper Upscale 2.2% 4.5% 6.8%

Upscale 1.7% 4.4% 6.2%

Upper Midscale 2.2% 4.2% 6.5%

Midscale 2.9% 2.4% 5.5%

Economy 1.7% 3.7% 5.4%

Independent 1.7% 4.4% 6.2%

Total United States 2.1% 4.4% 6.5%

Chain Scale Key Performance Indicator Outlook

2012F by Chain Scale

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31

Jack Easdale

Vice President,

Yield Management

The Venetian

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Improve Your Business Acumen

Total Profit Maximization in a Group House/Casino

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Venetian Palazzo Overview

• Las Vegas integrated resort (Sheldon G Adelson)

• 7,100 rooms

• 2.3 million square feet of meeting space

• 34 restaurants. 11 of which are famous chef restaurants such as Thomas Keller, Mario Batali, Wolfgang Puck, Sammy DeMarco, Luciano Pelligrini

• 235 Table Games (black jack, craps, roulette)

• 2,300 Slot Machines

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Venetian Palazzo Overview cont…

• 1 Billion in annual revenue

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Venetian Palazzo Overview cont…

Revenue Management Department Organization

• VP of Yield Management (Hotel, F&B, Shows, and Casino)

• Remainder of RM department is Rooms-based• Revenue Manager – Yield & Ops• Revenue Manager – Systems & Reporting• Revenue Manager – Channel Management & Booking Engine

• Revenue Analysts to support these three inter-disciplines

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Modus Operandi

The mantra we do business by

• We are “agnostic” to where the dollar of profit comes from

• $1 profit from Rooms =

• $1 profit from Banquets =

• $1 profit from Meeting Room Rental =

• $1 profit from the Casino

• Clearly we need to know what our margins are in each department to calculate $1 in profit, but once we know what revenues result in what margins, we’re able to make optimal decisions

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Optimizing across Departments

A real life example• In our 7,100 room property, let’s suppose we have 7,099 rooms

sold tomorrow night• We have 1 room left available and our RMS determines the fair

market value for that room is $500 for a “Retail guest” booked through our call center

• Let’s say Sam Smith calls the Casino Host and wishes to come play in our casino that night. We know Sam Smith has a theo(probable loss) of $501, but we need to comp him in order to induce his stay with us

• Which guest do you take? One pays you, the other is comped…

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V|PA real life example• We don’t have enough information yet to answer• First of all, let me explain the concept of theo• Theo is synonymous with probable outcome. It is “theoretical”.

It’s what “should happen” given proven mathematics• There are 5 variables used to calculate a person’s theo, and they

have to have played with you in the past to have this intelligence:1. House advantage

2. Average wager per hand

3. Speed of the game

4. Length of time on table

5. Skill of the player (rarely used)

• If we have these five values we know the theoretical value of our guest

• We trust this number implicitly. The true outcome is rarely exact, but over time it exacts

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V|PA real life example• In our example, Sam Smith is worth $501 in Gaming revenue• Sam Smith will pay a $20 resort fee• Sam Smith will see a $200 show 15% of the time. Our margins on the

show are 35%• Sam Smith will dine $100 per night at a 30% margin

• Sam Smith’s CPOR is $50 hypothetically• Marginal casino/mktg labor charged against Sam Smith’s play is $25

• Sam’s profitability is:• Revenues of $501 + $20 + ($200*15%*65%) + $70 = $610.50

• Expenses of $50 + $25 = $75

• Profitability = $535.50

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V|PA real life example• So Sam Smith whom we’ve comped will earn us $540.50 in profitability

• Sam Smith must surely be worth more than the $500 cash paying Retail guest right? Remember, we believe implicitly the theo is correct over time

• It depends! Use your business acumen to determine who’s worth more

• Roger Retail would pay $500

• Roger Retail will pay a $20 resort fee

• Roger Retail’s theo is $30. Retail customers play cards too

• Roger Retail has a slightly higher likelihood of going to a show.

He will see a $200 show 40% of the time. Our margins on the show are 35%

• Roger Retail will dine $150 per night at a 30% margin

• CPOR would be higher as there are slightly higher distribution costs even booking Direct than calling a host directly. Let’s use $55

• Roger’s profitability is:

• Revenues of $500 + $30 + $20 + ($200*30%*65%) + $70 = $659.50

• Expenses of $50 = $50

• Profitability = $609.50

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V|PA real life example - outcome• This was a bit of a trick question

• The Retail cash paying customer paying $500 is actually worth more profit than the $501 Casino player we comped…but how did we know that?

• Research! Analytics! Probability!

• We had to know, within acceptable statistical significance, a tremendous amount about each potential occupant of that room

• We need to know, by market segment (of which there are many) the following data points:

• Theo• Distribution channel costs• Marginal costs of dealers• Propensity to Dine (binomial – yes or no)• If yes, restaurant level, margins at each restaurant level• Propensity to see a show, margins of shows• “Life of the Customer” value. Who’s more likely to return and what’s that worth?

• Note: other factors come in to play such as length of stay which are beyond the scope of this deck in a 1-room, 1-night scenario

42

V|PA real life example – outcome

• Can you do this?

• Integrated resorts of this size admittedly invest a tremendous amount of capital into CRM tools, and an equal amount into human capital.

• We have a team of statisticians outside of the Revenue Management spectrum analyzing casino play, casino guests, casino marketing, etc.

• But what to do with that intelligence is all in Revenue Management’s domain

• Revenue Management collects all the inputs and makes the decisions

• Revenue Management, given all relevant variables (because we are the one entity that is unbiased, agnostic, and holistic in our view of profit maximization) will make the best decision for the organization

• In short, there are no Silos!

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Modus Operandi

There are no Silos

• V|P wisely organized/structured Revenue Management to have near-ultimate signing authority on potential Group business

• Remove Moral Hazard!

• Our friends at Wikipedia define Moral Hazard as such:In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk

44

Modus Operandi

There are no Silos

• V|P routinely reviews approximately 5-10 pieces of LARGE potential future group business each day

• Sales has a vested interest in having those pieces of business passed

• F&B has a vested interest in pushing the highest amount of contractual banquet spend minimums

• Expo Center has a vested interest in pushing

the highest amount of meeting room rental

• Why? They’re incented to do so

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Modus Operandi

There are no Silos

• So surely I’m contradicting myself. If three department all have a WIIFM mentality, how do we remain holistic and make decisions based on the holistic fiduciary betterment of the company?

1. Give Revenue Management the FINAL say on approval after all opinions and arguments are heard

2. Hire the right leaders in the other departments who have high integrity and will willfully make decisions in the best interest of the company

Example of a situation in my past where this wasn’t the case

46

V|P

Final Say?

• So how do I convince my GM, Owner, Asset Manager, etcto give me (Revenue Management) the final say in making important business decisions? Two words: Business Acumen!

1. Prove yourself worthy of making holistic decisions by investing your time and effort in furthered education

2. This can be anything from enlisting in a graduate degree to sitting down with your Controller and understanding all of the margins of all the revenue/cost centers

3. Be confident

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Neal Fegan,


Revenue Management


International

Developing the future leaders of

Revenue Management

Recruitment – Who hires Directors of Revenue?

• Human Resources• Boss

– General Managers and some Directors of Sales and Marketing

• How much revenue management experience do these stakeholders have?

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0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

F&B

Rooms Division

Mgmt Trainee

Admin

Where do GM's Come From?

Source : HVS International

14.8

15.3

16.5

17.3

13.5

14

14.5

15

15.5

16

16.5

17

17.5

Mgmt Trainee Rooms Division F&B Admin

Yea

rs

Road to GM by Department

Source : HVS International

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First year of RM in hotels (if your company was a PIONEER)

Early 90’s

Revenue Management Rookies

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Source : Cornell Hospitality Report Vol. 8, No. 14, August 2008 Hotel Revenue Management: Today and Tomorrow

Recruitment• We shouldn’t rely on

hotel leadership to pick the best RM candidates

• Help hotel leaders choose top candidates by:– Use sophisticated surveys

based upon personnel statistics to help identify RM aptitude

– Interviews conducted by revenue management subject matter experts

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Revenue Management Pipeline

• If people are already a problem, and we become MORE selective, where do we get MORE people?

• Top two US Schools for Hotel Management (US News)– Cornell University - 3 course

offerings in RM and starting to develop significant RM talent

– UNLV (Harrah Hotel College) – 0 course offerings in RM

Fishing for RM outside normal Hotel Pond

• We can’t rely on current hotel talent pool

• We can’t even rely on developing hospitality school talent, as high RM aptitude has already been weeded out

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Start at the beginning…• Start with students

before they have chosen their career path and/or industry

• Focus on students who have economic and/or business aptitude

• Easier to teach hotel lingo to someone with RM aptitude than to teach RM to someone with hotel aptitude

Develop Revenue Management Internship• Recruit mentors

– DRM’s strong in revenue management

– Developer skill set

• Provide mentors framework to cover with intern

– Hotel and revenue management fundamentals

– Day to day application

– Brand-wide applications

– Project ideas

• Recruit interns– Farm in economics and business schools– RM SME Campus Visits– Online presence– Incentives

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Fairmont Revenue Management Academy: an example• RM for Non-Revenue

Managers– Filling the pipeline with 90% of

graduates moving on to DRM roles

• Courseware to challenge top performing DRM’s to keep them engaged

• Material to engage hotel executives

• Self-paced online training for repetitive technical tasks

In Summary

• Help hotel leaders (RM Rookies) choose high quality RM talent

• Fill the pipeline by generating interest prior to people choosing career industry

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61

Creating aRevenue Management Culture

Garth Peterson

Director of Sales – The Americas


"Changing the attitude and behavior of thousands of people is very, very hard to accomplish.”

“You can’t simply give a couple of speeches or write a new credo for the company and declare that a new

culture has taken hold.”

“You can’t mandate it, can’t engineer it. What you can do is create the conditions for transformation,

provide incentives.“

Lou V Gerstner Jr, Former CEO, IBM

11/15/2012

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• What is “Revenue Management Culture”?• Positioning of Revenue Management • RM is “Teacher, Strategist and Marketer” • Steps to a Better Revenue Management Life

Definition of Culture

….the set of shared attitudes, values, goals, and practices that characterizes an organization….

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Data Collection

Data Analysis

Forecasting

Inventory Manage

ment

Pricing

Measure Success

Revenue Management

Processes

Which room, which day, how long

Systematic gathering of

historical and current trends

Effective use & communication of the data collected in strategic decision making processes

What price for what day

Unconstrained Demand Forecast for RM purposes

Benchmarking & Performance

Monitoring

People & Organization

Education & Training

Systems & Tools Processes

Revenue Management Vision & Culture

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• A common vision & mission• A common commitment• A common sense of urgency for change• A common belief in the value and benefits

– and in the ultimate success

Great cultures are built around…

Great cultures also include…• A common vision & mission (long & short term),

communicated throughout the organization/Hotel• Clearly defined success criteria• “Rules of engagement”• Providing the right resources to make it happen• Continuous and clear communication• Common/Shared knowledge• Flexibility to change course when required

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Yesterday Today

Achieving Budget

Producing Reports

Managing inventory manually

Setting Rates during Budget time

Managing relationships with indirect channels (& Reservations)

Driven by “the number cruncher”

Achieving the three year strategic plan

Driving Business Intelligence to support strategy

Automated Systems making decisions – and implementing them through all channels

Dynamically managing rates according to demand and cost of sale

Managing many channels, both direct & indirect

Driven by everyone

Revenue Management

Finance

SalesOperation

Marketing

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How do you get there?

Determine Status Quo

AgainstIndustry

Best Practice

DetermineShort & Long

TermVision

DevelopThe Optimal

Approach

Implement&

Improve

ProcessesSystemStructureTools

What are the key priorities?

What are the quick wins?

Where do we get the best ROI?

Standards

Best Practice

Education

Tools

Training

Continuous Improvement

Increased Automation

What is your Revenue Management Culture?

• How do you communicate it?• How do you spread the knowledge?• How do you create support and buy in?• How do you keep it simple and relevant?• In the end, is Revenue Management

embraced and supported?

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LowLow

HighHigh

Cul

ture

HighHighTechnology Adaptation

RevenueBreak

through

RevenueBreak

through

Processes

“It appears that acombination of

technological tools and intuitive/consultative

judgments can help hotels in making financially

prudent rate decisions that lead to stronger financial

performance....”

Cornell Nanyang Institute of Hospitality Management

Who cares?

So remember…- Revenue Management vision & mission (long & short term)- Clear and consistent communication about the benefits and

values of RM throughout the organization/Hotel- Clearly defined success criteria to create focus and alignment- Processes to share and enhance knowledge- Be flexible to make mistakes and course correct as needed

11/15/2012

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Everyone is part of the culture!

Photos by Peninsula/Annie Leibowitz

Questions?Panel Moderator: Patrick Mayock, Editor-in-ChiefHotelNewsNow.com/STR/STR Global

Panelists:

Karrie Keen,

Destination & Trend

Operations

STR

Neal Fegan,


Revenue Management


International

76

Garth Peterson,

Regional Director of Sales -

The Americas


Jack Easdale,

VP Yield Management

The Venetian

11/15/2012

39

77

Online Business Acumen Course leading to CHBA Certi fication

4-week course – next open enrollment 2013 – date to b e announced

Register now at www.hsmai.org or contact [email protected] more information

Upcoming Webinars:

#9 in the 10-part Revenue Management series:

Translate Math to EnglishNovember 27, 2012 ♦ 2:00-3:30 pm EST

#10 in the 10-part Revenue Management series:

Keeping Up With TrendsDecember 18, 2012 ♦ 2:00-3:00 pm EST

11/15/2012

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79

HSMAI’s Newest Certification:

The Certified Hospitality Digital

Marketer (CHDM)

www.hsmaicertifications.org

HSMAI Adrian Awards Gala, January 28, 2013 – Reserve Your Tables

and Seats Today at www.adrianawards.com

11/15/2012

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Evaluation

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� Be sure to click on “Submit” when you have completed the evaluation to send us your responses.

� Your comments & suggestions are very important to us, and they help us to provide you with quality programming.

Today’s webinar is copyright 2012 by the Hospitalit y Sales & Marketing Association International with All Rights Reserved.

81

Documents

Revenue Management Webinar Series Improve …eoplugin.commpartners.com/HSMAI/121115/121115_Slides.pdf11/15/2012 1 If you need technical assistance with the webcast, contact us at [email protected]