Hotel managers have to walk a tightrope to stay profitable. Price rooms too high and they risk them being left vacant, losing not only room revenue but valuable add-on turnover from meals, drinks and other services. Price them too low and, even though the hotel may be full, it might not be profitable.
The same principle can apply to pricing menus in a restaurant, or drinks in a pub.
Getting the balance right has become all the more critical since the downturn in the travel industry that followed the 11 September terrorist attacks and the recent war in Iraq. The good news is that, while the global economy may be beyond managers' control, more sophisticated, tailored software is becoming available to help managers get these decisions right more often.
"There are many factors involved in maximising profit from occupancy, and technology can be a part of that solution," says Charlie Davies, group marketing director of optimisation software company OneTouch. "It's about getting information out of systems and into the hands of managers."
Davies points out that front-desk systems will have information about current occupancy, but information about profitability will be stored in back-office finance systems, and might become available only after a month's delay. "And," he adds, "historical data does not give the facts to line managers that allow them to make decisions quickly."
If occupancy is running dangerously low, putting profitability at risk, the manager who can react quickly to lower room rates and improve room occupancy can help the whole business to remain profitable. This is because hotels make much of their profits from areas other than room fees - such as restaurants, shops, bars and even golf courses - and a drop in occupancy will have a knock-on effect on all these revenue streams. Conversely, if occupancy is high, hotel managers can increase rates to maximise profits.
Such optimisation software tools were once used only by the largest hotel groups but, in the past two years, packages have become much more affordable and easier to manage.
Davies says: "It used to be that only very large hotel groups could afford optimisation systems that could cost hundreds of thousands of pounds to buy and need a couple of full-time IT staff to run. Now the cost of software and hardware would be in the thousands, and be much easier to support. It would not be worth it for a B&B, but large single-site hotels are now getting the benefit of this kind of software."
Another positive factor is that managers using tools such as OneTouch's vision system can present information in formats familiar to most business managers, such as Microsoft Excel spread sheets. Now the larger chains are able to buy more sophisticated modelling tools that forecast room occupancy and allow management to explore the results of policy changes before they implement them.
Using such software could even have helped hotels stay profitable during the recent poor British summer. "Obviously, software cannot forecast the weather," Davies says, "but you can look at what will happen if it stays the same and occupancy stays low. You can then react more quickly to reduce costs, by employing fewer staff and reducing stock levels."
Case study: Pioneer Pub Since entering the hospitality industry three years ago, the Pioneer Pub Company, recently divested from the Noble House hospitality group, has acquired and developed more than 200 pubs around the UK. And specialist financial software has been instrumental in its growth, enabling it to maximise pub profits.
Using software from Applix, the company is able to track the financial performance of each of its pubs and create models to analyse various what-if scenarios, says Carl Weldon, controller of planning and analysis with the company.
"Say we have bought a pub and it is doing £10,000 business a week," he says. "Using this software, we can see, if we made it over in another style and changed the menu, it might do £20,000 a week. But that may mean it being closed for four to six weeks. If you multiply that over, say, 49 pubs, then we cannot have them all closed at the same time. The software can help us look at a number of different scenarios and see that it may be better to close one pub in December, but another in January."
The software sits behind financial spreadsheets commonly used by pub managers. It copies data from spreadsheets and allows information to be organised in many different ways. These data can then be published to another spreadsheet, allowing managers to create graphs and "make it look pretty" for company presentation, Weldon says.
Financial information can come from takings, but also from payroll and supplier accounts. Because it can track money spent with individual suppliers, it also allows Pioneer Pubs to claim for bulk discounts from suppliers more rapidly. After an initial investment of £35,000 in the software three years ago, Weldon believes it costs around 10% of other ways of analysing data.
The software has helped the company grow quickly, Weldon says. "When you grow quickly you make decisions that change the company as you go forward," he notes. "Being able to model scenarios in advance and get answers quickly is very important, and makes the company more dynamic."
Case study: Choice Holidays Europe
Choice Hotels Europe (CHE) is one of Europe's leading hotel chains. In the UK, it operates 35 properties under the Clarion, Sleep Inn, Comfort Inn and Quality brands, catering for a broad range of customers, from budget travellers through to the person who demands four-star accommodation.
But, despite its size, until 2002 the company was using software that was about 15 years old to manage its accounts. As well as being difficult to maintain, it was also failing to give managers the right information quickly in order to maximise profits, says CHE chief executive David Cook.
To address these concerns, and to enable its managers to strike the right balance between room price and occupancy, the company instructed TVision Technology to install and implement Microsoft's Navision software.
"The people who make these decisions are senior managers or managers within smaller units," Cook says. "You cannot make these decisions without knowing the average spend, which sectors are growing, and which are not growing. Without Navision or a comparable technology, we could not see that information without going through a lot of hoops.
"We can get that information quickly - immediately, if necessary - not in three months' time. That can inform our price strategy, and help determine whether to increase, decrease or hold what we are charging for different types of room. That's a major benefit because, if something is going wrong, we have information quickly and can use it to influence what is happening before we get too far into the next month."
In larger hotels, the software runs on local PCs or servers, but smaller units can connect to systems remotely using Microsoft Terminal Services software.
In order to ensure that the project went smoothly, CHE embarked on a comprehensive training programme and most staff were comfortable using the software in less than three months.
Cook says that using the software, which was introduced in 2002-03, has undoubtedly improved profits, although it is difficult to measure because its introduction coincided with the Sars outbreaks and the beginning of the Iraq war, both of which created a downturn in global travel.