The COVID-19 crisis quickly brought the travel and tourism industry to a virtual standstill, as steep drops in demand forced unprecedented capacity adjustments by airlines, cruise lines, hotels, railways etc. But when the inevitable recovery comes—perhaps in months, although it may take longer—this industry will confront a problem that few have ever faced: setting prices and generating revenue from scratch.  The immediate reaction to this drop in the market can be an urge to drop your rates, but this is not something we would recommend you do.

Lockdowns and slow business have forced hotels around the world to cut costs and slim down operations. This has led many hoteliers to evaluate their hotel tech stack in order to embrace automation and innovative technology as part of the solution to the above-mentioned problem. In a study by Cornell University in the aftermath of the 2008 financial crisis hoteliers and hospitality industry players cited “Rate resistance, Contract Renegotiation, Price Wars and, Competition” to be the top 4 most important factors of revenue management going forward. We have summarized the three main issues hoteliers will be facing going forward without a smart AI empowered automated revenue management system.

First, historical price elasticities are misleading; the data underpinning them came from a travel and tourism world that no longer exists in a post COVID industry.

Second, revenue managers and analysts often optimize prices with a bias toward volume. If applied to the current situation, this tendency could trigger a race to the bottom that would harm revenue and price positions even more with a long-term effect on rate integrity when prices do return to normal.

Finally, the algorithms used by more simple revenue management systems have the tendency to drop prices when demand declines in order to stimulate demand. That is fruitless when there is no demand to stimulate.

Simply put companies that are able to move the fastest and remain the most flexible in understanding and adapting to these new conditions have the potential to gain significant market share and secure their positions. Amidst the extreme levels of uncertainty and volatility, hoteliers are finding automated revenue management systems to be integral to their recovery and fundamental in the future of hospitality.

Wyatt Niblett-Wilson Marketing Coordinator – Pricepoint

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