New system unveiled to accurately forecast hotel demand

Manugistics Group Inc. released what it calls an industry first for a new system for how hotels can increase profitability by more accurately forecasting demand from third-party channels.

“The travel industry is in a period of healthy expansion, and effective revenue management is the key to greater profitability,” said Jon Higbie, Manugistics Chief Scientist.

“However, the increasing number of travelers using PDA’s and the internet to book reservations is causing a problem for conventional revenue management strategies.”

Call centers previously accounted up to 80% of all hotel reservations, but that number has dropped to 30%, he said.

With hotel companies receiving a growing majority of bookings from outside their own reservation offices, they are unable to measure lost demand accurately to set prices.

“To optimize pricing, it is essential that operators have a realistic idea of the future demand from these channels; we call this demand unconstraining,” said Mr Higbie.

Demand unconstraining is simply bookings plus denials.

Dr. Higbie’s model paper on the subject is called “A Comparison of Unconstraining Methods to Improve Revenue Management Systems.”

Hotels are particularly looking to measure how many group bookings will be no-shows, said Graham Young, vice president of Revenue Management for Manugistics.

“There are also people who are either being turned away because the property was too full or the price was too high,” he said.

Manugistics is the largest company of its type in developing a set of statistical tools that hotels, airlines and cruise ships use to more accurately forecast from various customer segments in third-party channels.

The airlines pioneered revenue management systems in the 1980s after deregulation and many low-cost carriers entered the market, said Mr Young.

Cruise lines and hotels have also followed in their wake, but these industries generally are more conservative because it’s far easier to compensate overbooking in the airline industry than with cruises or hotels.

Revenue Management systems have steadily gotten more accurate to the point where Mr Young estimates that perhaps one percent of hotel bookings are turned away because of incorrect estimates. That same rate for the airlines may be one to three percent, he added.

Just how much hotels can charge for rooms without discouraging conventioneers and other business travelers is also a concern of companies such as Manugistics.

Mr Young points out that particularly high hotel room rates in New York City seem to have had no deterrent impact on conventions or business travelers there.

“In the case of New York, after 9-11, there was not enough demand. From my personal observations, New York is back and bigger than ever,” he said.

Report by David Wilkening