Carlson Hotels Worldwide hired Jim Rozell away from American Airlines nearly two years ago to become its revenue management director, and at that point the global hotel company was not yet doing revenue management. Not in any significant way, at least.

Today, Carlson does much more than regular old revenue management—at Carlson and several other hotel companies, the preferred concept is revenue optimization.

“It’s a subtle difference, but one people don’t pay enough attention to,” says Rozell, previously American’s director of network economics. “Revenue optimization says, 'You know those other 85% of the days when we don’t have excess demand? Let’s figure out how we can create that demand.’”

Whereas standard revenue management leans heavily on formulas to determine ideal rates and available inventories, optimization means relying on forecasting and business intelligence solutions that predict demand based on hundreds of localized factors.

Optimization encompasses revenue management tactics, but its focus is expanded to be more proactive in addressing those times when demand is below peak. That is, instead of simply maximizing the business you have, as in revenue management, optimization seeks to create the business you don’t have. That can mean offering lower rates or perhaps targeting niche audiences with special incentives; the key is knowing well in advance exactly when your property will have a lull in business.

At Carlson, JDA Software Group Inc. has implemented its Demand Forecasting Solution in each of the group’s 615 North American hotels. The software allows property-level revenue managers to easily estimate future booking levels based on past events and trends—helpful, to be sure, but of limited usefulness unless revenue managers have hours of free time to load and analyze the vast amounts of local events each week that could impact room demand. To bridge this gap, Carlson also contracted with MKT Data Services to provide localized event data for each market.

MKT offers a constantly updated database of millions of events, from small conventions to major sporting events, many of them with dates that do not remain constant from year to year. The information is automatically uploaded and processed by the JDA system, eliminating the need for revenue managers to keep current on the myriad events that could impact demand.

“What we end up with is a very rich forecast that is a terrifically simple and easy-to-understand demand and rate projection for our hotels,” Rozell says. The revenue managers need only understand the demand forecast provided by the software and adjust rates and inventory accordingly.

In the first four months of full-scale implementation of Carlson’s revenue optimization program, properties were reporting an average RevPAR increase of 4%; the Radisson brand in particular logged 6.7% RevPAR growth through the first three quarters of 2007.

A year ago, Rozell says, Carlson was infamous within the hotel industry for how little revenue management it was doing. But since then, the company has become an innovator in the space, and would-be franchisees are beginning to take notice. “You can come a very long way in a very short period of time by having a plan and sticking to it,” Rozell says. “We didn’t have a lot of infrastructure to undo—we had a clean slate, and we took a very forward view of it.”

Like Carlson, Fairmont Hotels & Resorts has taken an off-the-shelf revenue optimization system and substantially customized it. Fairmont took IDeaS’ flagship platform and reworked it so that it predicts demand, first and foremost, based on room type and price point. Those forecasts are then further sliced by market segment to give property-level revenue managers a complete view of the expected room demand and realistic targeted rates.

“Our hotels and resorts tend to be complex, busy, multi-segment hotels, so unlike most of our competitors, every segment is incredibly important to our success,” says Jeff Senior, Fairmont’s senior vice president for marketing and sales. “We have a big group component, a big leisure component, a big transient component, etcetera, so each of those segments has a different idea of availability to be revenue-managed on an individual basis.”

Fairmont’s customized platform is known as My Revenue Performance System, or myRPMS for short. The system currently is being implemented at all Fairmont hotels; the rollout should be completed by the end of the year.

The Fairmont hotels that ranked at the bottom of the portfolio in terms of RevPAR were the first to receive myRPMS, and several of those quickly posted double-digit gains to leapfrog their previously more profitable counterparts. Typically, myRPMS is providing a 3% to 5% RevPAR premium, Senior says.

The revenue optimization paradigm is especially helpful for hotel groups that have a large number of destination properties. Take Outrigger Hotels & Resorts, which has almost all of its properties located on tropical islands. A spur-of-the-moment trip to someplace like Bali or Kauai is relatively unusual, so to counter low-demand periods, revenue managers at those properties need to court travelers well in advance.

“We have to rely on airplanes to get our guests here—there’s no drive market,” says Elizabeth Cambra, corporate director of revenue optimization for Outrigger. “We have to rely on our wholesale travel partners more than Chicago, New York [and] Las Vegas [do]. We have to balance the price for the market segments and make sure we’re not undercutting ourselves.” And all of that requires an accurate demand forecasting model.

Outrigger in August installed the Hotel Revenue Optimization System from PROS, software that predicts demand at each room-type level. The program uploads demand predictions and downloads actual demand data directly to and from the property management and central reservations systems.

Its automated functionality frees up revenue managers to analyze pricing and inventory instead of tying them up with forecasting. With that system in place, Cambra encourages her revenue managers to go over demand projections with sales, marketing and reservations staff to spur business during the slow periods. “It’s more of a macro approach,” she says. l

Direct comments to: adam.kirby@reedbusiness.com