We talked to Greg Cross, SVP revenue management at Hyatt, about his predictions for future – and what revenue management professionals can learn from other companies.
The hospitality industry holds a wide variety of perspectives on revenue management, dependent on hotel position, scale, technological capabilities, and digital and market maturity.
With vast experience in revenue management as Senior Vice President at Hilton and at Hyatt, Greg Cross is an expert in his field. He has seen the revenue management discipline evolve and change with the advent of OTAs and, more recently, artificial intelligence.
PACE Dimensions: Given your experience in the industry, how do you think that revenue management has evolved, particularly in recent years as a response to increasing digital maturity in the industry?
Greg Cross: The discipline goes back more than 20 years now. As we moved into the digital age the first impact of the Internet was a plethora of new distribution outlets that had previously not existed. The industry was trying as hard as it could to get its arms around the new generation of travel agency relationships.
As you move into current times, 2018 going forward, that has largely settled down. The online travel agency community garners anywhere from 12-25% of hotels sales, and so the hotel companies have no choice except to become more comfortable with the fact that these really are distribution partners. The globalisation of that process has enriched any hotel company’s abilities to reach inside say, China, with relationships with Ctrip, and begin to mine direct bookings from a third-party that might otherwise have been difficult to steer in the direction of their brand.
Revenue management is all about yielding of pricing and inventory, so the contracts that are written for these distributors are crucial in the execution of revenue management; the margins that are created are something that can also be yielded. The on-going relationship between distribution and revenue management, as we get deeper and deeper into the 21st century, is how do we not only yield the rate, how do we also yield the cost?
PACE Dimensions: As the industry develops, where do you think that revenue management needs to evolve?
Greg Cross: Well, the natural evolution of revenue management is to mine the data and create data-driven decision making for pricing and inventory for as many hotels as possible with reduced cost. Throughout my career there have been places where, if we put an ad in the newspaper for a revenue manager, nobody would answer the ad; there were no personnel in the marketplace that could do that job. We had to figure out how to bring in high-quality revenue management that you would be able to find in London or in New York to Wichita, Kansas, and the Maldives, and the solution there is obviously remote. When you do it remotely, you empower the individual to be able to handle more than one hotel simultaneously. That is, and will continue to be, the future combined with new artificial intelligence that will make human intervention less necessary in the pricing and inventory management process.
PACE Dimensions: How can artificial intelligence be used to best effect with revenue management?
Greg Cross: Well, try to imagine that you have a self-driving car and you’re afraid to take your hands off the wheel. Several hotel companies are working with revenue management technology where there is an autopilot function (using artificial intelligence). The user does not have to get involved at all and the revenue management system, which is integrated with the central reservation system, can make the decisions about pricing and inventory all by itself. The next step is gaining the confidence level to take your hands off the wheel for long periods of time.
PACE Dimensions: As artificial intelligence makes more decisions about pricing and inventory, how do you see the personnel role for revenue management evolving?
Greg Cross: Anytime you’re trying to introduce artificial intelligence into a scenario, you’re trying to take the human element out of the equation. When we hear Elon Musk talk about his electric car, he’s talking about a reduction in car accidents. When you’re having the same conversation about the hotel industry, you’re talking about a reduction in human error when you are doing pricing and inventory controls. The human element is prone to human error. Now that doesn’t mean that artificial intelligence is never going to make a mistake, but you’ll have a reduction in mistakes and we see that in all of our studies. If the individual had just allowed the system to do what it’s supposed to do, instead of interfering and overriding and saying I know better, we would have made more money.
PACE Dimensions: Do you think that there’s a change in the skill set required of revenue managers now?
Greg Cross: In the hotel industry one of the biggest challenges is employee turnover. You have to reassemble the training and the knowledge for the individual to be able to do the job effectively with a minimal amount of human error. With artificial intelligence and smart tools you reduce the learning curve for that individual so the role is more like that of a machine operator than a doctor or a scientist.
PACE Dimensions: Competition from indirect competitors, such as OTAs who take a share of the profit, has put pressure on hotels. How can hotels compete and price themselves effectively in this context?
Greg Cross: Well, that’s been going on historically for a long time but there’s no doubt that it has increased with digital maturity. The number one mistake, in my opinion, is that hotels believe they are somehow going to hold back the dawn on what has become a digital marketplace and convince customers that they would like to book direct when they have no interest in this. The more forward-thinking point of view is to determine how you can best lower your internal cost, by eliminating as much of your own distribution network as possible as a cost reduction, as you see market share shift to the mega-agencies that are bringing the business to you on margin.
I say that not because I want to throw in the towel so to speak. One of the most inspiring conversations I ever had with a revenue management team was in a different industry, with Coca-Cola. I explained to them what the challenges were in the hotel industry and they laughed at me and said, “Well, try to imagine if all of your distribution was third-party. And that you had to cart your product around in trucks and deliver it to your third-party distributors so that they could sell it for you.” It really changed the way I thought about things because, in that type of service, the person who drinks the Coca-Cola is not the customer. The customer is the store, or the movie theatre, or the restaurant, where the consumer was able to find the Coca-Cola. And so the industry is set up differently; it’s about servicing those third-party distributors as customers.
I believe that this is inevitable for the hotel industry, but the industry doesn’t want to go there because they somehow see that as a surrender of their current business model. But the real hotel business model is built around the hotel. It’s built around the customer walking through the front door, receiving excellent service, excellent food and beverage, a product that they want to come back to, and they become loyal because they like that brand and what it represents when they’re inside the hotel. Not the experience of making the reservation. Not the experience of finding one distribution channel over another. That customer is going to buy the way they want to buy and we as an industry need to embrace the way the customer wants to shop.
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