--- title: Hospitality | Robert Cross description: View the latest resources from Revenue Analytics. --- - [ Hospitality ](https://www.revenueanalytics.com/hospitality/n2pricing?hsLang=en) - [ Manufacturing & Distribution ](https://www.revenueanalytics.com/md/pricing-as-a-service?hsLang=en) - [ Private Equity ](https://www.revenueanalytics.com/md/pricing-as-a-service?hsLang=en) - [ Media ](https://www.revenueanalytics.com/media/rateoptics?hsLang=en) - [ Passenger Rail ](https://www.revenueanalytics.com/rail/farevantage?hsLang=en) [ #### N2Pricing™​ The above-property RMS. ](https://4864103.hs-sites.com/hospitality/n2pricing?hsLang=en) [ Hotelier Gets the Pricing Power it Needs to Beat the Competition ](https://4864103.hs-sites.com/hubfs/Case_Study_Hotelier_Gets_the_Pricing_Power_it_Needs_to_Beat_the_Competition.pdf?hsLang=en) [ #### Pricing-as-a-Service™ Profitable pricing decisions at scale. ](https://4864103.hs-sites.com/md/pricing-as-a-service?hsLang=en) [ Packaging Giant Slashes Deal Cycle Time 69% & Boosts Margin 4% ](https://4864103.hs-sites.com/hubfs/Case%20Stories/PAPA/Packaging%20Giant%20Uses%20Price+%20to%20Slash%20Deal%20Cycle%20Time.pdf?hsLang=en) [ #### Pricing-as-a-Service™ Precision pricing for industrial portfolio companies. ](https://4864103.hs-sites.com/md/pricing-as-a-service?hsLang=en) [ Does Your Portco Have a Pricing Problem? ](https://www.revenueanalytics.com/resources/pe/does-your-portco-have-a-pricing-problem?hsLang=en) [ #### RateOptics™​ Modern ad pricing and sales analytics. ](https://4864103.hs-sites.com/media/rateoptics?hsLang=en) [ Sales Managers Get Their Valuable Time Back at Top Radio Broadcaster ](https://4864103.hs-sites.com/hubfs/Case_Study_Sales_Managers_Get_Their_Valuable_Time_Back_at_Top_Radio_Broadcaster.pdf?hsLang=en) [ #### FareVantage™​ Next-gen Revenue Management for Passenger Rail. ](https://4864103.hs-sites.com/rail/farevantage?hsLang=en) [ Rail Operator Exceeds Revenue Goals and Lofty Customer Expectations ](https://4864103.hs-sites.com/hubfs/Case_Study_Rail_Operator_Exceeds_Revenue_Goals_and_Lofty_Customer_Expectations.pdf?hsLang=en) Fresh from HSMAI > *The New RMS: A Buying Guide.* [Download here](https://4864103.hs-sites.com/hospitality/resources/hsmai-buying-guide-the-new-rms?utm_source=announcement_bar&utm_medium=product_page&utm_campaign=hospitality&hsLang=en) ## Robert Cross ### Recent Posts ## [Revenue Managers: Now is the Time to Rise Up and Conquer the Challenges Ahead](https://4864103.hs-sites.com/hospitality/blog/revenue-managers-rise-up?hsLang=en) Posted by [Robert Cross](https://4864103.hs-sites.com/hospitality/blog/author/robert-cross) on Jun 26, 2020 10:55:21 PM I’ve seen Revenue Management help create stability during two Gulf Wars, 9/11, and the biggest recession since the Great Depression (along with SARS, MERS and Avian Flu). Still, I’ve never seen the catastrophic and complete disruption to the travel industry brought on by the coronavirus outbreak. In his inspiring [video message](https://www.linkedin.com/feed/update/urn:li:activity:6646405787893796864/) to Marriott Associates, CEO Arne Sorenson reported that, in previous crises, bookings had dropped 40% at most. This COVID-19 crisis has caused a 90% decrease in Marriott’s bookings. Sorenson is determined that they will survive. In addition to precious lives, the coronavirus pandemic is putting millions of jobs are at stake as well as the survival of many iconic brands in travel and transportation. We are individually and collectively stunned by current events. In times of uncertainty, we look for assurance.   My friend Dave Roberts is fond of quoting something Mark Twain probably never said: “History doesn’t repeat—but it rhymes.” I interpret that to mean, even if current circumstances are unique, there are lessons to be learned from the past. Those of us who are skilled in Revenue Management are in a tremendous position to help our companies get though these uncertain times. We have the data, the tools and the mindset to navigate through the crisis and to aid in recovery. As Revenue Managers, we are comfortable dealing with uncertainty. Even in normal times, we never have a completely accurate view of the future. We must ingest all the data we can get, analyze it, draw conclusions, and make decisions. Astute Revenue Managers know that every decision we make is transitory. It is merely the best decision at the time based on the facts available. As we get new information, we are comfortable with drawing new conclusions and revising our decisions. Course corrections are a part of our lives. These skills are our strengths in chaotic times. I will share a few stories about how Revenue Management and Revenue Managers have not only faced incredible economic turmoil, but have overcome it. I hope these stories will give you comfort as well as energize you to rise to this current challenge and conquer the undertaking ahead. ## **Revenue Management Originated in an Airline Crisis** Revenue Management was created out of necessity after airline deregulation. Price wars were *literally* killing the airlines. Bankruptcies were rampant. Revenue Management saved the industry. In the early 1980s, the U.S. government deregulated airlines’ routes and fares which had been strictly controlled. Freed from government restrictions, fare wars commenced. By 1982, there was an average of [one airline bankruptcy per month!](https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_in_the_United_States) In 1983, Delta was losing the current equivalent of $600 million per year. Its future was at stake. I was practicing law in Delta’s Law Department at the time. I had successfully handled a couple of high-profile cases, so CEO David Garrett engineered my move into Marketing. I thought it was a bizarre move. I was a lawyer. My undergrad degree was Chemistry. I had trained as a pilot in the U.S. Air Force. I had no experience in Marketing. I had never taken a course in Marketing, or even in business for that matter! I started walking the halls of Delta with my yellow legal pad in hand. I eventually entered a room of 50 people who were in the basement of the reservations building. The room was called “Reservations Control.” The fare wars had created a crazy assortment of a dozen fares that would be available for sale on any particular flight. The fares might range from $49 to $499 on any given flight. The people in Reservations Control were responsible for determining how many seats of each fare would be available on each flight. Analysts allocated the discounts based on their personal experience and their gut feeling of how many seats could be sold at each fare on each flight based on historical demand in the market. The analysts were bright and energetic. They understood that more discounts needed to be offered on low-demand flights. They also knew that, on high-demand flights, the number of discount seats available should be restricted—thus saving seats—for high-yield passengers who typically booked late. What bothered me after spending time with them was the enormity of their task. Delta had 1,500 flights per day. These analysts were responsible for all the flights being sold in the coming year—550,000 flights per year. Fifty people managing 550,000 flights? Each person was responsible for 11,000 flights? *No wonder we were losing money!* These analysts had a greater impact—on a day in, day out basis—than the CEO or anyone else in the organization. If they made too few discounts available, we lost out on sales. If they made too many discounts available, high-yield passengers were turned away. The fare wars were filling planes, but we were losing money. I did a quick, back-of-the-envelope calculation. If Delta sold just one unnecessary deep discount seat on each daily scheduled flight, that represented *$52 million in lost revenue over the year!* I pulled together a small team. It was comprised of some analysts who were manually allocating the fares and some IT resources. I included a PhD in Mathematics from Georgia Tech who was working at Delta’s Jet Base forecasting engine failure rates. I told them “You’ve got to help us figure a way out of this mess!” As they were working on a computer support system, I made some process changes. The flights had been passed from person to person based on how close it was to departure time. I changed that. I gave each analyst full responsibility for their flights from the time they went live in the reservation system to the time the flight doors closed and the revenue on board was set. We created a computer system to give the analysts an automated decision-support tool. By current standards, the system was rudimentary. It was mostly a “smart filter” that prioritized the flights which the analysts should focus on. The breakthrough achievement at the time was that the system could monitor all 550,000 future flights each night and prioritize the ones which needed analyst attention the next day. This had never been done before. It was the first “Yield Management” system. It was an immediate success. It had a $900 million (measured in current dollars) impact its first year. It was part of an amazing turnaround story. Other airlines were working on the same problem. Before long, virtually all U.S. airlines adopted Yield Management, the predecessor to Revenue Management. Instead of continued chaos, Revenue Management helped make airline deregulation a success—a win/win for passengers and airlines alike. [Steven Morrison and Clifford Winston](https://www.brookings.edu/book/the-economic-effects-of-airline-deregulation/) concluded that that lower fares and better service as a result of deregulation netted travelers some $6 billion in annual benefits, while airline earnings increased by $2.5 billion a year by 1986. ## **Revenue Management and the Gulf War** The first Persian Gulf War presented the next great challenge to travel and transportation. Austrian Airlines was a mid-market European airline which was an early adopter of Revenue Management. CEO Dr. Herbert Bammer had embraced Revenue Management before deregulation hit the European skies. In 1990, the airline had invested in people, process, and systems in order to gain a competitive edge in preparing for the onslaught of airline deregulation in Europe. But another event overtook the industry. On January 17, 1991, President George H. W. Bush initiated coalition effort [Operation Desert Storm](https://www.history.com/news/history-vault-operation-desert-storm) to dislodge Saddam Hussein’s Iraqi troops from Kuwait. The airlines saw the cost of jet fuel, which had been 60 cents a gallon before the invasion, soar to $1.40 a gallon. Trans-Atlantic traffic [dropped 50 percent](https://www.nytimes.com/1991/08/16/business/economic-scene-the-broad-impact-of-the-gulf-war.html). People were afraid to fly. Airline losses peaked at $4.8 billion. The industry took a [dramatic hit ](https://www.theguardian.com/world/2001/sep/20/qanda.theairlineindustry)for over a year. Austrian Airlines, however, was prepared for the turmoil. Their investment in Revenue Management in its totality—people, process and systems—paid off in an unexpected way. In 1991, when most European airlines profits were down the tubes, Austrian reported robust profits. “During the Gulf War we were opportunistic,” remembers [Michael Stagl](https://www.amazon.com/Revenue-Management-Hard-Core-Tactics-Domination/dp/0767900332),  Head of Revenue Management at Austrian Airlines. “When traffic was down, we used our Revenue Management system to look for opportunities. Surprisingly, we were able to find a number of areas of strong demand and capitalize on them.” Austrian Airlines was able to be patient when other airlines were desperately discounting. “We were more selective” Stagl observes about discounting. “We didn’t give away our future.” Revenue Management helped Austrian Airlines keep its string of record profits going, throughout the Gulf War. ## **September 11, 2001 and the Great Recession of 2008-2009** Few events in history can rival the immediate impact which the coronavirus outbreak has had on travel. The 9/11 terrorist attacks on the United States is one. In the immediate aftermath of the attacks, the US government [grounded the commercial aviation fleet](https://link.springer.com/chapter/10.1057/9780230100060_7) for three days. The U.S. tourism industry reported a $2 billion loss in the first two weeks after the terrorist act. The severe drop in tourism expenditure resulted in a GDP loss of over $27 billion. During the post-attack period, the 2001—2002 U.S. tourism labor market suffered 335,000 job losses.  Every 12th employee in the industry had [lost his or her job](https://www.modul.ac.at/uploads/files/Theses/Bachelor/BYSYUK_Impact_of_9_11_on_US_and_International_Tourism_Development.pdf) by the end of 2002. Immediate declines in airline passenger loads of up to 50% were mirrored by [declines in hotel occupancy.](https://www.tandfonline.com/doi/abs/10.1300/J073v11n04_01) At 10:00 am on the morning of September 11, 2001, Chris Elam, VP Revenue Management at Hyatt Hotels Corporation was pitching a million-dollar upgrade to their Revenue Management system to his senior executive team at Hyatt headquarters in Chicago. The meeting broke with the news of the tragedy. Nonetheless, the upgrade was approved that November. Hyatt recognized that Revenue Management capabilities were essential to their recovery. After the initial shock of the attack, in Atlanta, Craig Eister and his team at InterContinental Hotels Group shifted focus quickly to understand the responsiveness of guests to price. At the time, IHG had 4,500 hotels in over 100 countries. They knew that travel would be inhibited for some time. They were aware that many people would not travel, even by offering the kind of desperation hotel rates that many of their competitors were offering. IHG wanted to understand “how low to go” to stimulate demand, without diluting the revenue from those who would travel anyway. In addition, the growth of the internet and wide-spread on-line “rate shopping” made it easy for customers to comparison shop. These factors forced a critical investigation into the price sensitivity of potential customers so that “optimal prices” could be determined in a rapidly changing, chaotic marketplace. Revenue Analytics was engaged to partner in the design, development, and deployment of a price optimization module for IHG’s Revenue Management system. The new module generated 40 million price-sensitive forecasts per night, and it optimized price for all 4,500 hotels. The system generated [$400 million](https://pubsonline.informs.org/doi/10.1287/inte.1110.0620) in additional revenue per year for IHG hotels even during the financial recession of 2008-2009. The system was a finalist for the prestigious [Franz Edelman Award](https://www.informs.org/Recognizing-Excellence/INFORMS-Prizes/Franz-Edelman-Award). The award recognizes the most outstanding and impactful examples of operations research, management science, and advanced analytics practice in the world.   ## **A Call to Action for Revenue Managers** [*The New York Times*](https://www.nytimes.com/2020/03/21/business/economy/coronavirus-recession.html) has reported what most of us know: the American economy is facing a plunge into uncharted waters. There is little doubt that the nation is headed into a recession of uncertain proportions because of the coronavirus pandemic. It is impossible to foresee the bottom and how long it will take to climb back. We are already seeing desperation pricing in hotels. In San Francisco, hotel managers were fruitlessly aggressive in cutting room rates in hopes of luring new business. Luxury hotels slashed their daily rate for corporate reservations by 35% to $302. In Manhattan, hotel rooms that in previous years at this time would go for $200 to $300 a night could be had for as little as $60, according to [*The Wall Street Journal*](https://www.wsj.com/articles/hotels-turn-to-layoffs-room-rate-cuts-as-business-staggers-11584108223?cx_testId=3&cx_testVariant=cx_2&cx_artPos=1#cxrecs_s). We have not seen the bottom. The World Travel & Tourism Council sees up to [50 million tourism jobs at risk](https://www.wttc.org/about/media-centre/press-releases/press-releases/2020/coronavirus-puts-up-to-50-million-travel-and-tourism-jobs-at-risk-says-wttc/). Any recovery will be slow and uneven. There will be [no V-shaped economic recovery](https://www.washingtonpost.com/business/2020/03/25/economy-recovery-coronavirus/) from the coronavirus outbreak. No one knows how long this outbreak could last, and we could even see a [second wave of infections](https://www.independent.co.uk/news/health/coronavirus-second-wave-surge-hong-kong-china-uk-cases-a9420876.html) after the first is under control. A [$2 trillion stimulus package](https://thehill.com/homenews/senate/489575-7-things-to-know-about-the-coronavirus-stimulus-package) will help, but that package will create its own dislocations in the recovery effort. ## **This is the Time for Revenue Managers to Rise Up.** No grand strategic vision will assure recovery. Economic and financial recovery will be uncertain and spotty. It will happen at the micro-market level. Suburban Cincinnati could recover fast while the Bronx lags—or vice-versa. Some neighborhoods in L.A. will recover faster than others. The stimulus package will create disparate opportunities among market segments. Bankruptcies will abound. Stronger players will acquire the weaker players. Success in the uncertain post-COVID-19 recovery will go to the quick and the nimble. Revenue Managers are poised to adapt. We have access to the most granular data sets of anyone in our organizations. We can see every purchase of every product in every location. We can track movement in all our micro-markets in near real-time. The most sophisticated of our Revenue Management systems have dynamic views of customer demand, inventory, and competitive actions. We have the assistance of autonomous agents to help us understand where we can move with speed to capture the opportunities which appear and fleetingly disappear. Our advanced Revenue Management systems can provide robust analytics of different indicators from different sources. Our machine-learning algorithms can identify and predict customer demand patterns and spot directional changes and inflection points at micro-market levels from the bottom-up. These critical, momentary opportunities will be missed by the ordinary aggregated, top-down views used by others in the organization. Moreover, we have the *experience* to interpret what we see. We have the *inquisitiveness* to explore what we can’t see. History is on our side. We have the data, tools, and mindsets to overcome the coronavirus economic challenge. Selling the right product to the right customer at the right time has never been more important. This is our time. *Let’s Roll!* [Request a personalized demo](https://4864103.hs-sites.com/demo/n2pricing?hsLang=en) and learn how the Revenue Analytics [N2Pricing™ RMS](https://4864103.hs-sites.com/hospitality/n2pricing?hsLang=en) empowers hoteliers to consistently outperform revenue targets and save time in the process.   0 Comments [Click here to read/write comments](https://4864103.hs-sites.com/hospitality/blog/revenue-managers-rise-up?hsLang=en#comments-listing) Topics: [Robert G. Cross](https://4864103.hs-sites.com/hospitality/blog/tag/robert-g-cross), [Featured](https://4864103.hs-sites.com/hospitality/blog/tag/featured) ## [How Hotel Revenue Managers Can Win Back Customers by “Thinking Different”](https://4864103.hs-sites.com/hospitality/blog/think-different?hsLang=en) Posted by [Robert Cross](https://4864103.hs-sites.com/hospitality/blog/author/robert-cross) on Jun 26, 2020 10:55:09 PM Forget “getting back to normal” or desperately seeking “the New Normal.” The shrewd ones will be growing by stealing share. The [longest economic expansion](https://www.cbpp.org/research/economy/chart-book-tracking-the-post-great-recession-economy) in U.S. history was abruptly ended by COVID-19. As devastating as the near-term impact has been, the residual effect on the economy and travel, in particular, is completely unknown and unknowable. There will be no roadmap to success in this environment. Forecasting the unknowable is impossible. The most you can do is [scenario planning](http://enueanalytics.com/hospitality/blog/revenue-managers-and-the-problematic-post-covid-recovery), which will allow you to prepare for any eventuality. It’s time for humans to [rise up](https://4864103.hs-sites.com/hospitality/blog/use-these-uniquely-human-skills-to-navigate-an-uncertain-recovery?hsLang=en). We must leverage the creativity, ingenuity, and imagination of the most powerful organic computers on the planet—our brains. However, we can’t think like we have in the past, nor can we think the way others will be thinking. During the economic boom of the last decade, the rising tide lifted all boats. We were growth oriented. We wanted to capture our fair share of a growing market. The coronavirus outbreak completely changed that for the foreseeable future. It has been heartwarming to see the global community pull together to fight the virus. “We are all in this together” has been the [global rallying cry](https://www.globalcitizen.org/en/campaign/stand-together-to-beat-coronavirus/). We have been checking-in on neighbors, charitable giving has hit new highs, and [examples of individual generosity ](https://www.givingtuesday.org/blog/2020/05/givingtuesdaynow-creates-global-wave-generosity-response-covid-19-crisis)abound. However, after the pandemic subsides, we will face the [economic consequences](https://foreignpolicy.com/2020/04/15/how-the-economy-will-look-after-the-coronavirus-pandemic/) of the tragic loss of life, the lockdowns, and the shuttering of much of the global economy. Many businesses will fail. Many jobs are not coming back. Consumers will be tentative and cautious. When it comes to winning back customers, we definitely won’t “all be in this together.” It will be unlike anything we have seen before. It will be a vicious battle for survival. As Revenue Managers, we will need to THINK DIFFERENT. “Think Different” was the [advertising campaign](https://www.zdnet.com/article/steve-jobs-seven-ways-he-taught-us-to-think-different/) Steve Jobs unleashed when he returned to Apple.  Apple at the time was bleeding cash and in a [battle for survival](http://content.time.com/time/specials/packages/article/0,28804,1873486_1873491_1873461,00.html). The ad campaign turned the company around. It was a counter-culture masterpiece which profiled iconic personalities like Albert Einstein, John Lennon, and Gandhi. He called them “The Crazy Ones. The Misfits.” They were incurable optimists who adopted unconventional ideas. They were crazy enough to think they could change the world. We must have this attitude as we face an uncertain and problematic recovery in a radically different environment. Here are a few ways to THINK DIFFERENT: ## **Think Revenue Creation** As Revenue Managers, our primary job had been to manage demand. We’d been great at doing this with price and inventory controls. However, for the next few quarters, at least, there will be little demand to manage. We need to become *Revenue Creators*. This needs to be a collaborative role with Marketing and Sales. Revenue Managers are the ones with the granular data to know where demand is likely to be stimulated. We have the knowledge to help target the right customer segments with the right promotions at the right time. The critical roles for Revenue Managers in *revenue creation* will be: - Targeting markets—Your lens into historical booking data has become obscured, but it is not useless. Price elasticities will have changed. Astute Revenue Managers will have intuition and instinct to help determine the extent to which elasticities have been affected until demand becomes more predictable. Where have you been able to stimulate markets in the past or been successful in stealing share? What characteristics of your segments have changed? Care must be taken to keep a short leash on special offers. Russell Vereb, Vice President of Revenue Management Solutions at Marriott International recently told me to caution Revenue Managers about the potentially negative long-term consequences of short-term tactics like flash sales and steep limited-time discounts. [First, do no harm](https://4864103.hs-sites.com/hospitality/blog/use-these-uniquely-human-skills-to-navigate-an-uncertain-recovery?hsLang=en). - **Rapid feedback**—Speed and nimbleness will be keys to success. You can’t wait until the end of a campaign to assess its success. You will need to spot trends early so that successful strategies can be amplified, and duds diminished. Funds that were to be spent on advertising in Chicago may need to be diverted to direct marketing in Los Angeles. - **Identifying pivot points**—The post-COVID recovery will be erratic and spotty. Strategies will need to be changed on-the-fly. The scenario you had initially planned for might not happen. You’ll need to pivot fast to a more likely scenario. Same with targeted markets. If corporate travel is not materializing in Vegas as expected, where can discretionary travel be found? - Finding Nuggets of Opportunity—Traffic is going to be at historical lows for the foreseeable future. However, even in the worst of times, sporadic areas of opportunity will pop up, then they will evaporate just as quickly as a [tattoo artist convention in Atlanta](https://www.worldtattooevents.com/atlanta-tattoo-arts-convention/). It is critical to your financial recovery that you see these opportunities as they emerge. They will be very scarce and very precious. If you wait until the demand is evident, it will be gone. ## **Rethink Customer Segments** Different customer segments will recover at different velocities. You are in peril if your properties are heavily dependent on international travel. International travel will be [impacted](https://www.phocuswire.com/travelperk-after-coronavirus-travel-wont-be-the-same) by legal restrictions (think Certificates of Immunity), higher costs, longer immigration queues, and fear. Research also indicates that it will take [longer for business travel to recover](https://www.forbes.com/sites/danielreed/2020/04/15/covid-19-wont-kill-leisure-or-business-travel-but-it-will-change-it-significantly-perhaps-forever/#5d15d78f50b4). Millions of people are getting comfortable working remotely and video-conferencing. Corporations are using this opportunity to cut travel budgets. A hotel dependent on business and group mix will need to pivot quickly to more transient and leisure. Similarly, think “local” not “travel.” Think of [stimulating demand for local events](https://revenue-hub.com/dont-stop-revenue-management-now/) or meetings.  Surveys show that demographics will play an even greater role than in the past. Younger travelers will have far less anxiety and will be [more willing to accept risk](https://www.nytimes.com/2020/04/15/travel/q-and-a-coronavirus-travel.html), and accordingly, more receptive to promotional rates. ## **Look Upstream** Don’t wait for bookings to show up in your pace reports. You need to look for signs of life upstream in your various market segments. Your upper funnel will be a better guide to understanding the impact of your revenue creation efforts. You’ll need to rely on clickstream analytics to see who is looking and what they are looking for; then compare that with who is actually booking. Those diagnostics can give you early insight into the behavioral changes in your markets. Upstream indicators could also include sources that you may not have previously considered. The recovery in China might be a [leading indicator](https://str.com/press-release/str-mainland-china-hotel-industry-shows-early-signs-performance-recovery) of recovery here.  ![img-think-different](https://4864103.hs-sites.com/hs-fs/hubfs/img-think-different.png?width=600&name=img-think-different.png) The [WHO Coronavirus Situation Reports](https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200513-covid-19-sitrep-114.pdf?sfvrsn=17ebbbe_4) could give insight into the potential and/or severity of a second-wave COVID-19 outbreak.  [TSA Traveler Checkpoint Numbers](https://www.tsa.gov/coronavirus/passenger-throughput) will presage a recovery in travel demand—but don’t look now. It’s bleak. ## **Change the Channel** Hotels have had a love/hate relationship with on-line travel agencies (OTAs). Recently, the OTA distribution channels’ global bookings have grown [twice as fast](https://www.phocuswright.com/Travel-Research/Research-Updates/2019/Global-online-bookings-growing-2x-as-fast-as-overall-market) as the overall market. They deliver two-thirds of hotels’ bookings, but with hefty commissions & fees. This has caused significant pushback from hoteliers seeking to regain control of the customer and reduce costs. Over the past few years, most hotels have focused on reducing reliance on the OTA channel and emphasizing direct bookings. The rallying cry from hoteliers has been “[Protect Your Turf.](https://www.hotelmanagement.net/operate/are-hoteliers-being-fooled-by-otas-for-a-second-time)” Greg Cross (no relation to your author) recently retired as SVP of Revenue Management for Hyatt Hotels Corporation. Prior to that, he built Hilton Worldwide’s Revenue Management program from scratch. He’s been through the turmoil caused by Gulf Wars, 9/11, the tech bubble, SARS, MERS, and the Great Recession of 2008-2009. He recently reinforced to me what most of us already know. “When these disruptive events completely overtake normal demand, price is not the answer.” You must make sure you are visible to anyone who is looking to book. According to Cross, this means you need to change distribution channels whether you like it or not. His advice: collaborate early with the OTAs and find win/win propositions before you *must* turn to them in desperation. Partner with them. Be wary of them. Negotiate the most favorable terms that will give you the best placement. Cross says that the role of the Revenue Manager is essential is in determining the ways OTA inventory is priced, allocated and managed. For this reason, he exclaimed that “laying off or furloughing Revenue Managers during a downturn is the dumbest thing I’ve seen.” ## **Leapfrog Tech Stack** I’m not about to say that the COVID-19 disruption will obsolete your Revenue Management systems. I am saying, however, that they are getting whacked. Revenue Management systems have become tremendously comprehensive and complex machines. They were great for helping large enterprises squeeze the last few points out of a market during times of relative stability. Despite all desires to return to normal quickly, the [post-COVID impact](https://www.marketplace.org/2020/03/30/how-long-will-covid19-recession-last/) is expected to last two to three years.  Can these huge systems rapidly adopt when speed and nimbleness will be more important than pin-point accuracy? It might be a good time to re-evaluate your tech stack. As great as many of the Revenue Management systems have been, a [recent survey of hotel senior executives ](https://www-revenueanalytics-com.sandbox.hs-sites.com/resources/the-book-0?hsLang=en)by Revenue Analytics, Inc. disclosed that 41% of executives were frustrated with their ineffective internal tools. Additionally, 36% of the respondents complained about the adoption of their Revenue Management systems in general. The upcoming environment calls for an approach that is more simple, intuitive, and flexible. This may be especially true as bringing back staff could be slow and uncertain. (Unfortunately, most hotel chains won’t take Greg Cross’s advice about not laying off Revenue Managers.) Overworked Revenue Managers won’t need all the nuanced capabilities built into the larger systems. That’s not to say, however, that we need to give up on all the tremendous gains in sophisticated analytics that have been made over the last few years. It’s just that those complexities should stay behind the curtain. Naturally, these systems should be able to perform the essential tasks of setting price and inventory levels. Databases must be repaired and reconstructed after COVID-19, and the algorithms should be set to “learn” faster than they would have under normal circumstances.  Retooled tech stacks must take into account the same considerations which Revenue Managers think about: demand, competitor rates and customer price sensitivity. If so, there is no reason that these nimble new systems can’t eventually be even more automated than the old ones. They should be able to make optimal decisions in most situations. Revenue Management systems with greater automation and less complexity will be crucial for economy chains. It is likely that the economy and mid-scale markets will [outperform](https://www.morningstar.com/articles/977693/there-is-room-at-the-inn-for-hotel-investors-after-covid-19) the upscale and luxury segments, for at least the next year.  Economy and midscale properties typically don’t have the level of Revenue Management expertise dedicated to managing revenue. In fact, some rely on General Managers to set rates. An ideal system would be able to set rates for these properties and provide real time alerts—to the GM’s mobile devices. For other chains, the likely reduction in Revenue Management staff will require that the new systems specifically aid in productivity improvements and multi-tasking. These systems should provide real-time alerts as well—perhaps to mobile devices as well since remote working may become standard. An agile system would also allow for multi-property management from a single screen. Ideally, the new Revenue Management system would filter and prioritize revenue opportunities among the properties managed to increase productivity. A new, nimble tech stack could become your most powerful weapon in the post-COVID world. ## **Take Control** In a [PBS interview](https://www.pbs.org/show/steve-jobs-one-last-thing/) a few months before his death, Steve Jobs revealed a philosophy of life that speaks to us in these troubling times. Jobs said that “the most important thing (in life) is to shake off this erroneous notion that life is there and you're just gonna live in it, versus embrace it, change it, improve it, make your mark upon it.” As Revenue Managers, we need to shake off the erroneous notion that the pandemic crisis is there, and that we are gonna have to live with it. It will be up to us, The Crazy Ones, The Misfits, the Revenue Managers to ingest, digest and decode the confusing and conflicting signals we get as recovery sputters forth. We can live with the recovery as it happens, or we can embrace it, change it, improve it, and make our mark upon it. We must be The Crazy Ones who are crazy enough to think we can change the world.   0 Comments [Click here to read/write comments](https://4864103.hs-sites.com/hospitality/blog/think-different?hsLang=en#comments-listing) Topics: [Robert G. Cross](https://4864103.hs-sites.com/hospitality/blog/tag/robert-g-cross), [Featured](https://4864103.hs-sites.com/hospitality/blog/tag/featured) ## [Revenue Management in a Crisis—Rise of the Humans](https://4864103.hs-sites.com/hospitality/blog/revenue-management-in-a-crisis-rise-of-the-humans?hsLang=en) Posted by [Robert Cross](https://4864103.hs-sites.com/hospitality/blog/author/robert-cross) on Jun 26, 2020 10:54:59 PM We have elevated machines to perform much of our work in Revenue Management. It’s time for humans to step forward. Revenue Management systems have become technological marvels. They have consistently won or been finalists for [INFORMS’s global competitions for applied analytics](https://www.informs.org/Recognizing-Excellence/INFORMS-Prizes/Franz-Edelman-Award). We’ve almost become used to Revenue Management systems performing herculean tasks for us. We’re no longer in awe of what they can do. They manage billions of rows of data with ease. They perform tens of millions of forecasts per night across thousands of properties. They accurately set millions of rates per day, deftly balancing rate and occupancy throughout the year. Advances in artificial intelligence and machine learning have made them reliable and self-correcting. They have been our noble, autonomous agents working tirelessly for us 24 hours a day, 7 days a week. We’ve relied on them to instantly access enormous databases to answer virtually any question which could come to mind: - “Which hotels in Singapore will need more groups in September?” - “What properties in Eastern Europe did not meet RevPAR expectations last quarter?” - “Will we need to offer deeper discounts in South Florida this coming winter?” Now, the underlying source of the Revenue Management systems’ intelligence—their databases—have become victims of COVID-19. Even the most advanced artificial intelligence and deep-learning systems must rely on predictable data or rules. Self-driving cars must have real-time sensors, as well as know the “rules of the road” and the laws of physics. IBM’s Watson is dumb as a brick without consistent, reliable data. The creation of a [machine with human-level intelligence](https://builtin.com/artificial-intelligence) that can be applied in any unknown environment is the Holy Grail for many AI researchers, but it's not something we’ll see anytime soon, if ever. GIGO is the fundamental precept of computer science. Garbage in, garbage out. A global shutdown which began in Wuhan, China, in January of this year has trashed Revenue Management databases for at least a year—maybe more. In an [interview with HSMAI](https://americas.hsmai.org/insight/curate-presents-how-to-be-a-hospitality-revenue-leader-during-covid-19/), I was asked if I had ever seen any disruption to the economy like this. “No” I replied. “The current crisis has the immediate impact of 9/11 and the long tail effects of the 2008-2009 financial crisis.” I projected that if you combine the impact of both those events and multiply by pi, then you’d get some idea of what we are facing with COVID-19. ## **“Old World” Data and the Coming Murky New World** Cameron Davies, SVP Decision Sciences of NBCUniversal, has experience with many situations in which historical data was non-existent or has become irrelevant. He cautions that we should not simply throw the “old world” data out as garbage. Although the new world will be completely different, he suggests that the old data can be a [“foggy window”](https://www.linkedin.com/pulse/death-zebras-myth-dealing-uncertainty-cameron-davies/?trackingId=oaFv36c3RnKz7IKENCzORA%3D%3D) into the new world. I like his sentiment that the old data still retains some value. However, it may be more like a carnival fun house distortion mirror than a foggy window. The data that’s currently in Revenue Management databases will have some probative value—but at this point we have no idea how, when and where we will be able to use it. Data that we are currently collecting is also completely distorted, but some of it *may* foretell future customer activity. It appears that the COVID-19 infection rate peaked in mid-April in the United States and that we may be nearing the global peak of the pandemic—assuming there is no [second wave](https://bit.ly/3aU3gGt). As this is being written, it is unclear and confusing how and when the U.S. economy will reopen. [Debates](https://www.gzeromedia.com/the-grand-economic-reopening-debate-is-on) are ongoing. The CDC & FEMA have drafted a [plan](https://context-cdn.washingtonpost.com/notes/prod/default/documents/f99f42b3-55c4-4613-9f9c-3ac174f10a4b/note/1a8a55a6-68f9-4b76-8e02-01779290c1a5.#page=1), State governors are forming coalitions to develop [re-opening steps](https://www.cidrap.umn.edu/news-perspective/2020/04/part-us-covid-19-reopening-steps-midwest-governors-form-coalition) and the White House has issued its own guidelines. Any re-opening of the U.S. economy should be tempered by testing and tracking. We can expect starts and stops if infection rates hit an upward [inflection point](https://www.whitehouse.gov/openingamerica/#phase-one). [Global re-opening](https://foreignpolicy.com/2020/04/15/how-the-economy-will-look-after-the-coronavirus-pandemic/) is even more uncertain. Perhaps more important than what governments will do post-COVID is how customer behavior will change. After the initial shock of social distancing guidelines and stay-at-home orders, we’ve become accustomed to teleworking, e-health, distance learning and shopping on-line. Many of these habits may remain. However, the greatest influence on customer behavior will be driven by the completely unknowable impacts which the virus and economic shutdown has had on economic, financial, psychological, and societal trajectories. ## **Enter Humans** The human brain is an amazing organic computer. [According to some estimates](https://slate.com/technology/2012/04/north-koreas-2-mb-of-knowledge-taunt-how-many-megabytes-does-the-human-brain-hold.html), our minds can store up to 2.5 petabytes—about the same as all of Yahoo’s computers combined. The clock-speed of the neurons in our brain, at only one kilohertz, is substantially slower than the one gigahertz processor in our cell phones. However, our brains have 86 billion interconnected neurons. A neural network computer with that many connections could conceivably be built in a few decades, but it would require a gigawatt of power—about the amount of energy consumed by Washington, DC. Our brains run on [12 watts of power](https://opinionator.blogs.nytimes.com/2009/03/31/guest-column-computers-vs-brains/)—about the amount of energy consumed by a single high-efficiency light bulb. Far more important than our prodigious data storage and processing power is the interconnectivity of all those neurons. The connections the neurons create give us the ability to perform tasks, make decisions, and solve problems based on what we call our human instincts, our common sense, and our life experiences. That [interconnectivity of neurons](https://time.com/4960778/computers-smarter-than-humans/) enables the human qualities we refer to as creativity, ingenuity, imagination, and inspiration. Because of these uniquely human traits, we can form mental representations, make inferences, draw conclusions, and make decisions in circumstances we’ve never seen before. This problem-solving ability when facing complete unknowns in a new environment separates us from machines. Our brain is not merely a computer. We can do things that computers will never be able to do. We can be empathetic, and we have emotions. While facial recognition software can determine a person’s mood, it can’t form an empathetic bond with a patient. Amazingly, there is [*statistical proof*](https://www.penguinrandomhouse.com/books/316067/humans-are-underrated-by-geoff-colvin/) that empathetic doctors have better patient outcomes than non-empathetic doctors with even better technical skills. This empathy and understanding is essential to us as individuals and for businesses as well. As consumers, we want to engage with brands that, we believe, understand us and appreciate us. ## **What Humans Must Do Now** It’s still too early for us to go back to practicing Revenue Management as we know it. There is little that can be done to create and manage demand. More harm than good can be done by trying to force recovery before it is possible. [First, do no harm.](https://4864103.hs-sites.com/hospitality/blog/revenue-management-in-a-crisis?hsLang=en) Nonetheless, there are many things that Revenue Managers should be doing in order to prepare for the essential role of humans after the re-opening of the economy. ### **Acquire Knowledge to Prepare for A Problematic Recovery** You must arm yourself with additional knowledge in order to face the unknowns in front of you. Fortunately, there is a great wealth of material available specifically related to the COVID-19 crisis and its impact on Revenue Management. (Perhaps we authors have more time on our hands!) Unfortunately, there is so much available that you might become overwhelmed. Here are some of my favorites. - Boston Consulting Group has published and excellent high-level [overview](https://www.bcg.com/publications/2020/travel-and-tourism-revenue-recovery-coronavirus.aspx) of what to expect in Revenue Management for all travel & transport industries. [The U.S. Chamber of Commerce wrote](https://www.uschamber.com/co/good-company/launch-pad/coronavirus-effects-on-major-industries) about the expected impact of the coronavirus on a broad range of industries including hospitality. Spoiler alert—they see fewer people traveling across-the-board. - Great articles abound. The New York Times reported on an [excellent survey of what to expect](https://www.nytimes.com/2020/04/15/travel/q-and-a-coronavirus-travel.html) from changes in travel behavior among various geographic and demographic markets. - Closer to home, there are a number of articles which give very specific guidance for Revenue Managers. Hospitality Net has published a [series of articles](https://www.hospitalitynet.org/opinion/4097739.html) with suggestions from industry experts. One of the best overall [collections of perspectives](https://global.hsmai.org/insights/coronavirus-resources/), insights and recommendations for hospitality Revenue Managers has been assembled by HSMAI. Acquiring new knowledge may also include acquiring new skills. Jack Easdale, SVP Revenue Management & Enterprise Analytics at Las Vegas Sands Corp., recently told me that he has used this time to encourage his team to ramp up analytical abilities. He licensed an online learning tool called DataCamp for all the members of his team and challenged them complete courses pertinent to their responsibilities. He recognized that humans will need to take a more assertive role in managing the systems and mathematical models they use for the Venetian, Palazzo and Sands hotels. Finally, look beyond articles on Revenue Management to comprehend the economic, financial and societal forces that will change the behavior of your customers. My favorites include [*The Financial Times*](https://www.ft.com/) and [*The Economist*](https://www.economist.com/). Both of these have ongoing, comprehensive coverage of the coronavirus outbreak as well as its effect on commerce. In addition, they continue to publish insightful essays on the economic consequences and political and social impacts of the pandemic. ### **Question Everything** Hopefully, since your databases have been trashed, you’ve already questioned the automated rate and inventory adjustments made by your Revenue Management systems. You will have significantly narrowed the system’s floors and ceilings, if you allow automatic adjustments at all. The data will eventually begin to heal itself, but you will need to take an active role in assuring that your data and systems can recover as quickly as possible. With appropriate intervention, the dependability of your Revenue Management systems can recover faster than the economy. You need to start working now towards their revival so that they can help you manage the post-COVID environment. Here are a few of the questions you need to ask your systems providers or database managers to speed up the process: - How will you remove “corrupted” historical data while retaining the data that still has probative value? How can you assure those fixes will work in the future for a second wave of infections? - How can we save the invaluable historical seasonality components in our data? How do we assure that future seasonality elements are not corrupted by current events? - What external data (e.g. STR data) can we use as a proxy while waiting for our data to heal? Are there any macro-economic indicators that we can use as leading indicators as the economic recovery rolls in? - How will you account for geographical and sub-market differences in the adjustments you make? - How will you systematically assure continuity and reliability of the data going forward? In addition to database adjustments, we must assure that we have enlightened human guidance modifying forecasting and optimization algorithms. More questions: - How will you adjust your forecasting models to account for this unprecedented disruption? Which variables are most impacted, and how will you account for that impact? - How will your forecasting models “learn” faster in this chaotic environment? What changes will be necessary for the model’s error-checking logic? - Measuring customer price sensitivity will be more important than ever. How will you change segmentation models to account for changes in price sensitivity? How will we be alerted to anomalies which may require human override? - Have you considered the impact potential “social distancing” policies could have on capacity? How will variable market capacity affect price & inventory recommendations? This is huge! Many Hotel Revenue Management systems have not generally had to deal with variable capacity, unlike the airlines. Please make sure you address this. Having the supply side (capacity) in play may wreak havoc on many pricing models!  - If competitors’ prices are an input to price optimization, how do we assure that “panicked” prices by our competition do not adversely impact our post-COVID pricing strategy? In other words, how do we prevent an automated downward price spiral? ### **Think Different** A number of articles advising Revenue Managers about post-COVID response exclaim: “Stay the course!” Don’t even think about it. There is no course to stay. It’s been obliterated. Many people in Revenue Management will be scrambling to “get back to normal.” The shrewder ones will be actively seeking “the New Normal.” While others are desperately seeking “normality,” the most astute Revenue Managers will stay nimble and flexible to *gain share*. They will be the ones who are able to, in the words of Steve Jobs, “Think Different.” The brilliant and insightful people who are “thinking different” realize that there will be no consistent recovery. They will have the greatest success. They won’t be looking for any sort of “normality.” Unprecedented disruption has occurred. As devastating as the near-term impact has been, the residual effect on the economy and, in particular, travel is completely unknown and unknowable. Successful people will move quickly and adapt to volatility. I’d like to leave you with a few ideas that I will flesh out with more detail in an article next week: - *Think Revenue Creation*—As Revenue Managers, our primary job has been to manage demand; we now need to be in *demand creation*. - *Rethink Customer Segments*—Different customer segments will recover at different velocities. If your primary segments aren’t going to recover early, you’d better pivot fast. - *Look Upstream*—Don’t wait for bookings to show up in your pace reports. Look upstream for signs of life in your various market segments. - *Change your Channel Strategy*—You’ve been working so hard to wrest control of your customers back from OTAs and to reduce costs. Sorry, but they will need to be your best friends in the short term. - *Leapfrogging Tech Stacks*—Huge, complex Revenue Management systems with rich functionality had been great. Advances in technology have enabled smaller, nimbler systems which may be better for this new environment. ## **Rise up, Humans!** This unprecedented situation calls on people to do things that a computer could *never* do. We need to call upon our uniquely human traits. Use our wits. Try new things. Assess risks and make judgement calls when there is absolutely no data to support our decisions. We can do this. We’re trained & ready. Let’s roll! [Request a personalized demo](https://4864103.hs-sites.com/demo/n2pricing?hsLang=en) and learn how the Revenue Analytics [N2Pricing™ RMS](https://4864103.hs-sites.com/hospitality/n2pricing?hsLang=en) empowers hoteliers to consistently outperform revenue targets and save time in the process.   0 Comments [Click here to read/write comments](https://4864103.hs-sites.com/hospitality/blog/revenue-management-in-a-crisis-rise-of-the-humans?hsLang=en#comments-listing) Topics: [Robert G. Cross](https://4864103.hs-sites.com/hospitality/blog/tag/robert-g-cross), [Featured](https://4864103.hs-sites.com/hospitality/blog/tag/featured) ## [How Scenario Planning Can Help Revenue Managers Prepare for the Post-COVID Recovery](https://4864103.hs-sites.com/hospitality/blog/revenue-managers-and-the-problematic-post-covid-recovery?hsLang=en) Posted by [Robert Cross](https://4864103.hs-sites.com/hospitality/blog/author/robert-cross) on Jun 26, 2020 10:54:48 PM Forget about forecasting demand as the economy sputters to a start. Any forecast will be wrong. Even the most astute economists have no idea what is in store for the global economy. The World Economic Forum [recently polled](https://www.weforum.org/agenda/2020/04/alphabet-soup-how-will-post-virus-economic-recovery-shape-up/) 50 economists. Their estimates ranged from a 6% GDP *decline* this year to an 0.7% *gain*. The travel industry was hit [*far harder*](https://www.ustravel.org/sites/default/files/media_root/document/Coronavirus2020Impacts-3.24-WEB.pdf) than any other sector, and its recovery is even more uncertain. In an insightful [HSMAI Roundtable](https://americas.hsmai.org/event/confronting-coronavirus-whats-next-webinar-series/) Discussion, Dave Roberts, former SVP Revenue Strategy for Marriott International and now Virginia Tech Professor, declared that “Forecasts are pointless in this environment.” The most anyone can do is create various scenarios. He cautions that hospitality is facing a two-phase downturn. The first, caused by the viral outbreak, shut down virtually all travel. In the immediately following second downturn, he sees a protracted economic recession equivalent to 2008-2009. Without visibility into when or how the economy will re-open, Roberts says that the best course of action is to develop a wide range of scenarios. Those scenarios would help you plan for any eventuality. Jeffrey Roper, CEO at Stargate Partners, has three decades of experience in Revenue Management systems for travel & transportation as well as multifamily housing. He recently developed a robust [scenario planning approach](https://www.linkedin.com/pulse/navigating-through-sea-uncertainty-jeffrey-roper/) for his CPG/Retail customers which would adapt nicely to hospitality. He suggests that one plausible post-COVID scenario tool could be as simple as making the following assumptions: Phase I (Apr 1 to Jun 30) ---30% of normal demand Phase II (Jul 1 to Sep 30)—50% of normal demand Phase III (Oct 1 to Dec 31)—70% of normal demand Date ranges and percentages of demand could be easily changed to create various scenarios. Three scenarios, Best Case, Worst Case and Most Likely Case, should suffice. If you want to get more sophisticated, check out ING Group’s "[Four Scenarios](https://think.ing.com/articles/four-scenarios-for-the-global-economy-after-covid-19/) for the Global Economy After COVID-19." It’s a tremendously comprehensive approach—probably overkill for hospitality—but it may give you some ideas for a scenario planning capability which is better crafted for your particular markets than a simple percentage of historical demand. ![image-scenario-chart](https://4864103.hs-sites.com/hs-fs/hubfs/image-scenario-chart.png?width=600&name=image-scenario-chart.png) Don’t overthink the scenario planning process. Enlist the help of others. If you collaborate with others in sales, marketing, and operations, that should assist you in the construction of reasonable scenarios and the buy-in of others as necessary. The important point of this exercise is not to predict what *will* happen, but to be ready for anything that *might* happen. No single Grand Strategy is going to deliver success. Success in the chaotic, uncertain post-COVID world will go to those who are most prepared. You will need an action plan for each scenario. Those plans must include answers to questions like: “When and where do we bring capacity back?” “How should our staffing model evolve?” And most critically: “How low are we willing to go on rate—*no matter how dire the outlook may be*?” Speed and nimbleness are required for post-COVID success. I hope these suggestions help you plan plausible scenarios in advance. Be sure to develop specific actions for how you will respond under each scenario. If you do these things, you will be as prepared as possible for the problematic post-COVID recovery. [Request a personalized demo](https://4864103.hs-sites.com/demo/n2pricing?hsLang=en) and learn how the Revenue Analytics [N2Pricing™ RMS](https://4864103.hs-sites.com/hospitality/n2pricing?hsLang=en) empowers hoteliers to consistently outperform revenue targets and save time in the process.   0 Comments [Click here to read/write comments](https://4864103.hs-sites.com/hospitality/blog/revenue-managers-and-the-problematic-post-covid-recovery?hsLang=en#comments-listing) Topics: [Robert G. Cross](https://4864103.hs-sites.com/hospitality/blog/tag/robert-g-cross), [Featured](https://4864103.hs-sites.com/hospitality/blog/tag/featured) ## [How Lessons from the Flight Simulator Can Help Executives Respond in a Crisis](https://4864103.hs-sites.com/hospitality/blog/lessons-from-the-flight-simulator-help-respond-to-covid-19?hsLang=en) Posted by [Robert Cross](https://4864103.hs-sites.com/hospitality/blog/author/robert-cross) on Jun 26, 2020 10:54:38 PM Daily revelations about the Coronavirus are starting to have a significant impact on business. Supply chains are disrupted, the stock market (as of this writing) is tanking, and [by some accounts](https://www.wsj.com/articles/germanys-lufthansa-makes-cuts-as-it-braces-for-coronavirus-impact-11582712819), airline bookings are down by the “midteens,” which could equate to $100 billion in lost revenue. No one knows if the Coronavirus outbreak is about to plateau or whether we are just seeing the tip of the iceberg. Coronavirus infections are currently only a [small fraction of the influenza virus](https://www.health.com/condition/infectious-diseases/coronavirus-worse-than-flu). The SARS (Severe Acute Respiratory Syndrome) and Ebola outbreaks were frightening, but they didn’t have economic consequences that lasted much more than one quarter. The prospect for disaster is daunting. I’m concerned first and foremost about the toll Coronavirus is taking and could take on people around the world. The prospect of widespread illness and fatalities is sobering. As a businessperson, however, this crisis is giving me flashbacks to the financial meltdown of 2008. The most severe recession since the Great Depression painfully unfolded [over the course of almost a year](https://www.thebalance.com/2008-financial-crisis-timeline-3305540). Then Lehman Brothers folded, the market collapsed, and panic ensued. At Revenue Analytics, we provided consulting services to some of the world’s largest firms. They were all at a loss about when or if recovery would happen, and in the meantime, what they should do as uncertainty paralyzed the business world. At the time, one of our clients was FlightSafety International, the world’s largest aviation training company. I had trained as a pilot in the Air Force and I knew that military and commercial pilots use flight simulators to experience disaster in a virtual realm so that they are better equipped to deal with it in the physical world. FlightSafety had state-of-the-art flight simulators which were constructed from manufacturers’ actual aircraft flight decks. These simulators have full range-of-motion capabilities and realistic audio and visual displays to provide an amazingly accurate flight environment. With the flick of a switch, instructors can put the aircraft in a precarious or dangerous situation, such as disastrous weather, oncoming aircraft, or visual blackouts. FlightSafety had anything and everything to train pilots in how to recover from unprecedented emergencies. They had the equipment. I had an idea.![image-flight-simulator-001-2](https://4864103.hs-sites.com/hs-fs/hubfs/image-flight-simulator-001-2.png?width=300&name=image-flight-simulator-001-2.png) We at Revenue Analytics were hosting an Executive Roundtable. I wondered, what if we brought a dozen executives from a wide range of industries, put them in a flight simulator in the morning, and then, in the afternoon, extracted the wisdom they had learned from “flying in turbulence”? We’d then apply those lessons learned to their corporate environments. The executive team at FlightSafety was intrigued enough to give it a go. FlightSafety gave us access to the latest equipment and top-notch flight instructors. When the day of our Executive Roundtable arrived, our executive guests spent a few minutes having coffee and getting to know one another. Then it was off to a quick ground school, where they learned some basic principles of flying, and then into the simulators. The instructors taught these executives—none of whom were pilots—how to take off and land sophisticated commercial aircraft. Prepping the instructors for the mission I had in mind was a bit of a task—I told the instructors, “Once your students get comfortable taking off and landing, throw some crazy stuff at them such as wind-shear on short final, hurricane force turbulence, anything that completely disturbs their decision-making process. It’s OK if they crash.” Until I explained the purpose of the mission—learning from flying in turbulence—the instructors were uncomfortable with the idea of putting our newbie pilots in situations where, by design, they would likely fail, and fail spectacularly. ![image-flight-simulator-02-1](https://4864103.hs-sites.com/hs-fs/hubfs/image-flight-simulator-02-1.png?width=260&name=image-flight-simulator-02-1.png)**Within an hour, all our participants were taking off and landing at airports all over the (virtual) country. Then, just as our new crew of pilots was getting comfortable, the instructors started dialing in all kinds of trouble. Electrical storms, typhoons, objects appearing on the runway, engine failure, you name it. All the threats were recoverable by skilled pilots. But our eager, bright, and well-intentioned crew? They all crashed.** These simulators will mess with your mind. They are actual aircraft flight decks mounted on stilts with full range of motion and displays so true you soon forget that you are in a sim. The sounds are tuned to the actual engines on the plane. You accelerate down the runway seeing the terminal building and taxiing aircraft as they pass by. You feel g-forces. You feel the plane lift off the ground and hear the subtle thunk as you retract the landing gear—just like the real thing. When the instructors dialed in the alternative scenarios, our novice pilots were slow to react. They were used to calm. One exec faced severe downdrafts as he was about to land. As the ground approached too rapidly, he kept pulling back on the stick to keep the nose of the airplane pointed skyward. The plane stalled, nosed over and turned into a “lawn dart” screaming toward the earth. The simulator pitched forward and hit hard on the front stilt. The virtual crash was so severe it temporarily broke the simulator until technicians could completely reboot it. That afternoon, we analyzed the flight data. The results were fascinating. The “cause” of all the crashes was “pilot error”—no surprise. The surprise was that ultimate trigger for each crash was identical—overreaction. During the debrief, the instructors explained that all the executives “got behind the aircraft.” They let the aircraft take its own course too long before responding. When they finally responded, they were tentative at first. As the situation worsened, they panicked. They all overcorrected, which doomed each flight. We had an extensive roundtable discussion about the experience. I asked the group “What can we take away?” Three principles emerged: ## **1. Stay ahead of the aircraft.** It’s a mental discipline that requires pilots to stay a step or two ahead of where they are in flight. Situational awareness is key. Anticipating future events is essential. It comes down to framing and reframing potential responses so that surprises are minimized. ## 2. Trust your instruments. In almost all the cases, the pitches and rolls of the aircraft affected spatial orientation. The combination of rapidly changing visual, auditory, and vestibular stimuli overwhelmed sensory perception. Our “pilots” were confused, but the instrument panel showed a true picture of what was happening in real time. ## **3. Don’t Overreact. ** The ultimate cause of each crash was overreaction. Our executives panicked and the overreaction was as much an *emotional* reaction as a physical one. Cool-headedness is essential to avoiding overreaction, but that is difficult in an uncertain, rapidly changing environment. In our case, overreaction could have been minimized by change of perception—focusing on the instruments, not the stimuli. Focus on the facts, not the fear. For the remainder of the afternoon, we examined how these learnings could translate from the flight deck to the executive suite. This is where the group established clear guidance about how they were going to deal with the uncertainties of the 2008 environment—and how we can deal with the uncertainties surrounding Coronavirus today. ## *1. Stay ahead of the aircraft.* Its axiomatic that businesses should *act*, not *react*, but virtually all companies drive by looking in the rear-view mirror. They respond to the last quarter’s financials or the last week’s sales figures. Pilots continually scan the horizon for targets and threats. While it’s important to know where you are and where you’ve been, more important is where you are headed. Awareness of the situation ahead gives time for planning and anticipatory response. “Staying ahead of the aircraft” in corporate terms means making continual course corrections. If you wait until you MUST react, your options are invariably narrowed and limited. ## ***2. Trust your instruments.*** Things aren’t always what they seem. This is especially true when those around you are acting irrationally. For organizations, “trusting your instruments” requires being data-driven. An experienced executive can get by relying on instinct and gut feel during ordinary times, but in times of unprecedented uncertainty, rigorous data analysis will invariably lead to the best outcomes. Too often, major decisions are based on snippets of information or anecdotes. Was what you just heard an isolated incidence? Is it widespread or localized? Just as dangerous as too little data is The Flaw of Averages. Customers make decisions at the micro-market level. Accordingly, overly aggregated data will obscure opportunities and cloud corporate decision-making. Companies with sophisticated Revenue Management systems will have an advantage in having detailed data available for analysis and robust forecasts of the future. Even if their forecasts may lag rapidly changing events, those instruments can provide guidance for what comes next and can augment human interpretation of events. ## *3. Don’t overreact.* Decisions which are driven by emotion or made in panic are rarely successful. If you’ve course corrected properly, you aren’t likely to overreact. Smaller, anticipatory decisions made speedily are better than large ones made late. In the darkest times of 2008, many companies panicked and offered deep discounts in order to buy market share. Carpet-bombing discounts didn’t work. Savvy companies used laser-guided discounts targeted to just those markets and customers which would respond. Those with Revenue Management systems had a distinct advantage in knowing when and how deeply to discount in order to continually sell the right product to the right customer at the right time for the right price. ![image-flight-simulator-03-1](https://4864103.hs-sites.com/hs-fs/hubfs/image-flight-simulator-03-1.png?width=300&name=image-flight-simulator-03-1.png) ## **Conclusion** If the current Coronavirus outbreak goes the way of SARS and Ebola, then it should be back to business-as-usual in 60 days or so, even though we’ll still be dealing with recovery. On the other hand, if Coronavirus turns out to be the pandemic nightmare that many fear, economic consequences will be severe. Either way, just as application of vigilant piloting skills acquired in the flight simulator helped attendees at our Executive Roundtable navigate the last recession, the lessons learned, which I’ve outlined above, will help will help executives today navigate turbulent times and assure a safe landing and successful mission. [Request a personalized demo](https://www-revenueanalytics-com.sandbox.hs-sites.com/demo/n2pricing?hsLang=en) and learn how the Revenue Analytics [N2Pricing™ RMS](https://www-revenueanalytics-com.sandbox.hs-sites.com/hospitality/n2pricing?hsLang=en) empowers hoteliers to consistently outperform revenue targets and save time in the process.   0 Comments [Click here to read/write comments](https://4864103.hs-sites.com/hospitality/blog/lessons-from-the-flight-simulator-help-respond-to-covid-19?hsLang=en#comments-listing) Topics: [Hospitality Industry](https://4864103.hs-sites.com/hospitality/blog/tag/hospitality), [Robert G. Cross](https://4864103.hs-sites.com/hospitality/blog/tag/robert-g-cross), [Strategy](https://4864103.hs-sites.com/hospitality/blog/tag/strategy), [Featured](https://4864103.hs-sites.com/hospitality/blog/tag/featured) ## [Revenue Management in a Crisis: Avoid These Bad Practices or Pay the Price Later](https://4864103.hs-sites.com/hospitality/blog/revenue-management-in-a-crisis?hsLang=en) Posted by [Robert Cross](https://4864103.hs-sites.com/hospitality/blog/author/robert-cross) on Jun 26, 2020 10:54:29 PM Desperate times *don’t *call for desperate measures. Hasty steps taken in desperation will screw your recovery. The term “desperation” indicates despair and hopelessness. We are not in a hopeless situation. We WILL recover. It’s going to be a long and uncertain recovery, but we are incredibly resilient as a society, and we are entrepreneurial and resourceful as individuals. We’ll get through this. In the very near-term, however, most companies are in triage. I shudder at the term “triage.” I was trained in the U.S. Air Force Medical Corps before going to flight school. Part of our training was a simulated mass-casualty exercise. We had to rush onto a realistic crash scene with bloodied and groaning victims. Within minutes, if not seconds, we had to assess who needed immediate help, whose injuries could wait, and who was going to eventually die irrespective of help. It was harrowing. We were training for a situation we hoped we’d never see: when the decisions we made would be *literally* life or death decisions—made on the spur of the moment. The objective of the exercise was to make sure we were equipped to do the most good for the greatest number of people—with a critical eye towards long-term outcomes. It’s heartbreaking to realize that triage scenarios are actually playing out in hospitals all over the country as the virus overwhelms health-care capabilities in many communities. Triage in business is much the same. It’s not flesh and blood, but it’s financial carnage. People’s lives will be permanently affected. The financial damage inflicted by COVID-19 is a crash scene. It’s messy, and there is genuine human anguish. As I write this, most of the United States is still in lockdown. We haven’t seen the true extent of the carnage. Notwithstanding a $2 trillion stimulus package, [half the hotels in the country could still close](https://www.usatoday.com/story/travel/hotels/2020/03/20/coronavirus-half-us-hotels-could-close-amid-pandemic/2885071001/) and tens of thousands of employees might be laid off.  A senior executive at a major hospitality chain confided privately to me that he’s currently “up to his eyeballs in closures and furloughs.” Jim Compton, former Vice Chairman and Chief Revenue Officer at United Airlines, came up through Revenue Management and has first-hand experience in dealing with the aftermath of the Gulf Wars, 9/11, SARS, Swine Flu, and the like. We were recently discussing the current crisis. His first comment to me was, “You need to move quickly and get beyond the emotions of such a dramatic event.” It’s easy to be overcome with emotional trauma, especially since most of us have never seen anything like this. Just like medical triage, the unemotional objective must be to do the most good for the greatest number of people—with a critical eye towards long-term outcomes. Compton says that Revenue Management must be in the middle of all the major decisions. However, the perspective from Revenue Management must be more broad-minded than it would be in normal conditions. According to Compton, Revenue Managers should focus a critical eye on long-term outcomes, and those outcomes must encompass employees, customers. and investors. During the helter-skelter, panicked decision-making of the moment, often more long-term harm can come from inappropriate actions during triage. Medical students are taught *“Primum non nocere,”* attributed to the Greek physician Hippocrates. ***First, do no harm***. Naturally, surgery involves short-term harm. So does closing hotels and furloughing employees. You must be sure that any intervention will have greater long-term benefits than short-term pain. For us in Revenue Management, unfortunately, it is *so easy* to inflict long term-damage in our fervent desire to act fast and stop the bleeding. We can unwittingly cause harm, despite the very best of intentions. We are *Revenue* Managers, and it kills us to see revenues tank. We have to do *something*! So we are susceptible to impulsive mistakes that cost us in the long term. ## **Undisciplined Discounting ** A few years ago, I gave a talk at Georgia Tech which enumerated the Worst Practices in Pricing and Revenue Management. These happen to be short-term actions which are very enticing in these desperate times. I thought it might be good to specifically call them out as what NOT to do when triage stops and you try to recover revenue. These worst practices all come under the broad heading of Undisciplined Discounting. I recognize that, once we are on the road to recovery, discounting will be an absolutely essential component of your Revenue Management arsenal. However, it must be done with precision. In my next article I will address how discounting should be approached. For now, please avoid these practices! ### Carpet-Bombing Discounts Desperate moves to reduce revenue losses will invariably involve the use of discounts. The more widespread the destruction, the greater the temptation to discount your way to growth. Broad-based, “carpet-bombing” discounts are an indiscriminate way to grow volume or win back share. It will invariably lead to collateral damage. A great post hoc way to test the effectiveness of your discounts is to do a scatter plot of the discount percent given customers in a market vs. the volume gain in the market. You should expect that the greater the discount, the greater the volume gain, right? Here is a scatter plot of actual client data. ![img-scatter-plot-01](https://4864103.hs-sites.com/hs-fs/hubfs/img-scatter-plot-01.png?width=600&name=img-scatter-plot-01.png) As you can see, there is absolutely no correlation between the depth of the discount and the pickup in volume. This is carpet bombing at its worst. It does not generate additional revenue. It destroys price integrity. It harms brand identity. It is the antithesis of Revenue Management. ### Feeding the Rich; Starving the Poor You will be desperate to keep your best customers, and you will desperately want to do *something* for them. It will be tempting to offer them the deepest discounts, as a “reward” for past purchases. Nice sentiment. But feeding your best customers more discounts is an emotional response, not an objective, data-driven response. Your *best* customers, [by definition](https://www.investopedia.com/terms/p/price-sensitivity.asp), are the ones that understand your value proposition and are willing to pay you more.  You should absolutely do more for your most loyal customers, but giving them the deepest discounts is the *wrong* thing to do! Since they’ve historically paid the most for your product, find out what it is about your value proposition that they value and give them more of THAT. Is it a higher level of service? Is it access to typically unavailable inventory? Give them upgrades. Give them personalized service. Anything but price! Companies who feed the best discounts to their “best” customers often miss the opportunity to feed the discount to a potential customer who may be “on the bubble” because of price. Seek out those price-sensitive customers and feed *them* the discounts! You’ll then have the chance to capture them and grow them into loyal customers. ### Buying the Business Greg Cross (no relation to your author) recently retired as SVP of Revenue Management for Hyatt Hotels Corporation. Prior to Hyatt, he founded the Revenue Management program at Hilton Worldwide in the early 1990s and grew it to consist of thousands of high-performing Revenue Managers. He has seen it all. I recently asked him if he had any experience to share concerning this crisis. Cross warned that the large corporate travel departments will prey on younger, less-experienced salespeople, especially during desperate times.  A novice salesperson will hope to induce loyalty from the corporate buyers by offering them deep discounts. A rookie mistake. “Simply put, large companies couldn’t give a damn about loyalty,” says Cross.  “They will willingly accept huge discounts if you offer them, but they won’t allow you to ramp up rates once the crisis is over. Later, they will leverage the low rate and shop the competition, leaving you holding the bag.” You will have to discount. And you’ll need to discount more than you’d like coming out of this crisis. However, any discounting must be made with a critical eye towards long-term outcomes. In my book, [*Revenue Management*](https://www-revenueanalytics-com.sandbox.hs-sites.com/resources/the-book?hsLang=en), I relate a story that Bob McKenna, then CEO of National Car Rental told me. For years, National had been trying to win the seemingly lucrative IBM car rental business from perennial favorites Hertz and Avis. Finally, one day the head of sales announces victory: “We did it! We won the IBM contract!” A celebration breaks out on the executive floor. Cheers and high-fives all around! Within weeks, however, the true cost of the win and the multiple layers of discounts were uncovered. Soon, everyone was asking, “How much longer do we have to go on the damned IBM contract?” National had bought the business. They paid painfully for a year. ### Starting “Accidental” Wars Price reductions offered in an attempt to gain competitive advantage are like shooting yourself in the foot and trying to kill the competitor with the ricochet. Price reductions alone can *never* create a sustainable competitive advantage. Any advantage you think you can get by reducing price will evaporate immediately since price reductions can be instantly matched. In [my book](https://www-revenueanalytics-com.sandbox.hs-sites.com/resources/the-book?hsLang=en), I refer to The Nine Most Dangerous Words in Business. A competitor drops price. Someone at your company utters the dangerous words: “We can’t let those bastards get away with this!” And you not only see their bet, you raise it. So they one-up you. The downward spiral begins. The next thing you know, it’s a price war that’s gone nuclear. Targeted price reductions are an essential component in a robust competitive strategy. But I can’t tell you how many times I’ve seen a company drop prices, just because they can’t think of anything else to do to compete. What a cop-out. ## **Believe in Yourself** Desperation is not a strategy. Neither is hope. You have the data, tools, and mindset to get through this crisis. You must approach your decisions in the same manner that medical staff must deal with the critically wounded. You must make quick, unemotional decisions which do the most good for the most people. You must keep a critical eye on long-term outcomes. As of this writing, we are still in turbulence, and we will be for at least another month. I recently wrote [an article about how executives can respond to the business disruptions caused by coronavirus](https://4864103.hs-sites.com/blog/hospitality/lessons-from-the-flight-simulator-help-respond-to-covid-19?hsLang=en). In a nutshell, we had placed a dozen corporate executives in commercial flight simulators and taught them to take off and land. Then the flight instructors threw disruptions like turbulence and hailstorms at them. They all crashed. And they all crashed for the very same reason—they *overreacted*! We are still in the midst of coronavirus turbulence. We can do more harm than good at this point. Don’t overreact! The recovery will not be like anything we’ve seen before. There will be no snap-back to a normal state. As recovery begins, avoid the temptation of these Worst Practices to attempt to regain normality faster. Sorry for the long list of things you should avoid. I know that many of you are looking for positive steps to take, *right now*, but the truth is, there is just not much that can be done at this point, aside from triage and avoiding long-term damage. In my next article, I promise to be much more positive! I’ll address the proactive steps you can take to assure recovery. [Request a personalized demo](https://www-revenueanalytics-com.sandbox.hs-sites.com/demo/n2pricing?hsLang=en) and learn how the Revenue Analytics [N2Pricing™ RMS](https://www-revenueanalytics-com.sandbox.hs-sites.com/hospitality/n2pricing?hsLang=en) empowers hoteliers to consistently outperform revenue targets and save time in the process.   0 Comments [Click here to read/write comments](https://4864103.hs-sites.com/hospitality/blog/revenue-management-in-a-crisis?hsLang=en#comments-listing) Topics: [Robert G. Cross](https://4864103.hs-sites.com/hospitality/blog/tag/robert-g-cross), [Featured](https://4864103.hs-sites.com/hospitality/blog/tag/featured) [All posts](https://4864103.hs-sites.com/hospitality/blog/all)