CIOIN

Prakash Shukla

VP-Technology & CIO, Taj Hotels Resorts & Palaces

Executive summary

Conventional wisdom has it that a hotel should optimize its revenue by increasing room occupancy. In the process, it's became standard for many hotels to ply guests with beverages, food, comforts, and above all, ambience. The Taj group of hotels was on top of this game But conventional wisdom isn't always right. Their revenue optimisation software implementation came to the rescue.

Taj Hotels Resorts and Palaces is a worldwide chain of luxury hotels and resorts. The Indian Hotels Company Limited and its subsidiaries are together known as Taj Hotels Resorts and Palaces. A part of the Tata Group, Taj Hotels Resort and Palaces has its business spread across 12 countries.

Revenue optimization, as the name suggests, uses optimization techniques to enable CIOs turn their IT prowess to do what every CFO wants them to do-make more money and have an impact on the bottom line.

A hotel that has only four empty rooms could sell it to a group of four and smile smugly because traditionally hotels make maximum revenue by ensuring that as close to a 100 percent of their rooms are occupied. At a hypothetical rate of Rs 10,000 a room for a group of four, the hotel could make an immediate Rs 40,000.A revenue optimization system coupled with data warehousing, data mining and business intelligence will hold such a hotel back from making an immediate profit. RO is useful when a gamble to wait for a better opportunity arises, given parameters such as a long weekend, the reduced cost of travel, etcetera. Eventually the hotel could sell three rooms to three separate individuals at Rs 15,000, making Rs 5,000 more in the process-with a room to spare.

This is the sort of logic that convinced the Taj to try out revenue optimization software. Initially, a pilot project was rolled out at the Taj Mahal Palace in Mumbai.

Forecasting, however, is always a tricky business, and you can never be sure about how accurate your predictions will be. It is a double-edged sword. Wrong assessments have the ability to reduce the earning potential of the Taj group. This can be done manually, and according to Shukla, this is exactly what the Taj was doing in the pre-RO era-in those days, managers used Excel spreadsheets in order to do the calculations. But, says Shukla, "the Taj felt the need for a dedicated revenue optimization system, which was more closely aligned with the property management system." This makes eminent sense because the integration with the property management system eliminated the user-error angle with seamless automation. More importantly, it allowed the Taj's team to make better forecasts.

But even on its own, RO works well. This is clearly borne out by statistics. A comparison of occupancy between April to December in 2004-2005 and 2005-2006 reveals that Delhi, with 77 percent occupancy in both cases, could get an average room rate of Rs 7,065 in 2005-2006 as opposed to Rs 5,429 in the previous year. A look at Bangalore yields even more interesting figures-though the percentage of room occupancy actually fell by two percent, the average room rate shot up from Rs 7,905 to Rs 10,639.

How did Shukla and his people convince the board that RO was important? Shukla points out that, since the board had hired him to enhance the impact of computerization, buy-in was not critical. The results are showing up on Taj's balance sheet..

This growth can be attributed to better management, more aggressive marketing and growing demand; although figures for average room income point to RO. Room income in 2004-2005 was higher than the previous year by 34 percent and the average room rate (ARR) also increased by 24 percent over the previous year, contributing 75 percent of the total increase in room income. Clearly, the revenue optimization mechanism was working well and was enabling the Taj to work out increasingly sweeter rates.

Revenue optimization for the Taj gains greater importance in light of the fact that it is planning to expand outside India at an accelerated pace.