Hotel companies hope that artificial intelligence (AI) will improve their ability to price rooms. Known as revenue management, the field is based on forecasting and is ripe for disruption.
Changes will not happen overnight. Hotel revenue managers are concerned about the safety and reliability of today’s generative AI. But in a few years, software manufacturers will likely overcome the flaws and hotels will realize efficiency gains.
“Many proposed applications of generative AI look like solutions in search of a problem, but revenue management is a perfect use case,” he said. Jeff Edwards, consultant and former IHG executive. “It’s data intensive and too complex for humans to handle in real time.”
Instilling confidence
A big win would be if artificial intelligence gave hoteliers more confidence in automated rate recommendations.
Today’s revenue management software usually produces tables or spreadsheets, leaving it up to revenue managers to interpret.
“With all due respect to vendors, in too many hotels today, people turn off computer rate recommendations because they’re skeptical, especially when a date is approaching,” Edwards said.
AI could allow administrators to ask questions via a chat interface, clarifying the assumptions behind any particular rate suggestion in plain English. This could build confidence in the recommendations.
Generative AI could push revenue management insights up the organizational hierarchy, he said last cookproduct manager of duetpricing and related tools are used by more than 4,000 hotel and casino properties.
“Today you have asset managers and owners who have perceptions of what their asset is worth … of what the market will pay,” Koch said. “Sometimes those perceptions are very wrong.”
“They may think, ‘The team isn’t running properly, give me the 1,000 euros a night I deserve,'” Koch said. “But in the future, a computer might tell them they need to renovate their rooms because an analysis of guest reviews, ratings and feedback shows that average review score is negatively interacting with rate.”
Social media image rate predictions?
Generative AI will likely discover signals about travel demand from information sources that humans barely consider, he said Ryan Kingsenior vice president of Shiji Americaa hotel software services company.
“Recent advances in AI have shown how much data it can process and structure,” King said. “Now they can get more data and analyze it and see the impact on prices.”
Exhibit A: Images posted on social media could one day reveal trending preferences among travelers.
Current hotel systems often assign rates generically to groups of rooms, such as the same rate for all king rooms. Tomorrow’s technology could enable dynamic pricing for individual rooms. A very spacious corner room often featured on social media could, at least in theory, command higher rates.
“Think about how shared images of specific rooms, or more images posted of a specific type of room, could make that room more valuable,” King said. “It might even be possible for RMS [revenue management software] platforms to assign specific rates for specific rooms based on how those rooms are perceived.”
In short, the ability of AI models to analyze so-called unstructured data could be a game changer for hotel pricing.
“Generative AI, in particular, really excels with content — text, images, video,” said Jason Pinto, co-founder and COO of Pace Incomepart of the travel technology startup Flying.
Best hotel prices
Today’s revenue management often struggles to manage ancillary and other non-room revenue.
“Generative AI could move us from a more generic view to a more surgical view of revenue management,” Edwards said. “This individual buys a lot of extras and eats at our restaurants and has Tier X status in our loyalty program, so we’re offering them this more relevant rate.”
Too often the software analyzes whether demand for a particular night is increasing and whether rates should increase in response. But the software struggles with questions like how long to reserve inventory for a last-minute business traveler who might be willing to pay a premium, or for a wedding. party that could spend a lot on services not in the room.
Broadly speaking, artificial intelligence is driving revenue management from a rules-based approach to a “probabilistic” one, said Pace Revenue’s Pinto. The field is essentially becoming more dynamic and responsive in near-real time, which can help hotels capture the most profitable guests instead of putting heads on beds.
GAIO as the new SEO?
A key part of revenue management is the cost of acquiring guests from different sources. The conventional thinking is that if you need to fill rooms because vacancies are high, you can turn to online travel agencies that appeal to leisure travelers. Your income may increase, but commissions may affect the profitability of these guests.
Generative AI can help hotels stop blindly chasing demand.
It can also change the way hotels acquire guests. Today, online travel agencies and global hotel groups have their marketing efforts set up for a world where Google search dominates. What if new types of chat-based search using large language models significantly displace current online search?
“It’s premature because we don’t know how it will be monetized, but it will change search,” he said. You are Cindy Greenco-founder and CEO of Caliber Labs, a hotel consultancy. “There will be new practices with new costs that will potentially displace search engine optimization and paid digital.”
It seems possible that if travel buyers change the way they search for travel, this could lead to the equivalent of generative AI optimization (GAIO).
“Today, listing on Booking.com, etc., is essentially a profitable proxy for appearing in Google search, especially for smaller hotel companies and independent hotels,” Pinto said. “These players will want to know how to become the property that is the answer to the kinds of questions travelers are asking AI-based reservation systems. Will some ways to generate marketing content about your hotel be more effective?”
Hotel revenue management disorder
The great promise of generative AI will take years to fulfill. However, the early signs are promising.
Clouds, a hotel software system, already uses some tools with generative AI components for its operations as a business. Is used GitHub Copilotwhich is generative AI for coding, and jasper, which is generative AI for writing. It also uses generative AI to analyze customer service requests.
“The practical increase in what we gain from each of these three areas is between 10% and 20% in productivity, which as a CEO I consider very good,” said the founder and CEO of Cloudbeds. Adam Harris. “This shows the potential as the technology is applied in the future to other areas, such as revenue management.”
Some analysts doubt that there will be sudden widespread adoption of generative AI in revenue management.
“I don’t think there’s going to be a big explosion like OpenAI with ChatGPT 3,” Koch said. “I would be surprised if it happened in this industry because of the fragmented nature of data and technology.”
In other words, revenue management systems are only as good as the data that goes into them. There are too many hospitality companies that provide their systems with incomplete pictures because their data is in a mix of systems. Some are still physically on premises in hotels, rather than in the cloud, and don’t share data well.
However, this reality has an implication. The first hotel companies to unify their data and apply generative AI-based technology have the opportunity to get ahead of rivals in achieving more profitable demand sources.
Meanwhile, there are concerns about “hallucinations” (when the AI returns inaccurate information) and safety.
“To use it commercially, we need to make sure we can use it safely,” he said Brian Kirklanddirector of information a Choice Hotels, in a Bloomberg TV interview. “How do we put private data sets in there? How do we store the answers?”
“It’s what everyone is looking at to make it commercially viable,” Kirkland said. “It’s going to be something that will really transform the way we do business.”
Koch at retailer Duetto echoed the sentiment.
“There’s a lot of information asymmetry today and I hope it goes away,” he said. “There’s also a lot of excitement, and these improvements will bring more facts to the conversation.”
For more context, Skift Research paid subscribers can read Generative AI’s Impact on Travel report.
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