None, passive or active forecasting

14 June 2022
There are many aspects and many opinions about forecasting. Some hotels apply active forecasting to acquire a better understanding of the future. Other hotels use passive forecasting and let automated revenue management or pricing systems handle the forecasting. Unfortunately, most hotels have no forecasting process and cannot take action to improve future revenue streams.

No forecasting

The path to success for hotels is to maximize total revenue. A hotel will never reach profitability and long-term financial sustainability without sufficient revenue. Therefore, all actions that lead to increased revenue are vitally critical for a hotel. Without a forecast, it is impossible to understand when the activities will have the highest impact.
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Many small hotels neglect forecasting and trust that the business will automatically materialize through many distribution channels. As a result, small independent hotels are in the hands of the OTAs and pay high commissions for each reservation.
 
Hotels that skip forecasting will leave a lot of money on the table for their competitors and pay more for acquiring the guests/customers in commissions and other marketing and sales costs. Therefore, less revenue and higher costs mean a substantially lower profit.

Passive forecasting

Forecasting is both relatively easy and does not take much time. Unfortunately, too many hoteliers are uncomfortable with forecasting and do not know how to start. The ultimate dream for a small hotel owner or general manager would be that someone to take care of the problem and produce the forecasts. Revenue management and pricing systems have built-in forecasting of rooms and average rates, so implementing a system could be the first step to reaching a stage of passive forecasting and automated rate updates. If the hotel has not applied revenue management before, the initial increase in room revenue when implementing automated revenue management or pricing systems will be significant. Many vendors claim that their customers see well over ten percent of room revenue increases. These systems make a forecast and then take automated rate change decisions. The ten-plus percent increase by implementing automated forecasting shows how vital forecasting is for hotels. Without a forecast, actions will fall flat and waste time and money.
 
Hotels applying passive forecasting will never be able to beat the market because they are always a step behind the competition. Systems analyze the market and make decisions based on market (competitor) data. These decisions are automated and standardized but lack creativity and the human touch. Passive forecasting will increase the revenue to the next level and will need human ingenuity to grow further.

Active forecasting

For successful hotels with a wide range of products and services, active forecasting is vital for taking the right actions to maximize total revenue. Most revenue management and pricing systems focus on rooms and lack functions for forecasting other revenue streams. For a hotel with several facilities, such as meeting space, restaurants, bars, and a spa, total revenue forecasting, is critical for optimizing revenue to maximize profits. Hotels that use revenue management and pricing systems keep them under tight control to adjust settings to optimize the outcome of room revenue without compromising other revenue sources.
 
Active forecasting means that the hotel is one step ahead of the competition. These hotels are the market leaders since they can look far into the future and take action before it is too late. The revenue manager prepares the forecast, and then the commercial team works closely together to create ideas for attracting more guests/customers and selling more to each guest/customer. The hotel needs more sophisticated forecasting models and processes for the more complex property.

Conclusion

Forecasting is relatively easy and does not take much time, so there is no reason not to practice active forecasting. Without forecasting, hotels are blindfolded, making too many unnecessary bad decisions, and losing valuable time and money. Hotels with no forecasting are the least profitable because they capture less than their market share and have a higher acquisition cost. Passive forecasting leads to a quick improvement in revenue and profitability. Active forecasting is the path to success, especially for larger full-service hotels with a wide range of revenue sources.