The application of successful revenue management tools and practices is now accepted by most in the industry as a key factor to obtaining a strong market position.

Everyone repeat after me: 'I will not cut prices nor panic sell because it does not stimulate incremental demand and only serves to drive down prices.' (Jeff Weinstein, Editor, Hotels Magazine, February 08) Jeff has given us the mantra that all GMs, Revenue Managers and Directors of Sales should repeat every morning. While most analysts have continued to be bullish on revenue increases of at least 4% in 2008, that was before the employment numbers began to slide. PKF, in its January research article indicated that although the industry was well positioned to weather the storm, there was one caveat. 'What will keep the economy buoyant, as well as the lodging industry, is the continued growth in employment. Historically, we have seen a strong correlation between changes in employment and lodging demand,' Woodworth observed. Unfortunately, the assumption of a continuing employment growth turned out to be short lived as the latest two government indicators showed significantly slippage in this area.

By Robert Mandelbaum, Director of Research Information Services, PKF Consulting Hospitality Research and Aaron Walls

PKF Hospitality Research (PKF-HR) estimates that U.S. hotel revenues will increase an estimated 5.8 percent in 2007, and grow another 5.3 percent in 2008. Both projections exceed the long-term average annual growth rate of 4.5 percent. Further, revenue growth will be heavily weighted toward growth in room rates relative to occupancy.

Forecasts for revenue growth in excess of 5.0 percent should result in huge gains in profits especially when revenue growth largely comes from room rates. However, PKF-HR is concerned about the strong operating expense increases that typically occur at this point in the cycle and the negative impact they will have on profitability. Most troubling is the recent rise in costs over which management has limited direct control.

Historically, one of the operating expenses that management has struggled with has been utility costs. Hotel utility department expenses consist mainly of energy related expenditures (i.e., electricity, gas, steam), along with water and sewer charges.

A historical perk for working in the hotel industry is the chance to get a complimentary ("comp") room when traveling. One call to your former co-worker or college buddy and you are all set with a free junior suite, complete with a welcoming wine and cheese basket.

Unfortunately, due to the proliferation of yield management tools, increased reporting, and the recent industry recession, hotel managers are increasingly reluctant to offer such acts of kindness to their friends. Managers now have to consider the impact of complimentary rooms on their property’s operating statistics, as well as the need to offer an explanation to the hotel’s owner. Instead, the "employee discount" has become the favor of choice.

Of course, there are other reasons to accommodate guests at no charge. Hotels routinely "comp" rooms for travel agents, meeting planners, and corporate travel executives in an attempt to promote their property. Complimentary rooms are often used as an incentive to secure group business – "Book 100 rooms, get one free." While offering rooms for free can be an effective business strategy, the current favorable supply/demand conditions are putting more pressure on hotel managers to maximize revenue at their properties. Therefore, the tendency is to limit the number of complimentary rooms extended to guests for business or personal reasons.