3CASE STUDY IN REVENUE MANAGEMENT FOR YOUTH HOSTELS

Written by Patrick Landman @ Xotels on 03 March 2014.

After 1 year of hard work it is time to take

stock and see what kind of progress we have made with
implementing revenue management at 2 youth hostels in
Paris. Looking at the current trend we are growing
revenues by at least 10% year over year, we can
definitely say this is a successful turn-around. How did we
do it?
Taking a closer look at the results, with an incremental
accommodation revenue of nearly 90.000 generated in
the second part of 2013, and continued growth in 2014
(looking at a 10% to 12% revenue increase in Q1) we
again can conclude we are delivering a solid ROI.
Moreover it is proof to the fact that revenue management
can be applied to different types of lodging properties,
and is not only applicable to hotels. And maybe most
importantly we have found that there is almost no
resistance level to dynamic pricing and yielding from the
backpacking hostel consumer. It all boils down to a
structured approach, and setting yourself up for success.

So how did we approach this Paris

youth hostel turn around project? Firstly we clearly
differentiated 2 main segments; Groups and Transient.
Groups, primarily larger ones booked by institutions
(schools, universities, sport clubs, associations, etc), form
the base business of the youth hostel market and tend to
have a longer lead time of several months. The transient
business consists of individuals and smaller leisure
groups, up to give or take 20 beds, that book inside a 60
to 120 day booking window.
By digging deep into the historical data of these hostels
and creating internal worksheets, we got a real overview
of the seasonality of the hostel market in Paris. The
seasonality follows the traditional monthly trends of a
main city break destination, with the exception being
summer and school holidays which display quite high
demand. We also analyzed seasonal booking curves,
uncovering a substantial longer lead time compared to
hotels, with quite some travelers booking further in
advance (up to 120 days). However the big demand wave
still concentrates itself within 2 weeks of arrival.

With the data gathered we understood we have to

manage very well the base business in order to enter into
main booking window in a comfortable position in terms
of average rate on the books and sufficient availability
over high demand dates, in order to be able to drive
overall yield. For the core segment of institutional group
we repositioned prices slightly upward. Additionally
demand based group ceilings were created, to allow for
enough opportunity to sell premium transient rates
during high demand periods.
Having established booking curve tracking, we have been
able to implement fully dynamic pricing, based on both
historical and current seasonal demand patterns. With the
capability of more accurate market trend forecasting, we
have now completely moved away from working with flat
seasonal rates. To do this we rebuilt the pricing structure,
starting with the PMS. We built a price supplement
structure that incorporated both the ability to sell a room
to an individual consumer as multiple beds, in order to
sell an entire room. We also set-up a similar structure in
our channel management tools, which we use to manage
both the website and all OTAs we work with. Instead of
being stuck in a seasonal trend, we can now yield day by
day, up and down, and capture more demand during low
demand or distressed periods (maximizing occupancy).
Additionally were now effectively able to capitalize on
unconstrained demand by driving the APB (average price
per bed) during high demand periods. At the same time
differentiating strategies for the various product
categories (dorm configurations and room types) has
been essential as well in driving the results.

We also rapidly recognized the need for a very lean

method to control inventory. Selling a bed vs. a room can
create serious constraints that reaching 100% occupancy
impossible. In the end we provide the choice to buy beds
in dorms for girls, beds in dorms for boys, or beds in
mixed dorms. If we sell 1 bed for girls only, forget about
selling the other 3 beds to boys. Therefore we built in
custom inventory control tools that provide easy insight
into the pace of each room type and bed type. This really
allowed us to maximize sales for each room type, and it
was one of the reasons we were push occupancy levels to
the absolute maximum.
Through constant testing of price elasticity for the
transient market, we noticed a clear difference in
sensitivity across the various demand seasons. In low
season the thresh-hold of dynamic pricing was around
5%, whereas in high demand times the yield hurdle went
up to 10% to 20%. During peak demand times we could
even grow our rates with incremental steps totaling up to
a rate increase of 10 per person per night within the
same week. At times we were able to drive rate up from
24 to 40, increasing the last bed value of the hostels
substantially.

As in any rev

enue management

strategy, we followed closely the seasonality of the hostel

as well as the group base on the books in order to
maximize RevPAB (revenue per available bed).
Besides working on the revenue management side form
our Xotels offices, we have worked closely with the
operations on property to enhance procedures in order to
upgrade the service experience and perception. By
studying reviews and guest feedback key areas of
improvement were identified. Working structurally on
improving the properties weaknesses, customer
satisfaction has increased by 3.2% in just the last 4
months.
The largest challenge could have well been, changing the
mindset of the operations team, in working with dynamic
rates. It seems the people working in an organization are
sometimes more reluctant or afraid of change than the
actual client. Potential consumer concerns, unqualified
and non-quantified, mostly based on fear are brought to
the table. These can only be addressed by continuous
coaching and guidance, which we have worked on
tediously during this turn around project.
It is essential to work on changing the culture with an
organization from that of ticking within a comfort zone, to
one that is open to pursue constant change and
improvement. We have to turn our companies into
organizations that constantly look at their own
performance critically in search of achieving perfection.
It has been an exciting challenge for Xotels to venture
into the management of youth hostels, going beyond our
own comfort zone of revenue management for hotels. We

are proud to have achieved such amazing results, 10%

revenue growth, together with the operations teams on
property. It is great to see that taking a professional
revenue management approach on youth hostels will
bring about a very healthy return on investment.
We hope to get the opportunity to work on other youth
hostels around the globe and implement our best
practices in revenue management and distribution.
Cheers,
Patrick Landman @ Xotels