{468x60.media}
Mr. van Meerendonk

Revenue Management

Maximizing Hotel Profits Even While Renovating

By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions

Money never sleeps, and neither do hotels. It's often one of the biggest challenges faced by hoteliers: maintaining facilities to the standards expected by discerning guests, and determining how and when to upgrade those facilities without turning away or losing business.

Hotels need upgrades, but it's important to keep guests happy while major physical changes are occurring around them. Careful attention must be paid in facility upgrades, and hoteliers must minimise guest disruption and use renovations as an opportunity to refresh and maximise branding and revenue generating opportunities.

Some hoteliers may take the view that there is never a good time to renovate their property; it can result in a whole or partial closure of their business. Unfortunately, there is no way to avoid substantial property refreshers in the longer term if hoteliers want to ensure their property looks its best and caters to the expectations and desires of targeted guests. The question then for hoteliers considering an upgrade or renovation: total or partial?

To Close or Not to Close

Many hoteliers struggle to decide whether a total or partial renovation is best for their property given the likely short-term impact on revenues. A major factor in the renovation decision is whether or not short-term cash flows are needed. If that is the case, then a partial or staggered renovation is often the best course of action. Major hotel brands usually take this approach, whereby the whole property does not close and a level of operating revenues are maintained. However, if long-term revenue and profit generation-or even repositioning the hotel at a different service or star level-are the key motivators behind the property refresh, it would be best to close the whole property while the refresh is undertaken. A major re-opening of the property then elevates visibility and interest: similar to the project undertaken by the Savoy in London.

The Perfect Time to Reposition Your Business

It is not simply enough for a hotelier to undertake a physical upgrade of their facilities and expect to receive all of the revenue benefits a newer facility could offer. Renovations should always be accompanied by a repositioning exercise. If a hotel decides to carry on with business as normal following a renovation, then customer satisfaction may increase as a result of renovations. Revenues and profits, however, may not see any impact. It is essential that a detailed repositioning exercise is conducted, evaluating price vs. value equation and examining the potential for more aggressive upward pricing based on the impact of renovations. This exercise should take place prior to any major investments and determine the effectiveness and ROI of the renovation. Also, revenue management is not often involved early enough in the renovation decision-making process, and as a result, the full benefits of renovation can be negatively impacted.

A hotel often considers or undergoes a renovation in order to maintain the quality of their rooms for customers. But to take full advantage of room renovations, hoteliers should also consider if the renovation warrants a reclassification of room types. Oftentimes, this reconfiguration can create an entirely new room type and allow hoteliers to rethink their customer positioning. But this goes beyond just increasing the price by one-to-five percent, it should be a combined sales, marketing and revenue effort to reposition the new room types.

Careful assessment of the new market demand created by hotel renovations is also very important. Since contracts for both corporate and leisure clients are often based on certain room types, it is important to think through what the implications are for existing contracted clients. If contracts are not dealt with effectively and continue to be priced at 'old' pricing levels, a hotel will struggle to get a positive return on investment from the renovation by only being able to get increases from non-contracted and group business.

Saying Goodbye to Bad Business

Not only does a renovation allow for a hotel to reposition itself, but it is also a good time to evaluate whether some of your existing contracts are still relevant. It is often difficult for hotels to let go of key accounts post-renovation as contracts will not usually accept price increases. Therefore, contract pricing and evaluation becomes infinitely more important in the lead up to the renovation. In some cases, even if it may be difficult to say goodbye to some business in the short-term, hotels will have to accept that following a renovation and repositioning of a property, some of the contracts that they used to accept is no longer good business.

The Time is Now

Hotels often time renovations by taking into account operational or financial implications. "As soon as we get approval from owners, we can start renovation work", or "Let's make sure we renovate during a low demand period so we can take rooms out and not impact demand." These are of course valid inputs into the timing of renovation, however hoteliers often forget to consider when the hotel and its rooms will come back into full operation.

While there are important financial implications to be considered when planning a renovation, determining the best time for a launch of the new rooms or products can be more important than short-term financial or operational impacts. If renovations are timed incorrectly, the demand and ROI needed may simply not exist. For example, if a new hotel opens nearby during the same time as a renovation is complete, the potential rebranding opportunities could be tarnished. Launching new room types during a time when market demand is low could also impact revenue opportunities. This is all incredibly important for the medium to long-term impact of renovations from a pricing perspective.

How Will Your Choice to Renovate be Reviewed?

Hoteliers all know the importance of online reviews and online reputation scores, especially in how they can affect bookings. A bad review on a prominent hotel review platform can turn away potential guests, sending them to a rival property.

Hoteliers should realise that renovations will likely result in changed reputations scores-hopefully for the better. This impact will be apparent both during renovations (potential complaints about noise or availability of rooms) and post renovations (will guests like the new rooms?). When making strategic decisions about repositioning a hotel in line with its major property refresh, it is crucially important to factor in reputation scores and the current and future impact they may have. Pricing correctly will help to find an appropriate balance, whether it be short-term promotional pricing to overcome negative reviews due to noise or inconvenience, or long-term rate premiums as a result of positive scores from the renovations.

Group Booking Considerations

As any hotel management team will know, group lead times can be anywhere from one to 18 months out. Group contracts for arrival post-renovation will need to be confirmed far in advance of the renovations even taking place. In some cases, groups will even need to be confirmed before the extent of renovations can even be determined.

It is essential that revenue and sales teams monitor group activity in relation to the whole renovation process-from the early planning stages to post-launch when the management team will immediately need to conduct repositioning and incorporate the new hotel product and strategies into group evaluation and pricing decisions. If a hotel makes the wrong decisions on group bookings, they could end up with either very cheap groups when its position has changed drastically, or empty rooms because they were uncertain about pricing and could not convert groups effectively.

Fencing for the Future

While undergoing the renovation process all hoteliers must consider having appropriate fencing strategies in place to protect their business. Uncertainty of the impact of the renovations themselves, or even the final product after renovations, means hotels have to be cautious not to set the wrong pricing strategy for the short-term that will negatively impact the long-term. By applying effective fencing to promotional rates, short-term business can be generated despite any negative impact of renovations. This should all form part of the overall sales, marketing and revenue strategy.

Getting the Most Out of Any Renovation

While there are undoubtedly large challenges that any hotelier must overcome and address to ensure a successful renovation of their property, a major property refresh also presents a hotel with the unique opportunity to reposition itself in the market and ultimately support its longer-term revenue goals. It is the hotels that take a considered approach, determining the right time to relaunch renovated rooms while also having the right pricing strategists in place, that will ultimately get the most out of their renovation

As Director of Advisory Services for IDeaS Revenue Solutions, Paul van Meerendonk leads a global team of revenue management advisors focused on hotel revenue optimization projects. Mr. van Meerendonk is responsible for global development, management and operations of the Advisory Services team. He oversees the hiring, training and management of industry-leading consultants located in London, Beijing, Singapore and Atlanta. Mr. van Meerendonk also represents IDeaS on industry thought-leadership initiatives related to trends and best practices within revenue management, including authoring a number of white papers, conducting public speaking engagements, as well as leading key client webinars with an average audience of over 200 global representatives. Mr. van Meerendonk can be contacted at +44 (0) 118-82-8100 or Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
RESOURCE CENTER - SEARCH ARCHIVES
General Search:

OCTOBER: Revenue Management: Technology and Big Data

Gary Isenberg

Hotel room night inventory is the hotel industry’s most precious commodity. Hotel revenue management has evolved into a complex and fragmented process. Today’s onsite revenue manager is influenced greatly by four competing forces, each armed with their own set of revenue goals and objectives -- as if there are virtually four individual revenue managers, each with its own distinct interests. So many divergent purposes oftentimes leading to conflicts that, if left unchecked, can significantly damper hotel revenues and profits. READ MORE

Jon Higbie

For years, hotels have housed their Revenue Management systems on their premises. This was possible because data sets were huge but manageable, and required large but not overwhelming amounts of computing power. However, these on-premise systems are a thing of the past. In the era of Big Data, the cost of building and maintaining an extensive computing infrastructure is incredibly expensive. The solution – cloud computing. The cloud allows hotels to create innovative Revenue Management applications that deliver revenue uplift and customized guest experiences. Without the cloud, hotels risk remaining handcuffed to their current Revenue Management solutions – and falling behind competitors. READ MORE

Jenna Smith

You do not have to be a hospitality professional to recognize the influx and impact of new technologies in the hotel industry. Guests are becoming familiar with using virtual room keys on their smartphones to check in, and online resources like review sites and online travel agencies (OTAs) continue to shape the way consumers make decisions and book rooms. Behind the scenes, sales and marketing professionals are using new tools to communicate with guests, enhance operational efficiencies, and improve service by addressing guests’ needs and solving problems quickly and with a minimum of disruption. READ MORE

Yatish Nathraj

Technology is becoming an ever more growing part of the hospitality industry and it has helped us increase efficiency for guest check-inn, simplified the night audit process and now has the opportunity to increase our revenue production. These systems need hands on calibration to ensure they are optimized for your operations. As a manager you need to understand how these systems work and what kind of return on investment your business is getting. Although some of these systems maybe mistaken as a “set it and forget it” product, these highly sophisticated tools need local expert like you and your team to analysis the data it gives you and input new data requirements. READ MORE

Coming Up In The November Online Hotel Business Review




{300x250.media}
Feature Focus
Architecture & Design: Authentic, Interactive and Immersive
If there is one dominant trend in the field of hotel architecture and design, it’s that travelers are demanding authentic, immersive and interactive experiences. This is especially true for Millennials but Baby Boomers are seeking out meaningful experiences as well. As a result, the development of immersive travel experiences - winery resorts, culinary resorts, resorts geared toward specific sports enthusiasts - will continue to expand. Another kind of immersive experience is an urban resort – one that provides all the elements you'd expect in a luxury resort, but urbanized. The urban resort hotel is designed as a staging area where the city itself provides all the amenities, and the hotel functions as a kind of sophisticated concierge service. Another trend is a re-thinking of the hotel lobby, which has evolved into an active social hub with flexible spaces for work and play, featuring cafe?s, bars, libraries, computer stations, game rooms, and more. The goal is to make this area as interactive as possible and to bring people together, making the space less of a traditional hotel lobby and more of a contemporary gathering place. This emphasis on the lobby has also had an associated effect on the size of hotel rooms – they are getting smaller. Since most activities are designed to take place in the lobby, there is less time spent in rooms which justifies their smaller design. Finally, the wellness and ecology movements are also having a major impact on design. The industry is actively adopting standards so that new structures are not only environmentally sustainable, but also promote optimum health and well- being for the travelers who will inhabit them. These are a few of the current trends in the fields of hotel architecture and design that will be examined in the November issue of the Hotel Business Review.