Nine Hotel Revenue Management Trends for the New Year
By Jean Francois Mourier, Founder & CEO, RevPar Guru Inc.
The hospitality industry’s crystal ball is, unfortunately, just as cloudy this year as it was this time last year. Though we can perhaps take comfort in the fact that those clouds are just grey instead of black and stormy, uncertainty is still the only thing that is certain for the hotel and lodging industry in general. Even with positive GDP last quarter (indicating that the recession is technically ending), hotels, resorts and other lodging properties are still experiencing depressed demand, low average daily rates and stagnant occupancy. In other words, low RevPAR. No one can know for certain whether these negative trends will persist through 2010 but following are my thoughts and projections for what 2010 has in store for the hotel industry.
In my opinion, the recovery will not be a dramatic upswell but rather a gradual overall improvement of the travel market that will allow the most astute operators to thrive and where others will fail. Success in 2010, in our opinion, is there for the taking, but it won’t be easy.
1. Doing More with Less (Capital, Staff, Guests, etc.)
Despite the recovery, hoteliers should be prepared to do more with less this coming year. Guests will be stubbornly slow to return. Likewise, working capital (both operational cash flow and from borrowing activity) will be constrained, as demand and commercial lending continue to be elusive. Hotels and resorts will have to make the best of what they already have in 2010; in terms of guests, this means squeezing every drop of revenue from existing clientele and in terms of capital and infrastructure, it means squeezing every drop of revenue from every existing square foot.
And even with high unemployment suggesting a strong pool of applicants, hotels should also prepare for staffing levels well below what would have been considered normal just a few years ago. This will put pressure on managers to improve their systems, to relive the operational burden on short staffs and to improve processes all around.
This development, in particular, will place a high premium on automation. Though hotels may be loath to invest in systems and software in this environment, the swift implementation of automation in specific departments can payoff and payoff many times over. By investing in revenue management systems, for example, that adjust rates automatically in real time, hoteliers can increase their revenues and ADR, and free up revenue managers to focus on the bigger picture planning that will put the hotel at the front of its market.
3. Emphasis on RevPAR
Whereas 2009 was marked chiefly by efforts to increase occupancy (remember the drastic, across-the-board rate cuts enacted by the major chains?), 2010 will usher in a new emphasis on RevPAR. This follows the logic of doing more with less; the demand in the 2010 market will be such that artificial occupancy optimization measures (like deep discounting) will be unsustainable, making RevPAR the only metric that truly matters. Look for hotels to do all they can to bolster their RevPAR figures, from improving or updating their revenue management systems to offering new ancillary services.
4. Building for a Recovery
With the emphasis on RevPAR in mind, look also for hotels to make what investments they can in revenue-generating initiatives, instead of value-add programs for guests. When possible these trends will overlap, such as the uptick in fitness center construction and renovation witnessed at the end of 2008 and during this year, which was both a response to guests’ desires and created the potential for increased incremental revenues in the next 1 to 5 years. In fact, for many hotels, the recession-created lull in regular business activity created an opportunity for development for the future- look for this trend to continue into next year.
5. A Long Pipeline Leading to a Trickle
This is not to say that the construction of new hotel rooms will recover completely in the next year. The pipeline of new room inventory, according to Smith Travel Research, is still intact, but only producing a trickle of new rooms coming online. This is actually trending up, but only slowly, and it is doubtful that 2010 will see a sudden influx of new hotels (the availability of financing for new construction is unlikely to improve until the latter half of 2010 at best, further limiting inventory increases in many markets).
6. Gradually Improving ADR
Analysts are a bit rosier on the near future of average daily rates (ADR). Business travel, hit particularly hard by the recession, is poised to make a comeback in 2010, though probably not to 2007 levels. This, coupled with hotels’ decreasing reliance on deep discounting to boost occupancy, will lead to higher average daily rates. Higher ADRs, along with occupancy optimization through effective revenue management, will in turn lead to improved RevPAR and a recovery for the industry as a whole. That might be a lot to ask for in one year, but our inner optimist hopes fervently for this outcome.
7. Using Information More Efficiently
Efficiency will be the hallmark of 2010, and the only way to the sort of industry-wide recovery mentioned above. Nowhere will efficiency be more important than in the effective leveraging of available information, particularly to improve rate setting and establish a competitive edge in a given market. Revenue management systems that use information on competitors’ rates- in a geographical area, not just within a comp set- as a basis for optimal rate adjustment will gain favor in the next year. These systems will help hotels use available information to the greatest possible advantage, and help separate the leaders from the laggards in 2010.
8. Watching the Pennies so the Dollars Take Care of Themselves
In terms of revenue management- particularly over multiple online channels- the smallest variations in the offered rate can make the difference between optimized occupancy and RevPAR, and leaving money on the table. In a slow-recovering 2010, hotels will become increasingly attuned to the benefits of real-time rate adjustment, and invest in automated systems that can optimize rates on a moment-to-moment basis. This sort of incremental revenue enhancement will be the hallmark of innovative, efficient lodging operations that will thrive in the next 12 to 18 months, and allow them to differentiate themselves from their competitors in the only way that matters- on the P&L.
9. Hope and Optimism Make Their Return
2010 will be, for the best lodging performers, a year of redefinition, and of commitment to forward-thinking strategies that will serve them far into the future. Whether this rededication is accomplished through improved revenue management strategies (which we expect), or through increased offerings, or through leveraging information more efficiently, the healthiest hotels and resorts will be active and and forward thinking.
Success in 2010 is ripe for the picking but only the best-prepared hotels – those that look to the future and adapt processes and operational models to meet changing marketplace demands - will seize the opportunities presented by the new year. The coming year will be filled with changes in revenue management systems and they way hoteliers do business. Change is a good thing, not to be feared. Here’s to your property being one of them!
Jean Francois Mourier arrived in South Florida in 2003 after a career in Europe as a trader, financial analyst and director for a number of firms including Merrill Lynch and ING Barings. He joined a small Miami Beach hotel management firm as a financial analyst. he revamped the company’s revenue management methods, with dramatic results. In 2007, along with his colleague Bruno Perez, Mourier founded RevPar Guru to provide the Yield Dynamic Price Engine, an integrated revenue management and pricing solution, to others in the hospitality industry. Mr. Mourier can be contacted at 786-478-3500 or firstname.lastname@example.org Extended Bio...
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