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How to boost a hotel’s bottom line
September 4 2013

Hoteliers must navigate a number of wild cards to keep their profit margins intact, panelists said during the Hotel Data Conference.

Highlights
  • There are several ways to mitigate costs of health care compliance.
  • “We believe you have to spend money to make money,” Pharos’ Adam Zembruski said.
  • Spending on technology upgrades is a must, panelists said.
By Shawn A. Turner
Finance Editor
Shawn@HotelNewsNow.com

NASHVILLE, Tennessee—Health care compliance, technology upgrades and online distribution channels are just a few of the wild cards that can cut into a  hotel’s bottom line, panelists said Wednesday during the 5th annual Hotel Data Conference hosted by Hotel News Now and STR.

Robert Morse, senior VP and COO of the Americas for InterContinental Hotels Group, said hoteliers need to sometimes get creative in how expenses are managed. “You have to be constantly looking at how we can do these things differently,” he said during the session, which focused on how hoteliers can improve their bottom lines.

In the case of health care, for instance, Brian Gilchrist, executive VP at Good Hospitality Services, said companies are likely to consider employees work part time or simply pay the penalty that comes with non-compliance.

At Good Hospitality, Gilchrist said the health care-related increases are likely to cause the company’s health care costs to grow by 3.5% to 4%. The added expense will be painful, but not fatal, he said.

“The business will find a way to drive profitability, regardless,” he said. “You find a way around it.”

Adam Zembruski, president of Pharos Hospitality, said his company might consider self-funding its health care plan.

“It’s an opportunity for companies to look at your core values and decide on what’s best for your employees going forward,” he said.

Maximizing rate
Yielding rate in the most efficient manner possible can help boost the bottom line, the panelists agreed. Gilchrist said hoteliers have to get the right mix of business and then properly manage that mix.

“The days of going out and saying ‘we’re going to raise rates by $10 to $15’ are over,” he said.

Zembruski said bundling the cost of providing free Wi-Fi into a higher rate is an example of a value-added package that guests could find appealing.

William Carlson, senior VP of performance analytics at Choice Hotels International, said what a hotelier ultimately decides to do with rate is largely dependent on the specific characteristics of their property’s market.

“A lot of it is on a street corner basis and how you manage that,” he said. “When you see that business coming, you price accordingly.”

Morse said hoteliers should also not be afraid to more carefully manage lower-rated group business. If a group asks for 800 rooms, consider allowing only 500 rooms in its block—at least initially.

OTAs
One big variable in maximizing rate is how hoteliers deal with online travel agencies, the panelists said. Carlson said Choice discourages its hoteliers from using OTAs to build up a base of business several months out.

“You have to play them appropriately,” he said.

Morse said revenue managers need to believe in their forecasts and stick to their guns when it comes to rate. He cautioned them to not get lazy by filling in business with the online channels.

Still, OTA business can’t be brushed off, he said. Of all IHG’s distribution channels, the online distribution channel has seen the highest increase in rate. “We need to train people that it’s not a discount channel anymore. It’s just a channel.”

Technology
Technology spending is nearly a must in the hotel sector, the panelists agreed. If a customer has 100 channels of TV at home, he or she is going to expect 100 channels in the hotel room.

“You have to stick with it and understand it’s a cost of doing business these days,” Gilchrist said.

Zembruski said Pharos spends between $12,000 to $15,000 more per key on technology than the industry average.

“We believe you have to spend money to make money,” he said.

Hotel officials should consider flexible infrastructure so the property will be able to adapt to whatever technological advancement comes next, he said. Such work is expensive, but will pay off in the end, he added.

“It’s worth paying for because then the upgrades are more cost efficient,” he said.

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