As the industry reaches the peak of the RevPAR growth cycle, we need to put in place game plans to address the pending phase of slowing revenue growth.
As hotel owners, operators and managers we know that there are certain aspects of our business that are fundamental to our success, no matter what part of the cycle we are in.
The rooms always need to be clean, the beds need to be comfortable, the lobby needs to be accessible and the entire staff needs to be attentive to guest needs. If any of these variables are lacking, the hotel’s performance will suffer.
As the economic growth in the United States and around the world becomes more uncertain in the coming years, the prognosis for the hotel industry also will become cloudier. As our industry reaches the peak of the revenue-per-available-room growth cycle, we need to put in place game plans to address the pending phase of slowing revenue growth.
Do not panic and cut rates
During the past couple of years, demand has been strong and most hoteliers have been enjoying strong occupancy, especially during weekdays. Inevitably, hoteliers would have been required to turn away some business during these high demand days either due to non-availability of space or because business could be booked at higher rates.
As demand slows, there will be opportunities to pick up some of the business that the hotelier previously turned away. Hoteliers need to review these groups or business accounts and decide which ones to accommodate into specific “need” dates. Under this scenario, the overall average daily rate might be slightly lower, but RevPAR will increase. This is a better approach than indiscriminately cutting rates across the board.
“Ring fence” existing key accounts by increasing the value you provide to them. One possibility is to provide a coupon for free appetizers or a drink at the lounge or restaurant. This not only delivers additional value, but also you can get the potential benefit of additional sales in the restaurant if the guest orders a meal or additional drink.
Be strategic in your revenue management. You do not have to be overly aggressive in cutting rates or timid in raising them. Rather, be confident of your hotel’s offering via your competitive set. In other words, don’t force your 4-star hotel to compete with the 3-star hotel next door. Be confident of the value of your offering and yield rates appropriate to demand forecast and market conditions.
Pay close attention to costs and expenses
As we know, the highest cost item for any hotel is labor. You should schedule labor tightly according to forecast demand. This is always a smart move, but it’s critical in down times.
Restaurants should receive special consideration. Don’t waste hours or productivity by having too much staff scheduled when business volume is forecasted to be low. Have coverage from managers in the event actual demand exceeds the forecast. For the process to work well, it implies the hotelier has to review its forecasting methodology and accuracy.
Revamp menus for restaurant and banquet. You can reduce costs with use of common ingredients across both outlet and banquet menus, reduce portions by improving presentations and promoting healthy eating.
Review purchasing practices to ensure you’re getting the best pricing for items, including bulk buying and optimizing order size for each delivery to get best pricing and delivery charge.
Do not cut back on training
Training on heightened service levels must be maintained to retain existing customers and improve perception of good value for rate paid.
Focus also on training to improve productivity. For example, help room attendants to understand the steps to clean a room. Don’t just show them what a clean room looks like and then let them figure out how best to clean it. This method will avoid a situation where every room attendant has a different way of cleaning and thus has different productivity and effectiveness.
Overall, the real lesson here is to not overreact or panic but rather to be prepared. It is never too early to make plans for a market slowdown. Look at your contingency plans for revenue generation and expense optimization.
By being prepared, one can always shine and differentiate from others, no matter the state of the industry at large.
Aik Hong Tan serves as a principal of Greenwood Hospitality Group. In this role, Mr. Tan is actively engaged in the financial and investment disciplines and growth strategies of the company. During his career, Mr. Tan has overseen a number of major initiatives, including development of mixed-use real estate projects, issuance of bonds to international financial institutions, disposition strategies for power related companies, oversight of e-commerce/GDS and purchasing disciplines in the hospitality arena. Mr. Tan earned a Master of Business Administration degree and Bachelor of Accountancy from the National University of Singapore and is a member of the Institute of Certified Public Accountants of Singapore. He currently serves on the Executive Board to the School of Hospitality, Restaurant & Tourism Management at the University of Denver.
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