Small properties (one hundred rooms or less), especially upper-upscale and luxury boutique hotels in destination markets that are principally leisure with higher ADRs, are often attractive buy-out destinations for certain kinds of groups. This can range from weddings and reunions to corporate and association retreats or incentive travel.
NB: This is an article from Cayuga Consulting
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The Challenge of Hotel Buyouts for Weekends: Case Study
It is essential to good revenue management that opportunity costs be factored into weekend buyouts because hotels that are in principally leisure segment-dominated locations tend to sell out on many weekends perennially, and because many transient guests staying on weekends are staying 3 or more nights.
As an example of the economic implications of this, consider a sixty-four key property I managed for a decade in Charleston and that was a member of Relais & Chateaux.
We were approached by a wedding planner whose client wished to have a destination wedding in historic Charleson in late April during the greatest period of peak demand for rooms in the area. We wanted to avoid reduced room revenue due to the disruption of stay-through patterns, that would be caused by a large group taking nearly all of our rooms and suites for two nights only, while this is the time of year that guests will stay three to four nights and fill otherwise difficult to fill weeknights. In economic terms, we wanted to avoid incurring an opportunity cost upon ourselves for taking the wedding business.
Understanding Opportunity Cost
Opportunity cost is the potential forgone profit from a missed opportunity—the result of choosing one alternative over another.
In the case of buyouts, it is the cost of taking the buyout rather than the usual transient business that would have filled the hotel to full occupancy and would have included in their reservations on shoulder nights (weeknights before or after the weekend nights). This opportunity cost is created in turning away business that would have arrived on a Wednesday or Thursday and stayed through the weekend or even until Monday or Tuesday. As well as the business that would have arrived on Friday or Saturday and stayed through one or more weekdays of the following week.
A revenue manager must refer to recent prior years’ total room revenue on the two weekdays preceding and following the weekend buyout pattern of the proposed group.
In the best of cases, the revenue manager may have a revenue analyst look at the details of the arrivals on the preceding weeknights and of the arrivals over the subject weekend in years past for a number of nights and calculate the average length of stay of both the arrivals on the weekdays preceding the weekend and the arrivals on the weekend nights that stayed through Sunday and beyond. This will enable the revenue management team to calculate the estimated lost room revenue from turned-away stay-through patterns arriving on the shoulder nights before and staying shoulder on nights after the weekend.
