Hotels across the globe have navigated major disruption over the last few years. Travel was obstructed by the COVID-19 pandemic, followed by three years of lingering travel restrictions. Operations were impaired by supply chain challenges, labor shortages and increasing fuel costs.
NB: This is an article from CBRE Hotels
Subscribe to our weekly newsletter and stay up to date
In 2023, we faced concerns of a looming recession, rising inflation, higher interest rates, and increased cost of living. Geopolitical trouble, highlighted by the wars in Europe and the Middle East, has also impacted travel in 2023. Our industry has been faced with unprecedented challenges.
In retrospect, the resilience of our industry has been remarkable, with some markets surpassing top-line, pre-COVID performance. However, as inflation, impacting consumer pricing and labor costs becomes part of the new normal, profitability levels are at a high risk. Peaking post-pandemic pent-up demand led leisure markets to recover early on, and resorts are now returning to normalized seasonal demand patterns, experiencing periods of high and low demand, during which, a focus on savings and expenses is critical. Urban markets have yet to see the same levels of demand as in 2019 but are expected to make a comeback in 2024. According to CBRE’s U.S. Real Estate Market Outlook 2024, “Urban hotels will fare well, and airport hotels will benefit from increased travel, but resorts will register the slowest growth. As in previous slowdowns, upper-midscale hotels will benefit from travelers trading down from pricier options.”
Partnering to Navigate Uncertainty in Harmony
While awaiting the outcomes of these predictions, hotels must navigate an uneven playing field. Consumer confidence erosion amid deteriorating standards of living in developed countries, along with increasing labor costs in developing countries as well as elections, political shifts, and global security concerns pose challenges for hotels when it comes to anticipating demand.
We recommend that hotel teams, led by revenue management, embrace big-picture macro-economic thinking. These teams should apply cyclical analysis to evaluate where they are and plan ahead accordingly.
Hotel executives should actively cultivate strong working relationships with asset managers to gain perspective on their performance relative to the market, stepping out of the boundaries of their respective chains. While large hotel companies continue developing and consolidating, independent hotels and smaller, niche operators are gaining more prominence. Oftentimes these hotels achieve better returns for investors due to being nimbler, managing fewer layers of cost, and abiding by a more dynamic operating model overall. It is critical to establish an effective collaboration between revenue management and asset management for strategic planning, as this will enable hotels to leverage industry insights that asset managers can provide to help them stay ahead of the curve.
With booking windows shortening, and last-minute stay patterns becoming the industry norm, demand generation is becoming increasingly important, and having a proactive commercial strategy has never been more critical. Hotels need to be hungry, and sales teams need greater intensity to beat their competitors.
To succeed in 2024, standard revenue management won’t be enough. Hotels need to focus on a cross-disciplinary approach to generate demand and methodically measure each strategy. Deploying effective sales and marketing strategies and keeping up with consumer trends are pivotal in the ever-increasing competitive landscape. By staying abreast of evolving preferences and travel behaviors, hotels can tailor their offerings to meet the dynamic demands of their potential guests. Travel insight enables effective marketing strategies, personalized services, and the creation of experiences that resonate with the target audiences. Adapting to emerging trends not only enhances customer satisfaction but also fosters brand loyalty, setting the stage for sustained success in a dynamic market.
“It is crucial to identify what success looks like and then review the performance of demand generation plans on a monthly basis in order to assess if the commercial strategy is working and make further refinements.”, says Mary Bennett, Senior Vice President of CBRE Global Hotels Asset Management.
Tech Crescendo: Leveraging Technology and Real-Time Data
Technology plays a key role in a hotel’s ability to keep up with and adapt to evolving trends. Machine learning and automation have long been a part of the revenue management discipline, as revenue management systems use complex models to analyze historic and on-the-books data to make pricing, policy, and inventory recommendations. The use of sophisticated revenue management systems for both transient and group business has become an industry standard for chain hotels and in recent years, revenue management software like IDeaS, Duetto, RoomPriceGenie, and Atomise have successfully penetrated the business models of independent hotels of all sizes and scales, as they opt for more data-driven automation while attempting to maximize revenue.
By deeply integrating artificial intelligence, hotels will improve the collection and interpretation of data analytics in real time. A result of this integration will be prescriptive solutions and actionable tactics to influence and drive demand, maximize ADR, increase sellout opportunities and improve and achieve hotel KPIs.
- On the reservation process level, hotels often miss opportunities by failing to adapt technology. Bookings can be lost to OTA’s because the hotel website didn’t offer its content in the language of the guest or didn’t offer alternative dates if the requested dates in a search were unavailable. Additionally, it’s common for a calendar on a hotel website to not show pricing, causing the customer to perform multiple individual searches to be able to compare dates and rates.
- Hotels should proactively suggest dates to prospective guests who are often flexible with their vacation windows, rather than requiring them to perform the specific searches themselves. Hotels can quickly improve their online conversion by implementing email cart abandonment functions that automatically follow-up with prospective guests and offer them assistance with making the booking. Hotels can also capitalize on additional revenue by offering any non-room, ancillary add-ons like transportation, meals, and spa at the time of booking, saving significant time by cutting down communication with the concierge.Hotels could also personalize their websites by providing case studies from guests.
AI opens many possibilities, raising the bar on creativity, interactivity, engagement, and unlocking opportunities to increase conversion, win back business from OTA, and maximize revenue. We urge hotels to reap the benefits of early tech adoption and track the ROI of new technology. From an asset management perspective, we continue to see high increases in systems and technology platforms, yet no reductions in FTEs or increases in departmental efficiencies.
Historically, hotels lag in embracing new technology due to the complexity and cost of technology rollout, but we are slowly seeing more hotels and brands jump on the AI bandwagon and implement innovative technology.
A Symphony of Total Hotel Revenue Optimization
A deeper focus on profitability was developed during the pandemic due to historically low demand levels. Despite the stabilization of demand, the return of brands to their previous spending habits, coupled with inflationary pressure and escalating labor and goods costs, has made it impossible to overlook the importance of optimizing profitability. Total Revenue Management (TRM), Total Hotel Revenue Optimization (THRO), and TRevPAR are concepts that are gaining more prominence.
THRO highlights that revenue management principles can transcend room operations, unifying and optimizing all revenue sources rather than treating each department in isolation. It does so by identifying largely untapped revenue-generating prospects and enhancing ancillary profit generation throughout the hotel. Exploring opportunities for food and beverage, banquet and events, spa, beach and recreation, golf, retail space, and transportation, THRO looks beyond the traditional focus on room revenue and extends past imposing resort or urban fees. It recognizes that not only are rooms perishable, but so are restaurant seats, pool cabanas, and parking spaces.
Tech platforms like Inspirato, ResortPass, SpaFinder, DayUse, OpenTable, Toast are exploiting shifts in consumer behavior and tapping into hotels’ need to boost exposure and attract outside guests to hotel outlets and profit centers. Hotels are slowly embracing technological solutions and evaluating THRO models. Despite the commissions or fees charged by these new tech platforms, hotels stand to benefit from the advantages that these tools have to offer, thereby increasing their visibility and competitiveness, and improving their customer acquisition.
Examples of reacting to consumer behavior changes are the integration of steaming services in hotel room TVs and Marriott International’s partnership with a prominent online food delivery service, which enables their users to link their Marriott Bonvoy loyalty accounts and collect points for orders made on their platform. Marriott International realized the limitations of room service and acknowledged that guests could now choose takeout food as an alternative to the hotel restaurants, and that these apps were eating into its outlet’s profits. Instead of ignoring these changes in consumer behavior, Marriott decided to “meet guests where they are.”
“We continue to be committed to enhancing the travel experience of our Marriott Bonvoy members, from booking to check-out, ensuring we are meeting our guests where they are. Working with one of the most innovative startups will allow us to keep our promise of providing more everyday earning opportunities for members,” said Diana Plazas-Trowbridge, SVP and Global Brand Leader – Select Brands at Marriott International.
THRO helps revenue managers make profitability-driven decisions, essentially stepping into the role of an asset manager, and shifting the emphasis from top lines to bottom lines by considering acquisition, distribution, operation, and overhead costs.
This approach connects to data gathering, a fundamental principle of revenue management. Data mining is, however, not as widespread across hotel departments, which primarily focus on service delivery and guest experience. General Manager buy-in is crucial to achieve alignment on this priority and help implement a profit-centered mindset throughout the operational departments. This ensures that a critical and analytical approach to expenses, seats, menu items, cross-selling, upselling, etc. is applied throughout the hotel. We urge hotel management to continuously integrate revenue management principles in operative departments, using optimization matrixes, displacement calculations, and extensive analysis to realize the ROI potential of every square foot of the property.
Personalization: Crafting Guest Experience in Every Note
Offering guests unique experiences has transcended segments beyond Luxury, as hotels in every category of the market are attempting to differentiate themselves by personalizing the guest’s experience. They do so by offering unique programming that connects the guests to the product and location, at any value and price point. Differentiation and personalization include welcome amenities, wine tastings, yoga sessions, and more. Upper-midscale and upscale hotels are all required to incorporate some level of personalization and to provide engaging programming and activations if they wish to differentiate their experience from that of their competitors and win the customer’s heart and wallet.
Revenue management and marketing need to continue to focus on customizing the guest journey in the reservation phase, and then during pre-arrival, focus on how to draw the guests in before they arrive to increase conversion, minimize cancellations, and upsell premium rooms and other services. It’s critical to innovate and embrace out-of-the-box thinking, applying personalization to make the buying process less transactional, which will also contribute to a better arrival experience.
What used to be a PDF Experience Menu sent to guests before their arrival can now easily transform into an AI-based explorative journey that captures the guest’s visit objectives in an interactive, engaging, and visually appealing way. It then gathers guest preferences and available free time, matches that with a pre-set bank of experiences, hotel services, and surrounding attractions available in real-time, and creates a few interactive itineraries to choose from, allowing the guest to mix and match to tailor-make their experience. This is then coordinated with the providers and reserved and confirmed by the concierge.
In an ever-evolving landscape of hotel revenue management, industry professionals must embrace the uncertainty of demand and technological advancement. From real-time data to the integration of Total Hotel Revenue Optimization, our industry is now being defined by adaptability and innovation.
A hotel’s success isn’t confined to room rates but extends to a variety of revenue sources. Technology and data lead us to maximum profitability by providing personalized experiences that captivate guests across every part of the journey, no matter the price point. Let us not merely navigate uncertainties but respond with a robust commercial strategy and by fostering collaborative partnerships with asset management, letting revenue management be the composer, orchestrating success in a dynamic market where every note counts.
