The demand for hotel accommodations is closely linked to the demand for travel to a specific destination.
NB: This is an article from Demand Calendar
Factors such as the destination’s appeal for tourism, business events, cultural festivals, and other attractions are the primary drivers of the demand for overnight stays. Without compelling reasons to visit a particular destination, hotels will find it difficult to generate demand independently.
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Hotel revenue managers talk about “need periods, ” meaning the hotel needs to fill the hotel with more guests. Instead of looking at what the hotel needs, hotels should ask why the demand is lower for these specific days or seasons. The answer will always be the same: There are no reasons to travel to the destination. This means any activities to create demand during “need periods” waste money.
The worst part is if hotels at the destination start a price war to attract more guests, the results will be lower revenue for all, and no additional guests will travel to the destination because the hotel rooms are cheap. The forecasted demand for overnight accommodation at the destination is the most important KPI for hotels to understand. Each demand strength has specific characteristics and potential actions to maximize the total revenue. Let’s take a closer look.
The Four “Seasons” in a Hotel
The approach is to analyze each day over a year and sort the days into four demand buckets: Lowest demand, low demand, high demand, and highest demand. These buckets may not always align with the typical four seasons of the year, as they are more driven by travel reasons, weather, holidays, events, and travel patterns specific to the hotel’s location. Here’s how you could elaborate on strategies for each bucket:
Lowest Demand Days
This is the most challenging period for hotels as demand is at its lowest. The lowest demand days typically see a drastic dip in the number of travelers due to various reasons that might be specific to the destination, like lack of reasons to travel to the destination due to unfavorable weather, lack of events, or other factors that make travel less attractive during this period. There are two approaches to consider. If the lowest demand days are aligned with a season, such as during the winter, for a summer destination, a viable option is to close the hotel for the whole season. Here are a few aspects of how to manage a seasonal closed hotel.
- Cost Savings: Closing during the lowest demand season can save on variable costs such as labor, utilities, food and beverage supplies, and daily maintenance expenses.
- Maintenance and Renovations: This closure period can be used effectively for maintenance, renovations, or upgrades that might be disruptive while guests are present.
- Staffing: Staff may appreciate a predictable off-season period for vacations or personal time, but you should also consider their financial stability and employment needs.
- Reputation: Make sure that seasonal closure is communicated effectively to potential customers. You don’t want to damage your reputation by having guests unable to book during their preferred dates without understanding why.
- Reopening Plan: Have a plan for ramping back up as the high season approaches. This might include re-hiring or training staff, restocking supplies, marketing initiatives, and ensuring the hotel is clean and inviting.
- Fixed Costs: Some costs will remain even if the hotel is closed. These include property mortgages or leases, property taxes, insurance, security, and basic utility costs.
A thorough cost-benefit analysis is essential before closing the hotel during the lowest demand season. Consider all potential savings, costs, and the impact on your staff and customers.
The other approach is operating at a reduced capacity at a reduced cost, focusing on non-room revenue, or targeting niche markets. Strategies could include.
- Targeted Marketing: You can identify niche markets with off-peak travel periods, such as retirees, business travelers, or groups.
- Hosting Events: Hotels can create demand by hosting events, conferences, or partnering with local businesses for special events.
- Maintenance and Improvements: This period can be used to maintain or improve the hotel facilities, ensuring everything is in top shape for the busier seasons.
Low Demand Days
Demand begins to pick up but is still relatively low. There are more travel reasons to the destination, but it is still off-season, so most people cannot or are not attracted to travel for leisure to the destination. The hotel is operating at a reduced capacity to keep costs minimal. However, guests are traveling to the destination, and there is an opportunity to attract guests with great offerings at a favorable price. Strategies to attract more guests could include.
- Value-add offerings: Do not discount. Instead, add values the guest will appreciate to make the offering attractive.
- Early Booking Incentives: Encourage guests to book their stays early by offering discounts.
- Leverage Local Events: If any local events are happening, hotels can offer special packages tied to these events.
High Demand Days
This is when hotels start seeing a significant increase in demand. There are more reasons to travel to the destination, and the guests are less price sensitive than before. The focus shifts from attracting guests to those who spend the most during the stay. The hotel will optimize revenue and enhance the guest experience by focusing on specific target groups.
- Personalized Experiences: Offering personalized experiences or services can help increase average revenue per guest, enhance guest satisfaction and encourage positive reviews and word-of-mouth referrals.
- Upselling and Cross-Selling: Promoting additional services and amenities to guests can help to increase revenue. This could be room upgrades, spa services, or dining options.
- Dynamic Pricing: As demand increases, hotels can adjust their offerings and room rates to maximize revenue.
Highest Demand Days
These are the peak days when demand is at its highest. There are many reasons to travel to the destination; the guests are aware of the price level when the demand is high and, therefore, less price sensitive. The potential guests want to travel to the destination for a special event, so the guest is prepared to pay a higher price for overnight accommodation to participate in the special event. The strategies in this season are focused on maximizing total revenue and maintaining high levels of guest satisfaction.
- Yield Management: Hotels should manage their inventory to maximize their potential revenue. This involves pricing rooms based on demand, length of stay, and booking window.
- Exceptional Service: During this busy time, it’s critical to maintain high levels of customer service. This can lead to positive reviews and repeat customers.
- Leverage Technology: Using technology like automated revenue management systems can help hotels analyze data, anticipate market trends, and make timely adjustments to their strategies.
Remember, while these strategies provide a general guideline, the specifics may vary based on the hotel’s location, target audience, and other factors. It’s essential to understand the unique demand patterns of your hotel and adapt these strategies accordingly.
