Occupancy does not by its nature grow average daily rate, and industry experts said revenue managers and GMs must fully rely on rate increases independent of occupancy.
Panelists at the closing session of last week’s Hotel Data Conference said incentives for hoteliers and franchisees often are linked to occupancy, which means pricing power might continue to elude the U.S. hotel industry despite record demand and occupancy levels.
Other issues affecting profitability include loyalty program redemption rules, rate transparency and pressure from online travel agencies and other alternative-accommodations providers.
“It is about the overall objective, not just total revenue,” said Leticia Proctor, SVP of sales, revenue management and digital strategies at PM Hotel Group. “In order to improve profitability, I need to do due diligence as to how to drive occupancy, and I need to fully inform the team as to how that flows to the bottom line. If I do not do that, I am doing a disservice.”
Limiting risk might be at the heart of the current ADR malaise, panelists said.
“To drive (revenue per available room), it’s a lot safer to drive occupancy,” said Esther Gayfield, VP of hotel asset management at Colony Capital. “No one wants to get burned again.”
Michael Heaton, president of Waterford Hotel Group, agreed.
“Move to grow base business,” he said. “When group is off, it changes the whole food chain.”
Proctor added an onus on top-line revenue via occupancy moves revenue to the margins, not to the profit lines.
There are hurdles to overcome to get revenue teams incentivized on both top and bottom lines and different business models focused on different parts of the profit-and-loss document, she said.
“It does not behoove us to drive occupancy if you have fixed expenses that do not cover that strategy,” she said.
Brands pursuing asset-light strategies also has changed the landscape, said Ash Kapur, SVP and chief revenue officer of hospitality at Starwood Capital Group.
“Brands take their fees from (the) top line, and it’s very clear that’s their incentive,” he said. “Expenses continue to rise, and owners have to focus on profitability. Some hotels’ systems do not allow for ADR to be maximized.”
The Data You Have
Kapur said data needs to be analyzed differently.
“It’s difficult for hotels to raise rates because of a lot of systemic issues in terms of what channels and technology we go after and use,” he said.
If group business is targeted some or all of the time instead of leisure, that changes things, Heaton said.
“Displacement analysis does lead to the discussion as to sellouts, and it changes the conversation completely,” he said.
Proctor said profitability is all well and good, but balance is required for the full health of an asset.
“It’s not one size fits all, not just one plan. Also, let’s agree on the metrics of displacement strategies,” she said.
Kapur said information can help reset rate.
“Push it through all channels, as long as the data is intelligent and you understand demand patterns, but it is possible to get higher rates via OTAs if you understand your markets, booking habits and customers,” he said.
Redemption Recoil
Panelists said loyalty-redemption thresholds must be looked at with ADR, not occupancy, in mind.
