We are open! For many of us being open brings a multitude of challenges and for some of these challenges, well, we just weren’t prepared…
NB: This is an article from Right Revenue, one of our Expert Partners
Many of us in specific city locations are still battling with low occupancy (London circa 35% for June 2021). We don’t have tourists, tour buses, corporates or M&E and if your business relied on any of these segments, and you have a location with huge capacity, being open remains tough. Many of these city locations are still battling with rate, and unfortunately, it is often a ‘race to the bottom’ and although for Revenue Managers that is a tough pill to swallow, it is of course understandable that some choose to take this path.
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If you are struggling with occupancy, then there are some glimmers of light. We can see that our customers are preferring to book direct this article is worth a read, therefore costs should be down. However, we still need to attract that business first, as commission costs for city hotels are, for now, a problem many may wish they had. So what can you do? Working with many hotels in city locations, I personally have seen hotels switch their marketing message. Perhaps now might be a great time to visit London or Paris? The city is quiet, the restaurants are bars are open and as we see more attractions opening, visiting a city that is usually jam-packed might actually be a lovely thing to do. Couple that with the fact that resort and rural properties are bursting at the seams, and you may well have a really positive message to communicate to your guests. Failing that, then there are of course the tried and tested methods of increasing occupancy:
- Design really interesting packages that allow you to discount without damaging rate integrity.
- Increase your digital marketing spend and make your PPC spend market-specific.
- Understand your feeder markets. Where are your guests travelling from? Market, communicate and market again to those areas.
- Work with your distribution channels, OTA’s and Travel Agents.
- Consider discounts or added benefits for multi-night stays.
Many ‘glass half empty’ people are citing doom and gloom for our industry with quotes such as ‘we will never be the same again’ and ‘people will never want to attend face-to-face meetings ever again’. I strongly disagree with that. We are by far, the most resilient industry in the world and when you cut right through it, people are people-people… They want to meet up; they want to do business in person; many are desperate to get back to travelling. There is no doubt that things have changed but I am absolutely confident that our city hotels will bounce back.
But what about the hotels that are experiencing (here’s that word again) ‘unprecedented’ demand? We can see some of our portfolio hotels estimating unconstrained demand of 185%! Many are experiencing demand like never before, but are we managing this demand properly? There is a very strong argument for not filling to 100% but even if you could, can you? Many hotels are experiencing serious staff shortages and if you can’t meet the needs of your customers properly, then you of course risk very unhappy guests and lots and lots of terrible reviews. You also run the risk of running your team into the ground (and I can speak from personal experience as I am seeing team members work over 70 hours with no breaks and no food), that kind of treatment will have your team members running out the door!
That pitch-perfect occupancy level is determined by many things:
- Number of rooms
- Location
- Hotel type
- Guest persona
Certainly, there is no blanket rule for all hotels. The industry experts cite occupancy levels of 75%-95% to the be optimum. But what you should consider are questions such as: If I filled, did I fill too early and at lower rates? Did I leave money on the table? Did my increased costs justify the additional occupancy? Was there an uplift in incremental spend (and of course this will differ from city hotel locations which have multiple other outlets for their guests to choose from, to a resort property where guests tend to stay put). Do I still have happy team members and very happy customers???
Poor revenue management skills where lower rates are accepted too early, can absolutely leave you with lost revenue, as our example below shows.
This very simple example shows what happens in a 50 bedroom hotel, if rates are only reviewed 3 times before arrival. In this first example, rates were held too long which resulted in not only less revenue but also unconstrained demand of 20 rooms, which would have paid higher rates.
The second example demonstrates what happens if rates are reviewed even one more time. The revenue result is a 12.5% gain and less turnaways. Imagine what the impact on your revenue would be if your rates were being monitored daily by a Revenue Management system (blatant plug for Right Revenue!). But even in this very simple example, having the right rate sold alongside optimum occupancy can impact your bottom line exponentially.
Other poor mistakes that hotels make are basing their rate strategy on Business on the Books, rather than forecasted demand and of course, another rooky mistake is to purely follow competitor pricing (that is another blog in itself!).
I am often asked if a hotel is experiencing 100% occupancy regularly points towards a blanket rate increase, but this is often not the case. As in the above example, instead of a blanket increase, hotels just need to manage the rate structure they have more closely.
Going back to the impact of price v occupancy v service, you simply cannot keep hiking up the price if your service and for that matter, product, does not match. We have this unique point in time where we have wonderful, local guests staying with us that may never have stayed with us before. But they won’t just stay once. Staycation is here for a while and if you treat your guests well, you have a very high probability of them returning. However, poor service or a product that you are charging too high a rate for, will not a happy customer make! You risk not only bad reviews, but also of losing the opportunity of returning guests… And looking at costs, if you are an 85 bedroom hotel and one house-keeper can clean 10 rooms per day, is it better to clean 80 or have the additional 9th house-keeper on payroll? Again, simplistic but imagine this scenario throughout every single department.
So some tips I would like to leave you with:
- Review your base rates and ensure that you are making changes quickly and reacting to the market
- Watch future dates like a hawk! Future dates are your ‘diamond dust’ and this is where the magic will happen
- Now, more than ever is the time to push Book Direct, so review your website and remove every barrier to sale
- Do not pull back on digital spend – just spend smarter and more strategically.
- Get smart with your packages. Give your customers a reason to come and visit and don’t forget that summer won’t last forever. Plan now for Autumn as demand is predicted to last well past ‘bucket and spade’ weather.
- Review your OTA contracts and don’t give too much away. Traditionally we might have used the OTA’s as base (never a great strategy) but we really should be using the OTA’s as fillers and offering only the most expensive room types – perhaps a change in a way of thinking for many hotels…
- Consider longer length of stay’s and watch your customer buying patterns
- Schedule the correct number of staff
- Understand that a change in market segmentation will impact your rate strategy and your occupancy, are you prepared for that?
- Look at your buying patterns by room type. Do you need to oversell one room type in order to fill or are you holding back enough higher graded rooms for that lucrative last minute demand?
- Always consider the impact of room revenue on your other outlets. The goal of course is for optimum total revenue.
Buying patterns are supercritical and your RMS should already have picked those up (a second blatant plug for Right Revenue) but if you don’t have a technology solution to support you and your team, then at least give your clever team members the time, resources and training to be able to make these profit-making decisions for you.
Staycation is here to stay. Strong occupancy is here to stay but the question remains for us all… how much occupancy is too much? If you would like some help to answer that question, we would love to show you Right Revenue. You can book a meeting here
