Whether you accept transient or group business to your hotel is more than just a revenue management question. It’s also a risk management question. How much are you willing to risk? And what is the philosophy of the hotel, the ownership, the general manager, and other stakeholders? Do they want to take a high risk and get a high return, or do they want to minimize the risk for a more reliable income?
NB: This is an article from Duetto
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What’s better?
It depends on the market. And it depends on how you want to run your business.
There are many differences between group and transient: the booking lead time, the price sensitivity, and guests’ needs. For example, a transient leisure guest is more likely to book last minute. In contrast, a group is going to book in advance – the larger the group the earlier it’s going to book.
When you live in a big city like Vancouver, where I’m from, and you have a major convention center, you’re looking at a group business lead time of one to two years in advance. They want to ensure that they have the right property and the right number of rooms. And maybe they have specific requirements, like 50 rooms with an ocean view, and they can’t risk not securing that, so they’ll book in advance.
They’re also going to be smart. They realize that the earlier they book the lower the rates are going to be.
What’s on the books?
So, here’s the dilemma. If group business has a lower average daily rate (ADR) than transient, which it always does, do you put the group on the books in advance and sell the remaining rooms to transient at a higher rate? Or do you save as many rooms as you can until the last minute so you can sell more rooms to transient, at a higher rate, closer to stay date? For this scenario, we’re thinking about just a room without considering F&B or any other revenue streams.
Logically, it’s better to wait until the last minute and sell everything to transient. But running a hotel like that, your team is going to be stressed!
Imagine, you’re the revenue manager of a 300-room property, and one week out from the arrival date you have only 30% on the books. Your GM is going to ask “What’s going on?,” especially if your comp set is trending ahead on occupancy on the books.
You’re telling your GM, “Don’t worry, we’re going to sell them all at the last minute for $500 a night, whereas our competitors already sold out at $200.”
Sounds good, right?
When I worked as a revenue manager in Vancouver, that was my strategy. I would let my competitors take all the group business booked in advance, and when there wasn’t enough inventory in the market, I would take the transient overflow at a premium rate. That was a strategy I could confidently work with because I knew there was more demand than supply in Vancouver.
But what happens when you work in a market where there’s a more delicate balance of supply and demand where it’s difficult to forecast because the demand fluctuates very heavily?
