Up until recent months, we’ve all been talking about recovery in the face of low occupancy.
But summer 2022 is on the horizon and now demand is at an all-time high. It has all the hallmark signs that its shaping up to be a good season – or is it?
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$111.8 billion in room revenue
Late last Spring of 2021, while the pandemic continued, there were signs of recovery emerging, fueled by national vaccine distribution and consumer optimism. The delta variant quickly put an end to that, swooping in and cooling off any summer recovery. Omicron followed close behind dealing a further blow to the industry at the back end of the year. Travel plans were once again put on ice, and any hope that 2022 would be different, started off with lower-than-expected trading levels and higher than expected cancellations.
All in all, in a two-year period, hotels across the nation lost a collective $111.8 billion in room revenue, according to the American Hotel and Lodging Association (AHLA).
Summer 2022 – The season of revenge travel
Covid isn’t gone, there’s an impending recession and there’s Monkeypox thrown in for good measure, but people have put off travel for the past two years and are eager to hit the road. “The pandemic has reminded people that life is short,” said Jan Freitag, senior vice president at lodging analytics company STR. “They want to splurge, and they have a lot of pent-up savings. If a market has a leisure appeal, then the hotels in that market are doing well.”
As the hospitality industry regains its strength after a bruising pandemic, the average cost of a hotel room is skyrocketing. Weekend stays at luxury resorts and roadside properties are getting more expensive and ADR has long surpassed 2019 rates. Analysis for AHLA by Oxford Economics has projected that hotel room night demand and room revenue are to nearly return to 2019 levels this year. Room revenues are expected to reach $168 billion, within 1% of 2019 figures and an increase of 19% compared to 2021.
In short, the immediate sector prognosis for the upcoming summer period, notwithstanding anticipated low levels of international visitors, is high demand from the domestic market. It has been dubbed the summer of revenge travel and it’s a sure thing that the 2022 vacation season is going to be a significantly busy period for hotels – particularly in traditional holiday destinations. From the outset, it does seem positive but, it’s not the whole picture.
Labor and Inflation Challenges
Hotels continue to face labor and inflation challenges. Both of which have a huge impact on a hotels ability to resume to pre-pandemic level of service. Chip Rogers, President & CEO at American Hotel & Lodging Association, was cited saying that the three biggest challenges facing the lodging industry were “staffing, staffing and staffing.” And he’s not wrong. Thanks to Covid, jobs at hotel front desks, hotel bars and restaurants, and housekeeping departments have been cut radically. While labor is slowly coming back, there is a chronic shortage of suitably trained staff. In addition, labor is now more expensive due to a once-in-a-generation spike in inflation. For some hotels, less staff has resulted in limiting the number of rooms available, along with longer check-in times and reduced services.
Inflation has, in fact, affected almost every link in the hospitality chain from food, lighting, heating, transport – all of which are now under intense pressure. The rising costs across the board coupled with unbridled demand straining already limited capacity, have resulted in not only higher rates, but higher prices for consumers. While Americans are ready to fulfil their long-awaited vacations, the squeeze on incomes is pushing them towards lower cost rooms categories.
As demand returns, hotels face a conundrum. Not only are they concerned about increasing margins to recover lost revenue, but with higher costs and fewer resources, they are struggling to run operations. This is where automated upselling can help alleviate some of these pressures.
First, let’s look at the psychology of upselling. When prices are high, guests will see the initial room reservation as the big expense (outside of plane fares, of course). In this economy, they will try to save some money by gravitating to lower cost room types. However, assuming a typical booking window, within a short time they will have forgotten about the budgeted expense for those primary logistic needs and will think about how to make their trip special. Now, paying (for example) $35 more for a better room seems like a pretty low price for what you get.
Secondly, let’s look at all the real hotel staff labor required to for traditional (non-automated, non-2-way integrated) upselling. To begin, the marketing department work must with revenue management to agree on the offers. Then marketing must construct the email offers (text and graphics) and determine the segments (i.e., who is going to get the offer and who is not).
Once the offers go out and the guest selects an offer, someone on staff must either 1) enter the transaction in the PMS and add it to the folio (in the case of non-room offers) or 2) record the request for upgrade or early arrival in the PMS. On the day of arrival, the staff must then approve or deny each request based on the actual room inventory availability for that day. All in all, that is a lot of people and a lot of hours required to have an upselling program. There simply isn’t enough labor to do it consistently, so many hotels simply don’t do it at all. That is simply missed, high-margin revenue.
Your audience is primed for upselling but your staff is not. It’s time to turn to real, upsell automation, complete with a 2-way integration with your PMS. In such a system, offers, pricing, and guest targeting are all automatic and all transactions are automatically recorded in the PMS. That mean no more requests and no more request denials. Advanced upgrade sales can be guaranteed.
The AHLA has projected that hotels will struggle with staffing shortages and inflationary pressure for the foreseeable future. Hotels need to rethink operations to find efficiencies, while still maximizing revenue opportunities (and customer experience!). Automated Upselling offers an easy solution that is tailor-made for the unusual shape of this recovery.