Hotel Revenue Management - Now more important than ever ( Part 2)
Hotels may be reluctant to invest in systems and software, but the swift implementation of automation in specific departments can payoff and payoff many times over. By investing in revenue management systems, for example, that adjust rates automatically in real time, hoteliers can increase their revenues and ADR, and free up revenue managers to focus on the bigger picture planning that will put the hotel at the front of its market.
It’s very easy to spot hotels which are improperly and inefficiently using revenue management; hotels which start-off with strong rates and begin dropping rates when they realize that reservations are not what they expected. There is this moment of panic, one or two weeks into the month, which ‘hits’ even those right at the top (And believe me, I’ve seen this happen quite often), when management finally figures-out that you aren’t going to make budget and declares that rates need to be reduced? It’s usually much too late, but something has to be done; right? So, the shift from ‘Sell as many rooms as possible, but, at the best rates possible’, to the old-style ‘as many heads-in-beds’ mentality, focusing almost entirely on occupancy, is inevitable. "I'd rather have lower rates instead of empty rooms". How often have you heard that? That statement is very short-sighted. It ignores cost-of-sales and can actually worsen your bottom-line. Unless you can deposit occupancy into your bank account, it's a poor way to operate.
Admittedly, RevPAR has become a benchmark performance comparison for the hotel industry. By measuring rate and occupancy, it presents a more complete revenue picture than either rate or occupancy alone. The problem however, is that RevPAR falls short as a profit indicator because it does not factor in the costs involved in achieving occupancy and rate. Let’s look at the following example:
What this means is that there is a need to look at the complete cost profile. While RevPAR is a good measure, it is only one measure. Without considering the cost factor, it has no absolute relevance for the operator. What is needed is a line by line review of line expenditure that reflects total marketing costs. Once the organisation establishes how much it costs hotels to get each rupee of RevPAR, it can determine the hotel’s efficiency. In essence, one should consider marketing costs per available room, per occupied room and as a factor in operating income. By doing this, one discovers which marketing programmes are most effective and which should be dropped.
Alas, many hotels run marketing programmes that are very expensive and far less efficient. Overall, RevPAR is a much better measure than what went before. Without RevPAR, one hotel could boast about high occupancy whilst concealing the actual rate. Another could claim to be the rate leader without discussing occupancy. In today’s context, one needs to look deeper by using a number of measurements, including GOP per available room. RevPAR is a swift way to see where you’re heading within a given market. It does not tell you whether you are making money. For that you have to look at the bottom line. A healthy RevPAR however, will steer you in that direction!
Ilzaf Keefahs |
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