The metrics of measuring a hotel’s performance relative to its peers (Part 2)RevPAR which has been the traditional benchmark to monitor a hotel’s performance is now been challenged by the emergence of the Revenue Generated Index (RGI). An Hotelier Middle East GM Survey carried out last year revealed that General Managers increasingly prefer to judge their hotel’s performance on RGI (Revenue Generated Index). The survey had 34.5% of GM participants declaring that they prefer to have their hotel’s performance assessed by RGI, compared to the 31% of hoteliers who rely on RevPAR.
Commenting on last year’s survey results, Kempinski Hotel & Residences Palm Jumeirah general manager Alessandro Redaelli said: “A few years ago RevPAR was the new key performance indicator for the industry because it allowed us to combine occupancy and ADR to create a more impartial performance indicator. Using RGI seems to bring this a step further to the next level, with hotels able to compare themselves against a determined group of hotels with common characteristics.” Explaining his own preference to RGI, Radisson Blu Hotel, and Dubai Media City general manager Francois Galoisy said: “In a dynamic environment like the Middle East and especially Dubai, forecasting growth is a real challenge. For example, if you reached budget RevPAR of 10% year on year growth, but in the same period your competition increased by 12%, your hotel growth is slower that the rest. Your RGI index decreases and indicates that you have missed opportunity on occupancy market share or on rates.”
Optimising room revenue generation index (RGI) – the relative share of the market for room revenue that the subject hotel enjoys compared to its competitive set - is a good way to maximise profitability. RGI for the moment appears to be hugely favoured by International Chain hotels where most of the branded operators demonstrate an obsessive regard for RGI. There is however some risks involved in banking too heavily upon RGI which relies on comparing hotel performance against a set of other hotels of similar standards located in the same city or in other major cities in the country or region.
As Hotel consultant Ian Green explains, “Assume that there may well be significantly high demand accommodated in hotels that are reluctant to share this information or contribute to such surveys. Even hotels that are in different price categories, situated in different locations need to be considered and not treated as ‘invisible’. There is a real risk that focusing on beating a very small number of directly competing branded hotels obscures the prize that exists from competing against some or all of these invisible hotels. One of the ‘known unknowns’ in any business decision is the competitor reaction. If you increase a price, will they increase theirs, decrease theirs or leave theirs alone? One really can’t predict the reaction, but we do know for sure that the competitor will react. As a tool, RGI is potentially very powerful – but, as with any tool, it’s the way the tool is used that separates the craftsman from the apprentice”.
Metrics matter but making money matters most!
At the end of the day though, metrics only matter so much. Yes, metrics are an important part of the revenue management process. Yes, we need metrics to be able to evaluate whether one initiative, promotion or sales channel sells more rooms than others. And of course, we need metrics to prove to the management team that we are being effective. The harsh reality is this though: at the end of the day, if you’re not making money, metrics are never going to make up for that fact.
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Ex-Hotelier. |
|
|
|
