The focus of hotel asset management has traditionally been on cost control. Reducing the operational or flexible costs on the hotel balance sheet is what used to determine the profitability of a hotel. Over the last few years, focus has shifted !
To control staff payroll, purchasing costs and overhead spending used to be the main components of the job of a hotel asset manager. With the rise of the internet and increased dynamics of hotel distribution we have seen a shift in focus over the last few years.
The attention of hotel asset management has been increasingly moving towards room yield. Driving occupancy and average room rate is the key nowadays to controlling the bottom line the hotel. Of course a hotel revenue manager should have a strategy that goes far beyond REVPAR. NREVPAR (read article) and GOPPAR are if instrumental importance.
For the Xotels portfolio we have seen an overall revenue growth of 15.8% in first three quarters of 2011, through strategic pricing strategies. We looked beyond mere cost control and had our hotel clients invest in SEO and internet marketing to increase direct sales. As a result, distribution cost was reduced and profit increased.
Of course we do not advocate leaving costs uncontrolled. That would irresponsible, as with the recovery from the crisis hotels have to be weary not to reinstate cut services amenities too quickly. However the scope of attention has to be widened and emphasis needs to change. Simply cutting costs and ‘trimming the fat’ will also have an impact in the long term service levels of hotel and in the end impact financial results negatively.
Fundamental to success will be to gain more market share in a recovering market. With the occupancy rising across the board in many markets, it is important to fight and pick up 1 or 2 point more than the competition. ADR / ARR should be pushed up where demand allows, in an effort to improve your hotel’s RGI (revenue generation index).
The solution of classical asset management companies will almost always be to put a flag on the roof. However in the era on online distribution, social media and online reputation management a brand is no longer needed. Also should be considered the fact that costs of such ahotel franchise are tremendously high. Moreover their model is out of date. These companies are no longer the best solution in today’s market place.
Modern day revenue management, internet marketing and online distribution is the solution to generate a healthy ROI on your hotel investment. The industry has to move beyond operations to manage well business development. And the next logical trends to be implemented in hotels will be Total Revenue Management and Business Acumen, taking revenue management beyond the hotel rooms and optimize the results of all hotel revenue streams.