I’ve spent a good chunk of my career handling revenue management for big boxes, large convention properties in destination markets. These are some of the most challenging properties for revenue managers because they are entirely future-focused. This week’s results were largely determined by decisions made five to ten years ago, and many decisions made today won’t show results until 2017. This makes the convention properties unique within the hotel industry.
The complexity of moving parts can be overwhelming. I have yet to see a lead for the perfect group. You know the one. It has the exact rooms to space ratio, stay pattern, and F&B spend the hotel is seeking. Never happens. In fact, I have yet to see a group lead that meets just the first requirement. Forget the Holy Grail, find me a group that requires precisely the function space warranted for the amount of guest rooms and F&B provided and I’ll believe in miracles. I’ll be writing a series of articles specific to the needs of convention properties, but today’s topic is concessions. Concessions are the subversive clauses in any group contract that can quickly turn a great piece of business into a marginal opportunity, and during each economic downturn they tend to spread unchecked. This is problematic, since the business being booked today is likely to actualize smack dab in the middle of a peak time several years down the road. When evaluating a lead, it is absolutely necessary to factor the concessions into the true value of the group.
Regardless of market conditions, there are methods of ensuring concession decisions are being made soundly. Most are simply a matter of communication with the sales team, ensuring each sales manager is armed with the information necessary to negotiate concessions with the lowest impact to hotel profits. Many believe they are, but most are not. Consider two concessions that are frequent tenants of group contract clauses, complimentary room allocations and F&B discounts. Assigning one complimentary room for every 50 paid rooms was the norm ten years ago, but that figure has slid to as low as 1 per 20 in recent times. Sounds ominous, but how does a 1 per 20 comp allotment compare to a 20% discount in F&B? In an either/or scenario, would your property’s sales person make the right call? For larger properties, it’s a valuable exercise to put together a concession calculator spelling out the common concessions used, their cost to the hotel, and their value to the client. Below is a list of items to consider: 1. Complimentary Room Allotment: The cost of comp rooms to the hotel largely depends upon the dates being booked. Is the hotel likely to sell out and therefore potentially displace with the comp rooms? If so, the cost assigned to the comps needs to reflect the forecasted ADR of the rooms being displaced. If not, the cost for the comps is simply the cost per occupied room. There is obviously a significant difference. A general displacement ADR should be assigned for each future year, or even each season in the year, allowing an accurate cost calculation of the comp allotment. This is an important calculation because the value of the comps to the client is the same regardless of the hotel’s occupancy, whereas the cost to the hotel varies significantly. Another consideration when negotiating is whether the comps are assigned per night or cumulative. Per night is preferable to the hotel and generally results in a lower number of comps awarded. 2. Upgrades: Here’s an underappreciated opportunity. Many premium room categories have the same cost per occupied room as the standard categories. In addition, every hotel has different premium rooms, allowing a point of difference to the competition. If the group is for dates when the market is unlikely to be compressed, upgrading into premium rooms has literally zero cost to the hotel, yet many sales teams are surprisingly reluctant to “give it away” and instead lean towards concessions that have associated costs. Itemize a list of every room category in the hotel, the rate premium each holds over the standard category, and the difference in cost per occupied room, if any. If suites consist of more than one unit, reflect the increased cost accordingly. Putting this into the concession calculator can assist the sales team in pumping up the concession value for the client with no cost to the property. 3. Meeting Room Rental: Also known as pure profit, yet one of the first things to hit the pavement when concessions are being assigned. If room rental is waived immediately, it can’t be used when the negotiating gets down to brass tacks. If the RFP indicates bids won’t be accepted if rental is included, ensure that lost revenue is tacked on in other areas to compensate. Even a heavily discounted room rental can provide significant profit to the hotel vs waiving rental entirely. As one function space manager once said, “just because it’s freesale doesn’t mean it’s free!” 4. F&B Discounts: Deadly. Yet I frequently speak to sales people who interpret $100,000 in room revenue to equate to $100,000 in F&B revenue. A quick demonstration of profit ratios from the two departments and how much makes it to the bottom line will effectively adjust that thinking. Ensure your sale people clearly understand your rooms vs F&B profit margins. I recall the jaw-dropping reaction of a very savvy sales manager when I did the math and informed him we would be better off dropping the room rate $10 and assigning a 1 per 20 comp allotment than giving a 30% F&B discount to a group requesting it. The math is often surprising, make sure it’s being done. 5. Parking and Internet: Is there a hard cost to the hotel for either or both? Or is it “just” a matter of lost profit? High speed Internet access is generally considered a given these days, but if your property does charge for Internet access this is an important concession to consider given the likelihood of usage. Presenting an option of with or without Internet, each with a different room rate, is effective, particularly since some groups are responsible only for the room rate and may give an unexpected response. Don’t throw Internet in without a quick glance to ensure there aren’t other values you can give the client that would have less impact on the revenue stream.
Lastly, the RM Three: Three concessions that rarely receive the attention they deserve can have an enormous impact on total hotel revenues – attrition allowance, cutoff date, and cancel and replace clauses. Usually only the revenue manager comprehends the value of these items.
6. Attrition Allowance: The industry’s response to a rooms resold clause, and an agreement should contain one or the other but not both. Essentially, an attrition allowance is the hotel’s estimate of how many rooms it will be able to resell in the event the group does not pick up its entire commitment. The hotel may turn away other business, particularly other group business, because it is holding a contracted block, therefore attrition allowances should be carefully worded. For many convention properties, if the group doesn’t pick up by the cutoff date, it is far too late to resell the rooms waived in the attrition allowance. In many instances it is preferable to hand away other concessions like candy before waiving attrition. 7. Cutoff Dates: Few things have more value to a revenue manager than the length of a cutoff date. The earlier the cutoff date, the more time revenue management has to re-strategize and adjust selling strategies to maximize revenues. The later the cutoff date, the more vulnerable the hotel is to the contracted group. Again, the cost of this concession fluctuates wildly depending on whether the group dates are during high season or low season. If the group is booking a need date, the cutoff date can be as short as necessary because the hotel is unlikely to be turning away business due to holding the group block. However during high season, the lengthier the cutoff date, the more revenues the hotel can generate. Contract accordingly. 8. Cancel and Replace: The definition of a cutoff date is frequently forgotten in group agreements which can lead to “confusion” that virtually always benefits the client and hurts the hotel. In short, the cutoff date should be just that. After cutoff, any group rooms that cancel are reverted to the hotel for resale to the general public. But if that isn’t clearly defined in the agreement, clients are likely to assume they have the ability to cancel reservations after the cutoff date and replace them with new names. If a group is insisting on having a cancel and replace clause, that is the equivalent of having no cutoff date. This prevents revenue management from the ability to accurately predict occupancy and set optimal selling strategies for any of the group dates. A large cost should be assigned to adding a cancel and replace clause to a contract, with increases in rate or other areas to offset this hidden revenue killer. It may seem confusing, but developing a concession calculator based upon the above considerations can add tens of thousands (or more) to a convention hotel’s bottom line on an annual basis. Lay out the cost to the hotel and the value to the client of each, and prioritize concessions so the sales team knows which are preferred and which are to be avoided. It doesn’t matter how much revenue lies in the first two pages of a group agreement. Concessions determine how much profit materializes by the last page.
Saturday, July 27, 2013
Tuesday, July 23, 2013
GLOBAL DISTRIBUTION SYSTEMS: A GLIMPSE OF THE FUTURE
Hospitality & Automation October/November 1994
FACT: Global distribution systems will deliver over 16 million hotel reservations in 1994.
FACT: Many hotel companies have seen annual increases of 20-30% in GDS reservations during the past three years.
FACT: The traveling public, as they become more computer literate, are discovering they have access to GDSs through video text services in Europe and on-line computer services in the US.
CONCLUSION: The electronic booking environment created by global distribution systems is a major and growing component in the hotel marketing and reservation process. It must be understood and planned for.
This article looks forward over the next three to five years, to the emerging trends and developing opportunities for hoteliers in the electronic environment. Here are the developments I foresee, together with a word on their significance to our industry.
- GDS's will decrease in number. Consolidation of the six existing major systems (Galileo/Apollo, Amadeus, SABRE, SAHARA, System One and Worldspan) will result in five, four or possibly just three remaining systems.
Impact: Fewer systems in which to maintain hotel data, and transaction fee stability because of continued tough competition. - A strengthened focus by the GDSs on product depth rather than breadth. Non-core activities such as leasing CRT's and other hardware will disappear. The new focus will be on providing extensive travel product selection to permit single-stop shopping. The value GDSs add to the booking process will be in their wide array of immediately bookable travel options, reflecting negotiated rate and purchase arrangements and personalized through access to detailed customer profiles.
Impact: The electronic marketplace will produce a growing proportion of reservations; reservations by telephone will diminish. - The traditional imbalance in GDS product selection towards business travel services will diminish as new features are introduced in each GDS to facilitate leisure travel bookings. Galileo's Leisure Shopper, System One and Worldspan's Travel Source, and SABRE's Tour Guide lead a new generation of GDS packages specifically designed to accommodate complex leisure products and allow their reservation by electronic means.
Impact: Leisure-oriented properties, especially resorts and package-intensive operations, will see dramatic increases in their electronic booking volumes. - Seamless connectivity -- the process in which product descriptions, rates and availability shown on GDS screens are drawn directly from hotel company central reservation systems, rather than the usually more limited GDS product data bases, will become the industry connectivity standard. Already in operation on Galileo/Apollo as Inside Availability, all GDSs are moving toward implementation of this functionality. As it matures, seamless connectivity will be the world's conduit to the full library of package descriptions and program information resident in hotel company reservation systems. For the first time, a hotel's full product line will be electronically presentable, a situation not currently possible due to the considerable format constraints of today's GDS databases.
Impact: Hoteliers will be able to provide detailed, robust descriptions of all products, including multi-element packages, without use of cryptic codes. - Global systems will be increasingly "regionalized" to increase user comfort. Displays will be multi-lingual, as will computer-based training, rates will be shown in local currency, advertising will be region-specific and sales support will be locally provided by regional or national distribution representatives.
Impact: More bookings. - GDS displays will become substantially more sales-oriented. Today's text-intensive listings might be compared to newspaper classified ads; the future will bring the equivalent of full-color glossy brochures. The result of this transformation will be extensive image libraries and sophisticated electronic hotel directories, together with full-motion, video-like presentations stored on CD-ROM. The future will see visuals fully-integrated with text, displaying television-like production techniques and image clarity. Further into the future, fully-interactive multi-media presentations - evolving to full virtual reality "fam trips" - will characterize the GDSs of the year 2000.
Impact: The range of marketing and sales options will broaden. The importance and productivity of traditional print advertising vehicles will give way to a myriad of electronic opportunities. - New competitors will challenge the GDSs' virtual monopoly on electronic data bases of travel products. As GDSs concentrate on functioning as massive distribution networks, their current profitability, and possibly livelihood, will be challenged by other networks who believe they can present product, and deliver booking messages, equally efficiently. Some of the potential competitors can be anticipated -- on-line services such as CompuServe, Prodigy, Genie, America-on-Line and Delphi, plus participants in Internet. Others might include communication companies, cable TV systems and software houses.
Impact: More effort will be required from hoteliers to evaluate the potential of each advertising opportunity. Channels presenting electronic travel options will multiply, becoming an even more pervasive presence in our day-to-day lives.
The electronic environment for presentation and reservation of travel services, including hotels, is becoming more sophisticated, more product-friendly, and more central to the decision-making process of most travelers. The structure and content of hotel system databases will require rethinking and revision, to ensure they provide the sales-oriented, travel agent- and consumer-friendly product presentation which will be demanded. All the while, hoteliers will need to face the challenge of identifying those marketing and sales opportunities, including those presented in this expanding electronic marketplace, which will deliver a bankable return on their investment.
Sunday, July 21, 2013
Keeping up with 2013 revenue-management trends
It seems like only yesterday we were looking at 2011 and predicting what would happen in 2012. Now, here we are at the very near close of 2012 looking at what trends will continue or emerge in revenue management in 2013.
Sometimes we have to look back to look forward. Let’s go back to the beginning of the year (1 January 2012) to take a look at what was predicted and what actually transpired … and what we can expect for 2013:
ADR
Average daily rate increased 4.3% in 2011. It was expected to keep climbing in 2012.
The prediction was technically correct, but the reality is that rate grew slightly as opposed to significantly growing. STR, parent company of HotelNewsNow.com, recently released preliminary year-end numbers for 2012, which show that the industry is expected to record a 2.3% increase in occupancy and an ADR gain of 4.3% by end of year. Occupancy for 2012 is predicted to finish at 61.3% with ADR of $106.17.
For 2013, STR forecasts occupancy to remain relatively flat with a 0.3% increase to 61.4% and ADR rising 4.6% to $111.01. How will this experience and prediction play into your strategies?
Corporate travel
This time last year corporate travel was predicted to increase. Corporate demand has indeed recovered. This, combined with the fact that North American supply remains limited and yield management continues to be effective resulted in rising occupancy and higher ADRs.
Based on Egencia’s 2013 Global Corporate Travel Forecast, hotel ADR for top corporate travel destinations will be slightly up, by 3% in North America. The report states that “there will be significant variation at individual market level as supply, demand and local economic conditions also play a part.”
How will this pressure drive leisure rates and inventory demands at your hotel?
OTAs
A year ago, most hoteliers agreed that online travel agencies were a necessary component in the distribution tool kit. At the same time, it was predicted that international and smaller OTAs would start chipping away at the larger OTAs.
Today, the four largest OTAs (Expedia.com, Orbitz, priceline.com and Travelocity) remain strong while smaller OTAs continue to emerge. OTAs currently contribute about 8% of hotel bookings, according to Distribution Channel Analysis: A Guide for Hotels. This seems a relatively small number until you consider that OTAs actually represent 45% to 55% of all digital hotel bookings. The second statistic may explain the frequency with which the topic of OTAs continues to come up in conversation, in industry education and in industry news.
Going forward, as always, in addition to having a solid strategy for positioning your hotel on an OTA, you must have a solid strategy in place to determine when, for who and at what rate the OTAs make financial sense for your property.
At the same time, consider the following from J.D. Power and Associates’ 2012 Independent Travel Website Satisfaction Report (published 30 November 2012): Pricing is the strongest driver of satisfaction with independent travel websites. "While other factors certainly affect overall satisfaction, 75(%) of online travel website consumers indicate price as a primary purchase reason, so there is no denying price greatly impacts the overall website experience." said Sara Wong Hilton, director at J.D. Power and Associates.
Search engines
Search engines, led by Google Hotel Finder, were expected to push more into online travel.
Today, Google Hotel Finder search displays OTAs’ rates to the customer, reinforcing the importance of having and implementing an overall pricing strategy. The search engine’s move into online travel continues with the most recent news that Google Hotel Finder is now available on all global Google domains (via the URL google.com/hotels). In the U.S., a Google Hotel Finder search box is featured on all search engine pages for destination hotel searches as well.
Technology
Does this sound familiar? Intelligence reports, channel management, seamless property management systems connectivity … Is it necessary and what is the return on investment? A year ago, conversations about this were numerous.
As predicted, most, if not all, technology companies today interface with one another in some fashion. PMS, central reservation system, revenue management system, global distribution system, OTA, competitive rate shoppers and channel managers all interface allowing the revenue manager to review the different provider products, their pricing, their service and their benefits of utilizing this type of connectivity as opposed to traditional manual efforts.
Expect the connectivity to continue to improve, and consider what options are available to maximize the systems you have in place.
Social media
Is social media a distribution channel or a marketing tool? Can anyone agree? They certainly couldn’t last year, and the debate will continue into next year.
What we all can agree on for 2013 is the need to define your objectives. Know what you want out of social media and develop your strategy from there. Decide whether you will focus on social media as a convertible and measurable distribution tool, as a marketing channel, as a customer service channel or as a combination of those.
With the complexity of the social media channel, it is very necessary to monitor reviews, comments and content across all channels because the indirect effects of negative media will result in lowering the conversion on the actual distribution channels.
Flash sales
Last year the debate raged about when and how (or whether to) embrace flash sales for hotels.
As 2012 played out, we saw Hotwire close Travel-Ticker, and Groupon and LivingSocial are consolidating after reporting financial losses.
In 2013, as the economy continues to improve (keep your fingers crossed), it will be interesting to watch the daily deal sites to see how and if they continue. For hoteliers that are seeing occupancy and rate growing steadily year over year, how would they work them into their overall revenue and marketing strategy?
Mobile
Mobile is beyond phones. Corporate and leisure travelers alike are using tablets to research and book travel. Is your hotel website optimized for these devices? Is your hotel utilizing location optimization for your outlets (restaurant, bar, spa, golf, daily specials) to reach prospects ready to buy?
HSMAI’s Digital Marketing Council recently shared that, “With the increase of tablet ownership and usage, mobile is moving beyond the original scope of mobile phones into broader territory. For hoteliers, mobile for tablets presents a different opportunity than mobile for smartphones.”
The Council recommends that “While mobile phones are particularly relevant in the shop, book and experience phases, tablets are uniquely positioned to aid in the dreaming or desire to be inspired phase, as well as the learning phase. What this means is that a tablet-specific website should be considered because the consumer behavior varies so dramatically between the two mobile devices. Speed and ease of use are critical for the smartphone, but vivid photos are more essential for the mobile tablet.”
All of this will continue to impact how travelers book their travel, including booking travel at the last minute. The OTAs have embraced this trend combining last minute deals along with the ability to search all of their hotel offerings and book quicker and easier from mobile devices.
How will you segment and target your strategy and messaging for mobile devices?
Inbound international US Travel
European travel into the United States was predicted to increase this year. As of 30 November, more than “66 million international travelers are projected to visit the United States, an increase of 6(%) over 2011 visitor volume,” according to the International Trade Administration at the U.S. Department of Commerce.
We are certainly seeing strong results. Some brands are reporting strong demand from overseas visitors from Brazil, Russia, India and China.
These trends, combined with the efforts of Brand USA to promote increased international travel to the United States, are predicted to result in a 3.6% to 4.3% average annual growth in travel and tourism over the next five years, according to the International Trade Administration.
The Department of Commerce expects visitors to the U.S. from world regions to grow at different rates over the next five years:
I hope you’ll continue to learn more about the forecasts and trends that will impact us in 2013.
Sometimes we have to look back to look forward. Let’s go back to the beginning of the year (1 January 2012) to take a look at what was predicted and what actually transpired … and what we can expect for 2013:
ADR
Average daily rate increased 4.3% in 2011. It was expected to keep climbing in 2012.
The prediction was technically correct, but the reality is that rate grew slightly as opposed to significantly growing. STR, parent company of HotelNewsNow.com, recently released preliminary year-end numbers for 2012, which show that the industry is expected to record a 2.3% increase in occupancy and an ADR gain of 4.3% by end of year. Occupancy for 2012 is predicted to finish at 61.3% with ADR of $106.17.
For 2013, STR forecasts occupancy to remain relatively flat with a 0.3% increase to 61.4% and ADR rising 4.6% to $111.01. How will this experience and prediction play into your strategies?
Corporate travel
This time last year corporate travel was predicted to increase. Corporate demand has indeed recovered. This, combined with the fact that North American supply remains limited and yield management continues to be effective resulted in rising occupancy and higher ADRs.
Based on Egencia’s 2013 Global Corporate Travel Forecast, hotel ADR for top corporate travel destinations will be slightly up, by 3% in North America. The report states that “there will be significant variation at individual market level as supply, demand and local economic conditions also play a part.”
How will this pressure drive leisure rates and inventory demands at your hotel?
OTAs
A year ago, most hoteliers agreed that online travel agencies were a necessary component in the distribution tool kit. At the same time, it was predicted that international and smaller OTAs would start chipping away at the larger OTAs.
Today, the four largest OTAs (Expedia.com, Orbitz, priceline.com and Travelocity) remain strong while smaller OTAs continue to emerge. OTAs currently contribute about 8% of hotel bookings, according to Distribution Channel Analysis: A Guide for Hotels. This seems a relatively small number until you consider that OTAs actually represent 45% to 55% of all digital hotel bookings. The second statistic may explain the frequency with which the topic of OTAs continues to come up in conversation, in industry education and in industry news.
Going forward, as always, in addition to having a solid strategy for positioning your hotel on an OTA, you must have a solid strategy in place to determine when, for who and at what rate the OTAs make financial sense for your property.
At the same time, consider the following from J.D. Power and Associates’ 2012 Independent Travel Website Satisfaction Report (published 30 November 2012): Pricing is the strongest driver of satisfaction with independent travel websites. "While other factors certainly affect overall satisfaction, 75(%) of online travel website consumers indicate price as a primary purchase reason, so there is no denying price greatly impacts the overall website experience." said Sara Wong Hilton, director at J.D. Power and Associates.
Search engines
Search engines, led by Google Hotel Finder, were expected to push more into online travel.
Today, Google Hotel Finder search displays OTAs’ rates to the customer, reinforcing the importance of having and implementing an overall pricing strategy. The search engine’s move into online travel continues with the most recent news that Google Hotel Finder is now available on all global Google domains (via the URL google.com/hotels). In the U.S., a Google Hotel Finder search box is featured on all search engine pages for destination hotel searches as well.
Technology
Does this sound familiar? Intelligence reports, channel management, seamless property management systems connectivity … Is it necessary and what is the return on investment? A year ago, conversations about this were numerous.
As predicted, most, if not all, technology companies today interface with one another in some fashion. PMS, central reservation system, revenue management system, global distribution system, OTA, competitive rate shoppers and channel managers all interface allowing the revenue manager to review the different provider products, their pricing, their service and their benefits of utilizing this type of connectivity as opposed to traditional manual efforts.
Expect the connectivity to continue to improve, and consider what options are available to maximize the systems you have in place.
Social media
Is social media a distribution channel or a marketing tool? Can anyone agree? They certainly couldn’t last year, and the debate will continue into next year.
What we all can agree on for 2013 is the need to define your objectives. Know what you want out of social media and develop your strategy from there. Decide whether you will focus on social media as a convertible and measurable distribution tool, as a marketing channel, as a customer service channel or as a combination of those.
With the complexity of the social media channel, it is very necessary to monitor reviews, comments and content across all channels because the indirect effects of negative media will result in lowering the conversion on the actual distribution channels.
Flash sales
Last year the debate raged about when and how (or whether to) embrace flash sales for hotels.
As 2012 played out, we saw Hotwire close Travel-Ticker, and Groupon and LivingSocial are consolidating after reporting financial losses.
In 2013, as the economy continues to improve (keep your fingers crossed), it will be interesting to watch the daily deal sites to see how and if they continue. For hoteliers that are seeing occupancy and rate growing steadily year over year, how would they work them into their overall revenue and marketing strategy?
Mobile
Mobile is beyond phones. Corporate and leisure travelers alike are using tablets to research and book travel. Is your hotel website optimized for these devices? Is your hotel utilizing location optimization for your outlets (restaurant, bar, spa, golf, daily specials) to reach prospects ready to buy?
HSMAI’s Digital Marketing Council recently shared that, “With the increase of tablet ownership and usage, mobile is moving beyond the original scope of mobile phones into broader territory. For hoteliers, mobile for tablets presents a different opportunity than mobile for smartphones.”
The Council recommends that “While mobile phones are particularly relevant in the shop, book and experience phases, tablets are uniquely positioned to aid in the dreaming or desire to be inspired phase, as well as the learning phase. What this means is that a tablet-specific website should be considered because the consumer behavior varies so dramatically between the two mobile devices. Speed and ease of use are critical for the smartphone, but vivid photos are more essential for the mobile tablet.”
All of this will continue to impact how travelers book their travel, including booking travel at the last minute. The OTAs have embraced this trend combining last minute deals along with the ability to search all of their hotel offerings and book quicker and easier from mobile devices.
How will you segment and target your strategy and messaging for mobile devices?
Inbound international US Travel
European travel into the United States was predicted to increase this year. As of 30 November, more than “66 million international travelers are projected to visit the United States, an increase of 6(%) over 2011 visitor volume,” according to the International Trade Administration at the U.S. Department of Commerce.
We are certainly seeing strong results. Some brands are reporting strong demand from overseas visitors from Brazil, Russia, India and China.
These trends, combined with the efforts of Brand USA to promote increased international travel to the United States, are predicted to result in a 3.6% to 4.3% average annual growth in travel and tourism over the next five years, according to the International Trade Administration.
The Department of Commerce expects visitors to the U.S. from world regions to grow at different rates over the next five years:
- Asia will grow 64%
- South America will grow 60%
- Oceania will grow 41%
- China at 259%
- Brazil at 83%
- Argentina at 67%
- South Korea at 51%
- India at 47%
- Australia at 46%
- Venezuela at 45%
I hope you’ll continue to learn more about the forecasts and trends that will impact us in 2013.
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