Two Common Mistakes that Hoteliers Make – A Quick “what not to do” for Hotel Operators

Mar 23, 11 | 12:09 am

By Gavin Landry

Frequently there are articles about hotel operations espousing ideas that owners and managers should implement to be more successful. However, all too often it seems that hotel operators are not being given the same advice about what not to do in today's highly dynamic and challenging industry. Here are some quick insights that may help you avoid losing revenue:

Over-reliance on and under-management of the OTA's and TPIs: In a recent headline, I read about a group of three hotels taken over by Marshall Hotels and Resorts where one of the properties was distributing 100% of its inventory via third parties such as Priceline, Travelocity, Expedia, Hotels.com et al. This means on peak demand nights this particular hotel was fire-saling rooms for $69 while his next door neighbor was enjoying a healthy $148 ADR. Obviously this is an extreme example of mismanagement, but it is not atypical for hotels to become overly dependent on the OTAs ability to sell rooms, no matter what the rate.

OTA's can help contribute valuable revenue if properly managed, but there are pitfalls to avoid: First, an operator needs to have a firm grip on the demand patterns for his/her property not just historically, but in the year for the year, in the month for the month and in the week for the week. Market demand changes so rapidly at times that basing demand on same day last year can be a big mistake. If you allocate inventory to the OTAs too early on a date that ends up being a demand time, you can end up selling discounted rooms needlessly. Also, understand your Variable Costs per Occupied Room and your fixed costs so you understand your break-even point. If you are selling a room at $39 on Priceline, there is a very good chance that you are losing money with every room you sell. If the time is right and your zero-base labor costs can absorb additional guests without the need to add staff, selling heavily discounted rooms may be worthwhile. Be forewarned: guest satisfaction scores from the lowest-rated OTA guests are typically the worst your hotel will receive. That's right; the guests paying the least amount of money are the ones lowering your guest satisfaction rating!

Finally, in the days before the OTAs, hotel rates were typically set by hotel operators starting with the market leader. The market leader was usually run by a seasoned hotel GM who made good decisions about where rates should be established. Other area hotels would then fall in line based upon their relative place in the market. Today, this type of legitimate macro-rate strategy does not exist and it is often the village idiot who sets the lowest rates and determines where room rates end up. I attended the Cornell Hospitality Research Summit in Ithaca, NY last October where I had the good pleasure to talk with Cathy Enz, a Hospitality Strategy Professor at Cornell's School of Hotel and Restaurant Administration. She discussed her work on hotel demand and made an extremely good case proving the idea that hotel demand is essentially inelastic. In other words, it is not something that can be created by hotels deep discounting. Conversely, hotels that consistently price themselves higher result with the best RevPar in their market set. In certain instances this may not be true but Professor Enzs' notion stands in stark contrast to the message that the OTA's seem to have convinced us about reduced rate inventory. The idea with all of this is not just to paper the house with occupied rooms but to drive not only RevPAR but also GOPPAR.

Under-use of available data: When I was a hotel GM in the late 1980's and early 1990's, we used something called "denial reports": reams of paper generated for me weekly by the on-site reservations department that showed me a 365-day view of the dates where my hotel was generating a turn-down to a guest attempting to make a reservation at my hotel for a particular date. We also commonly used stay restrictions like "closed-to-arrival" and "minimum length of stay" requirements. These methods have been improved by the modern day revenue management practices, but the reality for most hotels is that properties receive tons of data so regularly that it essentially overwhelms the staff. Day-to-day operations demand constant attention, but there are certain sources of data that hotel operators should not let slip into the information abyss:

First, know your sources of business and the reason your guests are at your hotel. Do you know your top 15 producing travel agencies (not OTAs) and the corporate accounts they handle? Are you getting your fair share of the business they generate in your market? Do you know the agencies generating business in your market but not at your hotel? I just visited several travel agencies with a hotel client and as a result secured Preferred Hotel status from an in-house travel agency that was pumping thousands of dollars into my client's comp set.

Who is staying at your hotel? Almost 30% of a typical hotel's business are guests that are not being delivered by your frequency program (Hilton Honors, Priority Club, Marriott Rewards et al) or that are part of a group. I can assure you there are many guests at your hotel delivered by one of the many channels whom you do not know why they are at your hotel. Hotels should make good use of resources such as TravelCLICK's Hotelligence Report and Rubicon's Market Vision tools. Rubicon incidentally was just acquired by TravelCLICK as of March 17, 2011. On-site teams should meet regularly to discuss the data in selected reports, inform rate strategies, establish hurdle points, rate fences and best flex (rack) rates. Tools such as these can help you to steal share from your competitors and outperform your comp set, no matter what economic conditions we are currently experiencing.


About Gavin Landry

Gavin Landry is a graduate of the Cornell University School of Hotel Administration and Principal of Landry Hospitality Consulting Services, L.L.C.; a full-service hospitality consulting service specializing in hotel development and existing hotel cost and revenue improvement programs. He is also currently an Adjunct Professor at NYU teaching a graduate level course on Tourism Policy Analysis.