Mr. Parker

Revenue Management

How World Events Can Effect Revenues

By Juston Parker, President & CEO, Parker Hospitality Group, Inc.

On September 11, 2001 at approximately 8:46 AM local time, American Airlines Flight 11 strikes the North Tower of the World trade Center in New York City. Immediately following at 9:02 AM, United Airlines Flight 175 impacts the South Tower of the world Trade Center. 9:37 AM, American Flight 77 crashes into the Pentagon in Washington DC. Then at 10:06 AM, United Flight 93 goes down near Shanksville, Pennsylvania.

On December 26, 2004 at approximately 7:58 AM local time, the strongest earthquake in 40 years and the fourth largest in recorded history struck deep in the Indian Ocean off Indonesia. This quake spurred one of the most devastating Tsunamis known to man, leaving in its wake an unfathomable loss of life and complete devastation. Areas from Indonesia to Kenya across the Indian Ocean basin were affected, and reports are still unclear about the death toll, which has been estimated in excess of 250,000.

On July 7, 2005 at 8:50 AM local time, 3 bombs exploded in the London Underground within 50 seconds of each other. Then at 9:47 AM, a fourth bomb exploded on a London bus. The bombings killed 52 commuters and the four suicide bombers, injured approximately 700 and caused a severe disruption of the city's transport and mobile telecomunications infrastructure.

On October 1, 2005, between 6:50 and 7:00 PM local time, 3 large bombs were detonated in the resort towns of Jimbaran and Kuta, Bali, Indonesia. 23 people were killed in attacks near western tourist spots including the Four Seasons Hotel Bali.

On April 16, 2007, a lone gunman opened fire at Virginia Tech University killing 33 people and injuring 15 others. This apparently random act in a small community rocks the foundation of security causing many to evaluate their safety anywhere with the feeling of, "if I can't be safe in school, where can I be?"

The hospitality industry has been affected by many devastating events in recent years. The attacks of September 11, 2001 struck fear in travelers, and the airlines and hotels responded in unprecedented ways that completely changed the way we traveled. SARS fears reached to multiple continents as people feared the spreading epidemic. The war in Iraq and the increasing terror threats reduced attendance at the Olympics in Athens to unheard of low levels. Hotel occupancy and Revenue per Available Room or RevPAR (a key indicator in the hospitality industry) were expected to be at record highs but dropped to record lows.

The Impact

The above are all real life scenarios that had dramatic effects on travel in various ways. All resulting in an initial downturn, and all resulting in long term effects in revenue and strategy for the destinations involved and in many cases the world as a whole. The travel and tourism industry is "reactive" in nature. The attitude of, "wait until something happens, the change", is one that resonates throughout. How can revenues improve when you are always waiting for something to happen or worse yet, sticking your head in the sand and hoping it won't happen to you? Let's look at the impact of the above events:

1. 9/11/2001
   
   The travel industry in the United States, "reacts" by decreasing rate to drive occupancy thinking that if people are given offers, they will travel. In reality those that weren't afraid to travel still traveled at an extremely discounted rate. It's now estimated that the US travel industry lost in excess of $3 Billion in the year after 9/11. If that is expanded on to show that levels didn't actually return until 2004/5, the resulting loss approaches Ten-Billion Dollars.

2. Indian Ocean Tsunami
   
   Initially, the IATA, requested that Thailand reduce rates by 50% to stimulate travel indicating that this would be of benefit to the area. In reality, Thai Airways partnered with the hotels in providing service beyond expectation. By using larger aircraft immediately after the event, Thai Airways was able to traffic more goods and people for relief in to the area. This was at a higher fuel cost, but they were able to offset with subsidies from the hotels. This allowed the hotels to maintain rate and continue to grow despite the challenges. It has been shown, that the industry in the area rebounded in less than 18 months and is now significantly on pace ahead of where it was before the event.

3. London Bombings
   
   Travel and tourism was affected immediately as the system shut down. Hundreds of thousands of commuters and travelers were stranded in various parts of the city. Scotland Yard quickly and efficiently responded to the bombings and assured a sense of security after determining the identity and actions of the bombers and assured everyone they were safe. The hospitality industry was steadfast and only offered a few distressed travel rates to those immediately affected. The "return" to normalcy was the very next day.

4. Bali
   
   Many western tourists left immediately. Having had a history of dangerous situations, the US Department of State has always urged caution when traveling in Indonesia. After this attack, the USDOS issued a travel warning against travel to Indonesia and stopped issuing visas for destinations within the region. Large resort operators we fast to contact their highest producing agencies and OTAs to offer value and deals as well as get the message out that "all is well in Bali". With a strong PR campaign and targeting specifically the new wave of eco-tourism, Bali was able to finish the yea with record numbers and continue that growth in 2006.

5. Virginia Tech
   
   As of this writing, the events of this terrible day are still being put together. Many parents are rushing to the aid of their children. Many students are leaving campus and wondering where to go. The local hoteliers, 5 in all, have opened doors to students and family in need. Even offering comp rooms where necessary. This is keeping staff in place and keeping an eye on what hospitality is supposed to be all about, serving people. The return to "normal" may take some time, but the hotels will regain their business sooner rather than later.

All of these events had different impacts, and more importantly, different end results. As you can see, the areas that acted in a methodical manner returned much more quickly, than those who "reacted" to the incident. You can never prepare for these types of events, but you can prepare for the worst and establish a plan. As the saying goes, the best offence is a good defense. Prepare, and be proactive, not reactive.

Strong Proactive Revenue Optimization Can Bring Stronger Revenues

Revenue Management, by definition is passive in nature, and Revenue Optimization is Active. In addition, Revenue Management is reactive and Revenue Optimization is proactive. The hospitality industry always looks at budgets, forecasts and P&Ls. "Will I make it or won't I?" "What types of things can I do to make the forecast I set?" "How do we make the budget we set?" "Oh no, what happens now?" These are all the questions that are regularly asked in the hotel industry.

Instead we need to be asking, "What does the market look like today? Tomorrow? Next week? Next year?" "What does our budget range look like and how can we maximize profitability in the event of a disaster?" "What action steps can we take today to build a better short term marketing tool?" In addition, most importantly, we need to use the forecast as a tool, as the means to an end, not an end to the means. When the forecast changes, we need to change our way of thinking and acting, not react to get the end result.

Some simple steps for preparing and being ahead of the competition are:

These are just a few simple steps. Think outside the box and look for new opportunities. Move from reactive to proactive and make that your mantra and you can survive and even thrive in any situation.

From surviving to thriving!

World events can and do affect you and your property and business. There are not many industries beyond tourism that can have such a trickle effect in that actions on the other side of the Earth can affect your business no matter where it is. You can never predict what the next major event will be. Nor can you predict when you will be hit by something, but you can prepare and optimize revenue proactively.

Look at your process, identify the market and know your place in the market. Identify your guest, who they are and what they value. Know not only who your highest paying guests are, but who your most consistent guests are. Develop a strategy that uses forecasting as a means to an end and most importantly, pay attention, learn from the world and you will thrive.

Juston Parker is President and CEO of Parker Hospitality Group. He began in reservations, then moved to operations, sales & marketing, food & beverage, and banquet & conference services. Mr. Parker has a passion for creating top revenues and growing innovative revenue strategies. His approach has increased revenues, even in challenging times. As a published author on Revenue Management, Juston has been interviewed and/or quoted on CNN, Yahoo Finance, and Fox News, as well as featured in publications ranging from HSMAI, to Thailand Hospitality, University of Florida, and Event Solutions. Mr. Parker can be contacted at 303-499-2443 or Juston@ParkerHospitality.com Extended Bio...

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