RevPAR, the Constantly Moving Target Revenue Management Strategies in a Recession

By Jean Francois Mourier Founder & CEO, RevPar Guru Inc. | June 06, 2010

Desperate times for call for desperate measures. For almost 12 months, we have seen and increasingly, felt the knock-on effect of economic strife en mass. At first on our shores and then abroad, like an airborne virus, the financial meltdown and ensuing panic spread quickly, affecting every facet of our lives. And today, that malaise has infected the hotel industry to its very core.

As the hotel industry struggles to keep its proverbial head above the deep recession waters, the matter of effective revenue management becomes more critical than ever. Hoteliers want to know, in such a depressed climate, what revenue management strategies will work most successfully? After all, RevPAR is a driver in any hotel's profitability. Times like these require greater efficiencies across all operational aspects such as continuously improving customer relationships and boosting loyalty initiatives, to improving direct marketing programs and not cutting back on service. None of these, however, can be sustained without optimizing cost centers and profits. And on that basis, effective revenue management becomes an operational imperative, not an option or something to think about.

Can't stop now, but there's no going back

Firstly, it must be understood that there is no panacea for the industry at large. What is certain is that there is no going back. With more write-downs and declines expected (PKF just released its March 2009 report to reflect a 13.7% drop in RevPAR this year (1), the question becomes "what do we do next?" Why not start, then, with optimizing RevPAR by updating and implementing a robust revenue strategy that is pro-active, instead of reactive?

Opposites attract, but not when it comes to pricing

With supply and demand moving in opposite directions, it seems counterintuitive to adopt a strategy that is based largely on price moving in only one direction - down. That, unfortunately, is a very short-term, short-sighted approach adopted by some managers right now, as they deal with hanging onto existing market share. What revenue managers must consider before embarking on discount combat - because that's what it is - is how these short-term actions will ultimately impact the long term value and brand of their hotel. And of course, margins. Savvy operators will look for ways to do away with discounts, especially on high value products and services - without sacrificing margins, even in a downturn. So stop running after unrealistic revenue goals with price wars. Remember that in any war, there can be only one winner, if at all.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.