Why Now is the Time for Hotel Owners to Leverage Revenue Management

By Trevor Stuart-Hill President & Founder, Revenue Matters | November 09, 2014

The hotel industry, in virtually every global market, has recovered from the sharp downturn of 2008 and 2009. In the US market, during the first half of 2014, room demand was up 4.2% and room revenue was up 8.6%. Randy Smith of Smith Travel Research (STR) states, "The surge in demand we witnessed during the summer of 2014 even caught us by surprise…and it certainly is nice to be pleasantly surprised." So why is now a good time to harvest the value that revenue management can bring to the table? The answer relates to the cyclical nature of our business, combined with mounting pressure on profitability.

A Global View

According to Aron Gampel, vice president and deputy chief economist at Scotiabank, gross domestic product (GDP) globally is growing at approximately 3.4% on average. While this isn't dramatic by any stretch, it, along with very modest supply growth in most markets, has been enough to positively impact hospitality industry key performance indicators.

Of course, as would be expected, some regions are performing better than others. Brazil and the Eurozone, for example, are teetering on the brink of a recession, but according to Gample "still have some momentum potential through structural adjustments and economic stimulus initiatives." Manufacturing output in Germany (Europe's strongest economy) has slipped, France, UK and Netherlands economies are relatively stagnant and concern is mounting relative to a recessionary trend in Portugal, Italy, Greece and Spain.

Industry pundits, while hesitant to precisely predict the peak of the current cycle in the US, generally anticipate that we will experience a few more years of positive demand fundamentals before experiencing the inevitable downturn. US consumers and companies have become somewhat inoculated to threats of terrorism and news of pandemic outbreaks, so it is not anticipated that these will have a deep or sustainable effect on travel in the short term.

So, What's the Problem?

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Eco-Friendly Practices: Corporate Social Responsibility

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.