Drive Profit Through Your Parking Lot with Automated Technology

By Joshua Miller Principal, Niche Advisors | May 19, 2010

Hoteliers spend tremendous time and energy looking for strategic ways to utilize technology to improve their operations and drive financial performance. What many fail to look at is that the hotel itself usually sits in the middle of a large parking facility. This facility often takes up as much real estate as the hotel itself, but because parking is outside of the core focus of the industry, parking technology is rarely part of any strategic capital or IT plan. At Niche Advisors, when we travel to visit our clients we typically find that they use no parking technology at all or if so, it is the most poorly maintained, unsophisticated and outdated product on site. This article will explore how some of the latest advancements in the parking industry can help hotels capitalize on unrealized profit.

Most hotels which charge for parking either charge on the honor system, or have an outdated or unsophisticated parking access and revenue control system (PARCS). Honor system hotels simply rely on their guests to tell the truth when asked at check in if they are parking a car. If the guest says yes, a code is added to the their folio and the guest is automatically charged each night. Because there are no gates or control of the lot, the guest does not have to be forthcoming. We find that most hotels using the honor system fail to capture revenue from 40-70% of the vehicles parked in their lots. In addition, without gates, there is no effective way to collect parking revenue from day visitors or catering clients. Honor system hotels who invest in PARCS will see a very quick return on their investment.

Of those properties which do utilize PARCS systems, most operate them in what we refer to as "the traditional model." In the traditional model, tickets are issued on entry, and customers pay at a staffed cashier booth at the exit. Often, the cashiers are employed by third party parking management companies. This means that each revenue transaction has associated labor costs and management fees. In the traditional model, except in extremely high volume or high rate operations, most properties run at a 20-40% profit margin. More importantly, by giving cashiers the responsibility to decide what to collect from guests, the hotel opens itself up to significant risk of loss due to theft and error. This revenue "slippage" is rarely less than 10% and typically 20-30% or more.

The concept of parking automation, or utilizing technology to automate the cashiering process, is quickly moving into the North American parking industry from Europe and Asia. Most travelers are now familiar with the concept of automation because many airports have adopted an automated approach. Essentially, customers pay at a "Pay On Foot" device rather than paying a cashier in a booth. The "Pay On Foot" device is strategically located so that parkers pass it on the way back to their car. They insert their ticket, a display screen advises them how much they owe, they pay the fee with by inserting cash or a credit card, and they receive their "paid" ticket back to use at the exit. They can also request a receipt. Those customers who do not use the "Pay On Foot" can complete the exact same transaction in the exit lane if they pay by credit or debit card.

Hotels are complicated in that there are many types of parkers other than people paying the hourly rate. Hotel employees and any monthly customers are generally issued access cards to gain entry into the facility. These cards are fully reportable for management purposes (to review the arrival and departure times of their employees). Hotel guests exchange their ticket at check in for a guest parking pass. This electronic pass allows them in and out access and can be printed on a ticket or in the right circumstances, on the guest's room key. Event patrons which have hosted or negotiated parking rates are issued special validation coupons to reduce or eliminate the parking fee. These tickets are also fully reportable so that accurate counts of activity by group can be tracked. For large events, the hotel may sell exit vouchers as customers arrive to improve traffic flow when all of the customers leave simultaneously. Restaurant and other outlets, as well as the sales and management staff validate parking either with an electronic validator or with validation coupons. Essentially, every potential parking customer is offered a way out of the lot which does not require a personal interaction.

As an example of the business case for automation, consider a typical hotel which charges for parking: 350 rooms, 10,000 square feet of meeting space, 70% occupancy, 30% of guests parking a car, and a $15 parking rate. They report $375,000 in annual parking revenue. The hotel outsources its parking operation to a third party under a management contract for $3,500 per month plus all expenses. The operator staffs a full time on site manager and cashiers working in the facility's exit booth 24 hours per day. They report $175,000 in total payroll and another $20,000 in operating expenses outside of the management fee. This means that total expenses for the operation are $237,000, leaving a profit of $138,000 or 37%.

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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.