What C-Level Executives Need to Know About Total Hotel Profitability

Beyond Buzzwords

By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | July 09, 2017

If attaining guests through loyalty programs, personalization and the provision of choice is the hospitality industry's Holy Grail, then profitability is the infinite abundance it promises. When it comes to achieving higher degrees of hotel profitability, nothing provides more opportunities for the incorporation of these elements than an intelligent revenue strategy.

While a hotel revenue strategy doesn't lend itself as the panacea to every organizational crossroads, it does provide hotels with a way to profitably navigate through the unpredictability of economical and geopolitical climates, natural disasters and terrorism. This is in addition to finding profitable success in hypercompetitive online environments prone to fluctuating markets and intensifying competition. Strategic revenue management is also recognized as an important component to increasing asset value, attracting investors and improving overall operational efficiency.

Among other things, today's hoteliers face mounting pressure to increase their hotel profitability. From acquiring brand new customers to driving repeat business and loyalty, making the right operational decisions and running a hotel with optimal efficiency continues to be an ongoing challenge for top hotel executives. However, with increased scrutiny focused on the best ways to drive total hotel profitability, what exactly do the industry's c-suite executives need to know about revenue strategy and profit optimization?

More specifically, what is this push toward profit optimization and where does it need to begin for the best results? What are the KPIs that paint the most accurate picture of a hotel's health and performance? How do hotel distribution channel costs impact overall hotel profitability? And, finally, what are the tools that facilitate these critical activities for hoteliers?

What is This Push Towards Profit Optimization?

Revenue management used to be considered a very niche function, and one that was only applied to guestroom strategies without the influence or contributions from other hotel revenue streams. Over the years, however, hotels have recognized its benefits and enthusiastically adopted more scientific and analytical approaches to strategic revenue management – experiencing significant financial rewards in the process.

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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.