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Getting Your Revenue Strategy Ready For Recovery

Right now it may be hard to imagine a world with active hotel revenue management; but it is important to note that within a short period of time we could be in a position to begin maximizing revenue on the upswing of the slowdown.  

In a HotelBusiness exclusive, written on March 19, 2020, Greg Wallis shows us a great infographic of the SARS outbreak on mainland China (courtesy of STR), and the rebound of hotel occupancy.  You will note the distinct v-curve. Travel and hospitality is resilient, and hopefully the rebound will be similar with the coronavirus crisis.  

Picture1-6

If the current situation follows a similar pattern, we should be very careful about the actions we take over the coming weeks and months. You will notice the Chinese ADR held very strong during the SARS downturn, and with a little luck, we can do the same.  Otherwise, we may face the same challenges we had during the 2008 recession, and post-9/11 in which ADR/revPAR took twice as long to recover in comparison to occupancy %.

Changes to Supply

One of the most notable things to keep in mind during this time of crisis is that over the coming months, there will inevitably be a dramatic change in the incoming hotel supply. For the past 10 years we have seen what seemed like an unending growth in hotel rooms in almost every market; some may argue too much growth. Let’s take a look at the “in construction” rooms provided by Jan Freitag at STR.

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Here we can see that we were on a very similar trajectory to the 2008 recession. If this holds true we can expect to see a substantial drop in room construction, alongside the potential closing of some hotels that may not have the liquidity to weather this storm. In fact, STR mentioned in its webinars last week that it expects no new hotel openings in H1 2020, with many opening dates now pushed back by six months.

You may also keep in mind that it will take some closed hotels longer to re-open; whether that is due to a need for financial backing or perhaps rehiring efforts. If your hotel is able to re-open first (as we have seen in some markets post-hurricane), you have yet another opportunity to capitalize on.

3 Revenue Management Tactics to Employ

You can see how revenue management has more of a role to play here than you may have initially believed. You may have thought that it’s an uphill battle to try and “hold rate” when recovering through a massive pandemic as we are seeing; but, there are some actions you can take now:

Understand your data - Take this time to get a strong understanding of your hotel’s data. In times of recovery, the future is so uncertain, that you need tools in place to ensure you are monitoring for anomalies in the data. There will be fewer high demand days to maximize on, and as that’s the case, you need to be able to identify those high demand days early on in the yield curve.

Understand your market position - Take this time to understand your position in the market. Do an exhaustive analysis of your comp set and make sure you pull in STRs (Short Term Rentals) because they are playing a much larger role today than you think (and they will play a much larger role post-COVID). Once you understand your position within your comp set, you can understand where your rate should be in the absence of demand (i.e., if you are indeed the property with the highest value proposition, then yes you should be the highest rate in the market regardless of demand in most cases). 

Understand the power of holding rates - Be more aware than you have ever been before of the power you wield when changing rates. If you drop your rates, you will devalue your product (and your market’s), this will lead your corporate business to push harder on negotiating down on LNRs; and this will in turn lead to your groups also demanding lower rates. These two are extremely difficult to push back up as the economy recovers and will exacerbate your time to recover revPAR. 

Remember, more than anything else, you need to make confident decisions backed by data. Your gut will not help you, now. Being overly informed will help you when your leadership starts backseat driving in the recovery.

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