During the last global financial crisis, the hotel industry cut rates aggressively. Attendees at this year’s Revenue Strategy Forum wondered, when the next recession comes, can hotels be braver this time around?
The one-day conference, which took place 7 November in London, repeatedly dealt with whether hotels learnt enough from the last financial crisis and whether they could implement those lessons the next time global markets drop. Can hotels hold firm and sacrifice occupancy at the cost of selling rooms at their true value?
Jill Barthel, senior associate – consulting & valuation at HVS, led a panel discussion on the subject, highlighting the new and very real challenges facing the hotel industry in Europe. From the terrorist attacks in Paris, Brussels and Istanbul, to the United Kingdom’s shocking vote to leave the European Union, the European hotel market is one in flux.
The latest figures show that hotel revenue managers need to be wary of what lies ahead. Preliminary statistics from STR on the state of the London hotel market for October 2016 show the city recording its weakest October business since 2008.
Year-on-year, hotels in the United Kingdom’s capital saw occupancies drop 4% to 85%, while ADR fell 7.7% to £149.72. RevPAR was also down, dropping 11.4% to £127.23.
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Meanwhile, the latest analysis from the HVS Hotel Bulletin provided a wider snapshot of the U.K. market, and while it was not all doom and gloom, HVS did point to a growing divide between the leisure and corporate markets, with business travel somewhat subdued following the Brexit vote in June.
Leading a panel discussion, “Break the Cycle and Win the Next Downturn,” Barthel brought forward a candid debate on the subject of how to manage hotel revenue in a downturn.
Panellist Annemarie Gubanski, founder and CEO of Taktikon, said: “When you have the good times, you know the bad times are coming. Whenever the economic situation declines, hotels want to reduce prices. Low demand equals lower prices. I hope it will be different next time. If we start to use [net RevPAR] to focus our KPIs, it might help us to think twice on which price point to go for.”
David Taylor, CCO of glh Hotels, agreed that hotels should always be preparing for a turn in their fortunes.
“A downturn helps prepare you for the next downturn,” he said. “In good times you should always be thinking, ‘It won’t always be this good.’ Things happen to keep us on our toes. Uncertainty is always there. You have to learn from previous downturns.”
However, while London may have just recorded its worst October since 2008, at 85% occupancy, that is still a level of business most markets would be happy with.
“Demand for London is high,” said Oliver Jager, CEO of Forward Data SL. “Paris is suffering, but London is rebounding. Travellers still like Europe; they just want to avoid certain areas.”
He added: “You need to be facing any market trend. You need to be ready to embrace whatever is coming for you. You have to understand forward-looking trends. Why are people coming to London right now? The leisure market is very fickle. Brexit is a currency opportunity for inbound travellers.”
Oliver had a point. According to the HVS report, July saw the highest ever levels of inbound tourism to the United Kingdom, with 3.8 million arrivals. Staycations also soared, with 6% more Brits deciding to vacation in the United Kingdom during the August bank holiday, compared to 2015 figures.
Using Data to Tackle the Downturn
Understanding forward-looking trends will be the very crux of survival during the next economic decline. Just cutting prices won’t work. Hotels need to be strategic, and to do this they need data.
Taylor explained the importance of good data and breaking down silos so that hotel departments can work together to beat the downturn.
“You only get meaningful data when systems meet up,” he said. “If you work in silos, it is difficult to get a handle on it. Use the right data to ensure consistent revenue. The downturn is about preparing for the good times. You want to accelerate out of the downturn. Those with the right mindset will see the downturn as an opportunity.”
Another theme of the RSF panel discussion was the investment in digital marketing tactics to help bolster hotels against the impact of a potential downturn.
Online travel agencies have been very successful in the digital arena for years, and hotels have to now get competitive.
“The development of a website is seen as a cost rather than an investment. Websites and SEO are seen as expensive. However, if you do it well, it becomes an investment,” said Gubanski from Taktikon.
Think Value-Add, Rather than Price Drops
In the last downturn hotels dropped prices and undercut neighbours to fill beds. This time it will be different. Those to offer the most compelling packages will be the ones to succeed. Guests want a personal pricing proposition. If you offer them what they want, the bookings will still come.
“Look at the value you are offering your guest,” said Clinton Campbell, revenue director of the Apex City of London Hotel. “Look at supplements and length-of-stay offers. Consider short-term solutions rather than dropping rate. You need to react or lose out on occupancy. Taking direct bookings is a lot cheaper, so you need to attract the guest to your site. Offer the guest a £10 voucher if they book direct — they will spend it in the bar.
“The ‘Stop clicking around’ campaign by Hilton shows the customer that booking direct is cheaper,” he added. “We can piggyback on what they are doing even though we don’t have the same sort of budget. The message is still getting out to the consumer.”
Invest in Your Team
One final piece of advice from the RSF panel was to continue training, even in a downturn.
“Training is critical. Our general managers and owners focus on training in every downturn. You need to help your people perform,” said Taylor from glh.
He summed it up: “In the downturn occupancy may fall a little and there will be pressure on rate. Invest and set up your teams for success. Communicate with your owners. You need expertise and capability to get through a downturn. We need to hold the talent in the hotel industry — rather than send it out to other industries. We have great people and are responsible to do the right thing. That is enough to carry us through the downturn.”