The UK hotel market has been on a roller coaster ride in recent years. First, there was the 2008 recession, then the 2010 European debt crisis, before London saw a raft of new hotel openings for the pre/post Olympics period (as well as enjoying a successful Games). More recently, business has become more volatile due to terror attacks and political uncertainly as Brexit negotiations get underway.
Yet the market remains resilient. According to VisitBritain, tourism receipts for 2016 achieved £22.5 billion, up 2.1% on the previous year. Hotel revenue figures have also proved positive, with properties enjoying a 5.4% increase on GOPPAR by June 2017, according to HotStats.
The challenges exist, but the market has adapted, with revenue now seen as a core strategy.
“All of that has turned revenue management into a more pivotal role in hotels,” says Juan Ruano, a Customer Success Manager with the London office for Duetto.
Juan has been working in the UK hotel market since 2005. Now, he is putting his extensive on-property experience to great use helping UK hoteliers maximise on profits. Here, he talks about the opportunities and challenges currently facing UK hoteliers.
2017 has been a year of challenges for the UK, with a snap election, terror attacks and the start of negotiations on Brexit. How as the market reacted to these challenges?
The UK market has proved really resilient, especially to the terror attacks. What has been interesting is the contrast with the experience in Paris and Brussels, which suffered a decline in visitors.
The devaluation of the pound after the Brexit vote has had a very positive effect on the number of visitors arriving to the UK. It has never been cheaper to come to London. Additionally, the weaker pound has made foreign holidays more expensive for the British people, leading to an increase in staycations and domestic travel. We are experiencing growth in ADR and revenue in the provinces, as a result.
The uncertainty caused by the outcome of the general election and the lack of clarity regarding Brexit negotiations is causing concerns for hotels making business plans for the future.
However, the uncertainty created by Brexit is in essence no different to the uncertainties and risks we have managed in the last decade.
At present, the picture remains on balance positive.
How have disruptors such as Airbnb affected the market? What changes do you see coming as hotels change tack to compete with the sharing economy?
The sharing economy is here to stay. The growth of Airbnb reflects the growth of technological and social developments. It is too early to say what the long-term effect of the sharing economy will be on the more established hospitality industry, but the more pessimistic predictions are not coming true as hotels continue to see growth.
Those travellers using services like Airbnb would also appear to use hotels. What should be taken into account is that the services hotels provide are different to Airbnb and vice versa. Therefore, Airbnb is not a perfect replacement for the hotel experience.
In my opinion, everyone will find their place in the market.
How has the UK market, and its approach to revenue management, changed in recent years?
A lot has changed, including the growing OTA presence and their weight in the channel mix for hotels. They have gone from nothing to being a very important channel of distribution for hotels. Conversely, we’ve seen a decrease in other distribution channels, such as traditional tour operators.
There is also now more focus and effort to understand customer behaviour to gain a competitive advantage in the marketplace. The bigger operators, who historically had the budgets to do this, have led this, but it is increasingly common practice with all hotel companies now. Segmentation is now done from a more revenue management point of view rather than sales point of view, with the focus moving from channels to actual customer booking behaviour.
More investment in hotel technology — revenue management systems, CRM and distribution systems, and connectivity amongst them — has grown over the last three to four years.
What are the biggest distribution challenges facing hotels in the UK at present?
Managing OTA channels more profitably and controlling commission bills.
Hotel websites, booking engines and the online customer experience need to be improved constantly, and that obviously requires investment. However, hoteliers need always keep in mind the return on investment coming from these channels.
Loyalty and personalised pricing is now being adopted by smaller hotels, which have historically been more passive about this, as they don’t have the same customer base. As technology improves, more hotels will adopt personalised pricing.
The UK has a large brand presence when it comes to hotel names. What are the challenges and opportunities faced by independent hotels operating in the UK?
One of the main developments in hotels and travel generally has been considerable growth in the number of customers looking for a more bespoke and unique experience, and this is where independents have a different story to tell. And customers are listening.
We can see this in other retail industries — craft beer versus large corporate breweries, for example. The customers want tailor-made experiences, rather than a mainstream approach. Independents do have a great advantage here.
In terms of distribution, OTAs are a levelling influence; it has allowed the independents to have greater levels of visibility in the market.
How does the regional market differ from London? And again, how does this impact Revenue Strategy?
All parts of the country are affected by the general national economic conditions. However, the different regions have their own unique markets: sports events and concerts in Manchester, holidays in coastal areas and Scotland, conferences in Birmingham, and in particular local industries will shape the local demand for hospitality. A good example is the oil industry in Aberdeen.
The opening of new hotels in an area tends to worry existing hotels in smaller markets. But that can be a misplaced concern since new hotels actually frequently enhance the attractiveness of towns and cities.
With Duetto, we are able to monitor web site traffic and lost business. Having such a tool is key to being able see whether web traffic is decreasing as a consequence of new local openings or to the contrary increasing because of the additional attention the destination is getting due to the new openings.
How can hotels in the UK benefit from an Open Pricing strategy? What is your advice to properties looking to adopt this strategy in the future?
My advice is to do it! You will never look back! The tools and technology available have historically defined the way revenue management has been implemented in hotels. However, Open Pricing is a fully flexible pricing structure that allows you to measure pricing elasticity in the market and take every revenue opportunity.
Open Pricing offers hotels the ability to price segments and channels independently of each other; this allows hotels to be very tactical with pricing. Additionally, Open Pricing allows hotel to drive and control demand through pricing and it reduces the need to apply manual restrictions.
It’s a very easy tool to use and a great time saver by reducing the time revenue teams spend on rate loading and opening and closing promotions and channels.
Finally, how do you see Revenue Strategy in the UK developing in the next five years?
Access to market data and using that access to take better revenue decisions will be the key to the future.