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How to be strategic when history is no longer relevant

by Augustin Cacot |

The U.K. and European market is one in constant flux. We’ve seen security threats in key locations such as Paris and Brussels, the drop in value of the pound, the forging of a new relationship between the U.K. and Europe, and an upturn in demand for Spanish beach resorts as tourists re-route from North Africa. Who could have predicted such upheaval in the market?

How can you navigate your hotel through such unpredictable challenges? How do you forecast future demand when business patterns are anything but uniform? How can you identify and capitalise on opportunity? How can you be strategic when history isn’t as relevant anymore?

I don’t have all the answers and I certainly can’t predict the future with 100% accuracy. However, if I can anticipate changes in demand when they materialise, and ideally before the competition, then I’ll take that.

Use forward-looking data

In times of uncertainty, you have to look at other data sets. In order to be leveraged, these should be live, forward-looking and actionable. By which, I mean they should enhance the measurement of demand.

Many hotels forecasting for two seemingly comparable days with the same occupancies on the books would price those days similarly. Yet, if you add live conversion data to this (regrets and denials), you will quickly realize that the two days that look identical often have vastly different conversion patterns, and should be priced differently. This is especially useful when optimizing unconstrained dates and/or long lead times, where going for the optimal pickup curve very much depends on your ability to measure elasticity.

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Anyone can do a pivot table on the countries that buy, but if you don’t have the regrets and denials then you don’t have the ability to target the countries that didn’t convert, meaning you lose out on rate, occupancy or both. Use your regrets and denials data and adjust your prices when needed to target the countries that have been looking to book but did not get to the conversion. Suddenly, you have a bigger chunk of the pie. And for London hotels following recent currency trends, that is a pie that just became a whole lot richer.

Also look at airport data. People book their flights before they book their hotel room, so this is another indication of what inbound demand is around the corner.

Market sentiment

Hotel revenue managers in the key European markets of London, Brussels, Paris and Spain may well feel like they are in unchartered waters. Each market has behaved out of character in recent times.

London

The EU referendum, the consequential drop in value of the pound, and the uncertainty that now follows as the U.K. prepares to “Brexit” – all events that were impossible to predict. There have been winners and losers already, and it seems London’s hotels are riding the wave at present.

The World Travel & Tourism Council’s Economic Impact Report 2017 forecast that visitor exports to the U.K. would grow by 6.2%. The WTTC says this is the impact of the U.K. becoming less costly for overseas visitors.

If I was a hotel revenue manager in London today I would focus on my market mix and how I can attract more people from the countries that have an increased buying power.

Talking to the revenue director of a five-star property in London, they confirmed that the drop in pound has resulted in an increase in business from overseas markets, particularly for leisure segments, with weekends and holiday periods busier than before June 2016.

According to our partner, their property has seen a huge surge in demand from travellers from Asia and South America, while European business has also grown.

Four-star properties are also feeling the benefit of more favourable exchange rates, with another revenue director confirming that the weaker pound has definitely helped to bring more traffic to London, with their hotel definitely seeing much higher demand than before. Occupancies and rate are both up considerably, they confirmed.

Brussels & Paris

Hoteliers in Brussels and Paris have had an uphill struggle in recent times. Terror attacks in both cities have impacted the hotels market, as tourists look to other destinations.

How should revenue managers react? Put on your short-term hat and drive with limited visibility as fast as you can. What do I mean by that? Well, 2016 data from STR showed that, on average, European hotel markets stabilize three months after a terror attack. The crash impact is short lived.

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STR also reported that terror attacks had a greater impact on occupancy levels than on ADR. In general, visitors will avoid a market regardless of price, so think twice before taking a knee-jerk reaction and dropping rate. Focus on your domestic market and look at your regrets and denials to build out a picture of who has been looking at your property – these are the inbound market segments to target as you pull out of the slump.

According to data released by STR during IHIF, Brussels saw an 18.5% drop in RevPAR for 2016, but November marked a turning point, as the city broke an eight-month run of negative RevPAR performance.

Paris reported a 13.7% decline in RevPAR in 2016. This was the result of a 9.5% drop in occupancy. However, by December the city saw RevPAR growth – its first in 16 months. That positive performance continued into the New Year.

Spain

Spain is enjoying great fortune at the moment, as it profits from the declines being seen in the North African markets, following the Tunisia beach attack in June 2015. STR data has revealed that RevPAR is up in Madrid (6.7%) and Barcelona (9.7%).

However, while Spanish cities and coastal resorts are reaping the rewards in 2016, these good times could be about to come to an end.

Hotel revenue managers must not get complacent. Now is the time to be looking at 2018 and beyond, with market diversification key to success. But why?

WTTC’s Economic Impact Report 2017 pointed to a decrease in domestic and outbound tourism spend from the U.K. Outbound spend is expected to drop by 4.2% in 2017, as Britons continue to seen an impact on their spending power abroad, due to the weaker pound. This will impact markets such as Spain, which relies heavily on U.K. tourists.

Hotels in destinations such as the Canary Islands, where properties can see up to 80% of their business coming from the U.K., could be affected by a sea change in 2018.

These hotels are typically very reliant on wholesale bookings, negotiated usually a year in advance. However, the buying power of U.K. wholesalers will be different this year, because a room that was £100 ($128) is now £125 ($160).

Wholesale business has a long lead-time, meaning you can anticipate changes and do something about it before the impact hits.

Increase your allocation to Continental Europe, and send sales people with the right lead-time to these markets to generate demand when you need it. Try to reduce your dependency on the U.K. by securing rooms from other markets before negotiating with U.K. contractors.

Talking to a head of revenue at a collection of Spanish properties, they confirmed seeing increased last-minute demand from British and German tourists, triggering rates increases in the Spanish market. According to our partner, incremental revenue from the U.K. feeder market was up 27%.

However, they confirmed that the group was exploring new markets to spread the risk for 2018 and beyond.

Get Strategic

Each of these four key markets has seen tumultuous times. As such, historical data alone is not going to help revenue managers in these destinations forecast for the weeks, months or year ahead.

Revenue managers need to keep broadening their field so they can successfully take the right calculated risks. This is only the beginning of a huge increase in our ability to measure demand in new ways. For the first time, technology allows real-time, forward-looking, customer level demand measurement, versus a backward-looking approximation stuck on unidimensional segmentation.

Hotels have to understand that one potential customer may sit in many segments. They may be transient, booking through an OTA, a last-minute booker, and a high F&B spender. Hotels should be able to act commercially on all those things in the same platform. Hotel demand, like any other B2C demand, is still very much a sum of consumer wants and needs.

Using forward-looking data, you can react to those who are not booking, assess a drop in demand in advance and decide what you are going to do about it in a much more informed way.

It’s about being adaptable, not historical.

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Augustin Cacot

Augustin Cacot

Director of Customer Success EMEA at Duetto
Augustin leads customer success out of the London office and is passionate about proving the power of pricing with technology. Prior to Duetto, he was Cluster Director of Revenue for Concorde Hotels and Resorts (Starwood Capital) in Paris. He also held revenue management positions with Principal Hayley Hotels and The Set Hotels.
Augustin Cacot

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Augustin Cacot

Augustin leads customer success out of the London office and is passionate about proving the power of pricing with technology. Prior to Duetto, he was Cluster Director of Revenue for Concorde Hotels and Resorts (Starwood Capital) in Paris. He also held revenue management positions with Principal Hayley Hotels and The Set Hotels.