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It’s Time for Change if Hotels are to Drive Profitability

by Michael McCartan, Managing Director, EMEA |

Last month I had the pleasure of sitting on a panel discussion on profit management in the hotels industry at the International Hotel Investment Forum (IHIF) in Berlin. Along with my peers in the hotel industry, Jonathan Langston of HotStats and moderator Jonathan Humphries from École hôtelière de Lausanne (EHL), we discussed issues of hotel profitability.

The upshot of the discussion, which included varying opinions from all the panellists, was that the hotel industry needs to change if it is to survive.

Langston from HotStats presented some fairly compelling data on why now is the time for change. According to data from HotStats, since 2000 improvements in gross operating profit per available room (GOPPAR) in hotels in the UK have fallen behind gains in TrevPAR (total revenue per available room).

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Jonathan shared data that showed that GOPPAR reached a high of 42.5% in 2000 for regional UK hotels, but had dropped to a low of just 25% by 2013. In comparison, TrevPAR during that period had steadily increased from approximately 35% up to 40%.

Hotels are making more money, but they are also incurring more costs, primarily in the form of increased wages and increased marketing costs, especially in terms of commission rates to online travel agencies (OTAs).

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Writing for EHL, Humphries states that: “Given the challenges we face today, we have two choices: 1) do nothing; or 2) do something different. If we do nothing, we will be unable to reverse the trends; however, if we do something different, we have a chance to be more profitable, survive as an industry and of success.”

Doing nothing is not an option. Hotels need to stay relevant. We need to change if we are to drive better operating margins.

Change is often scary, but it is necessary, especially in today’s fast-paced world. What’s more, small changes can lead to big gains. See my pre-IHIF blog post on how successful revenue management boosts hotel profitability to understand how small percentage changes can have a big impact on revenue gains.

Four Changes Hotels Can Make to Drive Profit

  1. Use GOPPAR. RevPAR as a measure of performance is flawed, as it masks the true efficiency of the hotel. Benchmarking using GOPPAR is a much more appropriate measure.
  2. Segmentation: Drive incremental revenue increases through better segmentation. A better understanding of market demand and the ability to price more flexibly using Open Pricing can improve the bottom line.
  3. Operational benchmarking, particularly for hotels within the same brand, can highlight best practice in particular areas that can then be adopted by the other hotels. 
  4. Separate revenue and ops. A separation of revenue generation functions and operational functions is required. I like to use the example of an airline to highlight this point: an airline pilot is expected to fly the plane safely. He is not concerned about the marketing, sales conversion, ticket prices, etc.

Now is definitely a time for change, but the change doesn’t have to be big. Making small changes to the way you operate, and the way you manage your hotel Revenue Strategy, can and will have big benefits to your bottom line.

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Michael McCartan, Managing Director, EMEA

Michael McCartan, Managing Director, EMEA

Managing Director, EMEA at Duetto
Michael joined Duetto as Managing Director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the Revenue Strategy technology company throughout the region. Before joining Duetto, he served as CEO of eRevMax. Michael has an engineering degree from the University of Cape Town and a business degree from the Open University.
Michael McCartan, Managing Director, EMEA

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Michael McCartan, Managing Director, EMEA

Michael joined Duetto as Managing Director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the Revenue Strategy technology company throughout the region. Before joining Duetto, he served as CEO of eRevMax. Michael has an engineering degree from the University of Cape Town and a business degree from the Open University.