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Hotel owners and operators have shifted from top-line data collection and analysis to making more decisions around driving bottom-line margins. Understanding labor and amenity costs, analyzing non-room revenue trends, and centralizing data from all revenue sources is arming hospitality leadership with the right data to make more profitable decisions.
Complex Director of Revenue,
Islamorada Resort Collection
Executive Chef,
Sea Island Resort
Principal,
Hotel Mogel Consulting Ltd.
Director of Financial Performance, STR
Senior Director of Financial Performance, STR
International Society of Hospitality Consultants
Product Lead, MDO
Hall of Famer, MDO
VP of Implementation & Support, Stayntouch
VP of Travel & Hospitality, Revenue Analytics
Success in hospitality is often boiled down to meeting two main objectives: driving guest satisfaction and improving revenue. There are myriad ways hoteliers can focus on achieving one or the other, usually by building new operational strategies or implementing new tools and resources. A true win is when hoteliers find a way to boost both guest satisfaction and revenue by adopting a single solution.
But as hospitality continues to evolve at a breakneck pace, technological advancements are pushing the industry faster than ever before and travelers have exited the pandemic with new and evolving desires. Small tweaks to improve customer satisfaction and boost top-line revenue are no longer enough.
Today, the best hotel owners and operators are consistently laser focused on running profitable businesses. “Really everyone in the industry is moving toward profitability as a new measurement,” says Joseph Rael, senior director of financial performance at STR, one of the industry’s leading providers of market data on the hotel industry worldwide. Rael was instrumental in the launch of STR’s Monthly P&L Report in March 2020, which just so happened to be a pivotal time for hoteliers to gain more insight into the true health of their businesses.
In recent years, hoteliers have made significant progress toward a more holistic view of their properties, focusing more attention on ancillary sources in their revenue management purview. At the same time, many have moved past the traditional top-line revenue management and introduced new ways to measure and budget against bottom-line margins.
The next step is combining those two efforts – broadening operational strategies to include management focus on all the revenue-generating avenues in a hotel, and measuring the flow through of each of those outlets to determine optimal profitability. A new term for this holistic approach to hotel ownership and management has emerged, called Total Profit Optimization.
Total Profit Optimization refers to the process of maximizing the overall profit of a business. In practice hotel operators consider various factors such as costs, revenues, pricing, staff efficiency, resource allocation, and market demand. The goal is to find the optimal balance between these factors to achieve the highest profit margin.
Key steps involved in hotel total profit optimization are:
Total profit optimization in hotels requires a comprehensive and holistic approach, considering all aspects of the business. In the following chapters, we’ll outline ways leading hoteliers are continuously monitoring key performance indicators, adapting to market changes, and implementing effective strategies to achieve maximum profitability while delivering exceptional guest experiences.
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Read MoreApril 25, 2023Moving deeper into 2023, many predict a softening in pent-up demand and tough year-over-year comparables. As Omicron fears dissipated, many rebooked their travel for throughout 2022, and that “revenge travel” boost in demand may not reappear in 2023.
Pent-up leisure demand remains, particularly in the luxury and extended-stay segments. But moving deeper into 2023, many predict a softening in pent-up demand and tough year-over-year comparables. As Omicron fears dissipated, many rebooked their travel for throughout 2022, and that “revenge travel” boost in demand may not reappear in 2023. Fortunately, new supply entering the market will continue to be muted in 2023, and demand increases are expected to spill over into some submarkets that have been slower to recover.
The bottom line is that we’re in a dynamic environment – heightened by ongoing concerns over inflation and a looming recession – meaning long-term forecasts are liable to shift. It’s crucial to focus on month-to-month data trends rather than year-over-year, and analyze the data at least weekly to update your forecast with a true understanding of your specific market and your hotel’s unique business mix.
For example, at Outrigger Hospitality Group, the business analytics team stays on top of daily movement in data down to an extremely granular level. “We’re doing five year projections,” says James Wilson, Director Business Intelligence and Analytics Services. “There’s always continual planning and making sure that we’re on par for what our business is looking to achieve over the next couple of years.”
In the following chapters, we’ll tackle five suggestions to building the most accurate demand and financial forecasts in 2023.
With more data available today than ever before, executives must collate and weigh the right datasets that will impact business while avoiding “analysis paralysis.”
For example, the volatile travel landscape over the past couple years has led to a shift in the way travelers book their lodging today, and these new booking patterns should have a direct impact on your 2023 forecast.
First, booking windows – or the amount of time between the booking and the stay date – are lengthening in most markets. At Remington Hotels, manager of 121 hotels across 26 brands, Chief Commercial Officer Raul Moronta says that as the pandemic has waned and regulations have been lifted, fewer bookings are coming inside of three days. “Throughout 2022, we have seen the zero-to-three-day booking window segment shrink significantly every single month,” he says.
Some of that lengthening booking window can be attributed to the second dynamic factor, which is that group business has returned to near 2019 levels in many markets. Moronta says the booking window segment growing the fastest for Remington is outside of 30 days, which is a signal that business travel and group business are returning.
“Throughout 2022, we have seen the zero-to-three-day booking window segment shrink significantly every single month,” he says.
Some of that lengthening booking window can be attributed to the second dynamic factor, which is that group business has returned to near 2019 levels in many markets. Moronta says the booking window segment growing the fastest for Remington is outside of 30 days, which is a signal that business travel and group business are returning.
The key to understanding how these trends will affect your specific hotel forecasts in 2023 is to be able to apply them to the situations at your unique hotels and their unique markets. For example, to predict which way booking windows will trend at your properties, it’s important to factor in your business mix, such as whether you anticipate more groups in 2023. Also, like Moronta at Remington, it’s important to bucket different segments of the booking window – look at the 0-3 day window, the 3-15 day window, the 15-30 day window, and the beyond-30 window, as an example.
Coupled with the fact that cancellation rates continue to fall, this trend should help hoteliers be even more confident in holding rate and not discounting as day-of-arrival approaches, says Nicole Tomasso, Director of Revenue Strategy at Dragonfly Strategists. “People are booking and staying – that pattern has changed dramatically and should impact your forecast,” she says.
In addition, average Length of Stay (LOS) continues to grow. In New York, Tomasso says average LOS has jumped as much as from 1.5 nights in 2019 to 4 nights in Q4 2022.
With these emerging booking patterns in mind, it’s time to share those baseline forecasts across the organization.
Centralizing data from each of your properties to help make smarter business decisions at the corporate level has become a priority for all owners and operators across the globe. As your forecast changes on weekly and even daily basis, you’ll want to provide leadership with easily accessible and digestible reports in real time.
“At a property level, the ability to look really granularly quickly is helpful. At an enterprise level, the ability to quickly look at macro level trends by aggregating all that data quickly is probably the most beneficial,” says Cecil Hopper, Associate VP of Revenue Optimization and Feasibility for Hyatt’s resorts portfolio.
“A lot of my senior executives want to make sure we’re trending well in comparison to years past, that we’re going to achieve our forecasted and budgeted goals,” says James Wilson, director of Business Intelligence for Outrigger Resorts and KSL Resorts. “Versus my property teams, they want to go down to the geo level, the zip-code level, the room-type level. Having a tool to assist with leveraging that data is very beneficial.”
In addition to the high-level forecasts, many commercial leaders will want to dive deeper into the data, create custom reports to share, and look to uncover anomalies in the data that might spur a change in strategy.
In general, hoteliers are looking at 2023 with confidence but also wariness. One thing is certain: leaders must include comprehensive data points to create well-informed budgeting decisions, and then monitor the data on a daily and weekly basis to adjust their forecast in real time.
Since the beginning of time up until about three years ago, the most important information you needed to know about your guests to run a more effective hotel is whether they were booking for leisure or business travel. Now, the waters have muddied for several reasons, and one could argue that this step in segmentation is no longer applicable.
First, as we all know, the work-from-anywhere culture has untethered many from their desks, enticing businesspeople to tack on a few extra days to their business trip for a mini vacation. For example, Nicole Tomasso, Director of Revenue Strategy at Dragonfly Strategists, cited a major bank planning their annual corporate outing and requesting additional rooms and roomnights for family members (at the corporate rate).
This is only one situation that would skew your business vs. leisure data. Many commercial leaders report incomplete booking data often provides segmentation challenges. Until recently, hotels were able to analyze the segments by booking source – business travelers would book using a corporate account or through a travel booking service, and leisure guests would book direct or through an OTA. But amid COVID, OTAs became a larger source of business for both, and now many business travelers will use Expedia, for example, to find lower rates than the corporate account.
“One of the reasons I believe this to be the case is that companies haven’t been very strict on the travel procurement process,” says Raul Moronta, Chief Commercial Officer at Remington Hotels. “Before, companies would tell their employees they could only book this rate through this channel. Post pandemic, travel teams have changed and oftentimes they need to save money and permit employees to search for the lowest rate.”
In addition, most hotels now have implemented some type of dynamic pricing for their corporate accounts.
Despite the increasingly muddy data, it’s still critical to understand your potential guests’ purpose of travel. For a clearer picture, Moronta suggests moving away from rate and booking source and instead looking at day of week.
“We have seen the shoulder dates come back a lot stronger. Saturday is the day of the week that has come back the fastest. Monday, which we believe happens to be the office day, is slower to return,” Moronta says. “We do believe that is a factor of this new bleisure type of demand.”
For heavy group hotels, which have been slower to recover, accurately forecasting your group business will require re-examining the type of groups you expect in 2023. Large convention center hotels will continue to struggle, but hotels that can accommodate bringing the remote and hybrid workers together with flexible meeting space and an enjoyable working environment should capitalize.
We are seeing small and medium groups returning faster for two main reasons: People who need to travel for business–their job depends on selling and visiting clients; and mandated travel–companies that have gone fully remote and therefore require an in-person meeting every quarter.
Finally, Moronta notes that Remington has observed a noticeable shift in traveler behavior from purchasing product to purchasing experiences: “Travelers want to have unique experiences, and we believe that is here to stay.”
This means the quicker rebound seen in secondary and tertiary markets might be lasting. “There are a lot of unique areas that were not travel destinations before – not the central business districts – that continue to attract and outperform,” Moronta says.
The hospitality industry’s topline revenue trends for 2023 are pretty straightforward. Steadily rising demand should continue to drive pricing power. Remarkably, ADR end 2022 up 20% or higher in most markets as compared to 2019.
But unprecedented inflation and the overall rising cost of expenses – specifically labor, food, and amenities, among other things – continue to apply pressure to the bottom line and threaten to impact profitability in 2023.
U.S. hotel profitability continues to improve month over month, according to STR, but in September 2022 the cost of labor per available room came in higher than the pre-pandemic comparable for the first time. “Total labor costs were up 5% year to date, with all departments reporting higher expenses, except F&B, due to less group demand earlier this year,” said Raquel Ortiz, STR’s director of financial performance.
In the revenue department, Nicole Tomasso, Director of Revenue Strategy at Dragonfly Strategists, says too many leaders remain focused on topline performance. “There’s still a gap in the revenue discipline today. Many leaders are so focused on the top line and are way behind on their P&L analysis,” she says.
At Remington Hotels, Chief Commercial Officer Raul Moronto admits it was the dramatic spike in inflation that finally forced Remington to start making more strategy and business decisions based on bottom-line performance. “Necessity is the mother of innovation. Housekeeping and F&B expenses are up over 30% and that pressure can become crippling to the organization,” he says. “We’re doing a lot more benchmarking in bottom-line terms, factoring in average cost of goods and average wages.”
In some cases, the cost of labor and goods limited the ability to sell rooms, Moronta says. It made more sense to drive rate and sacrifice occupancy, which meant fewer staff and reduced amenity use. “You have heavy compression on demand and heavy compression on the cost of goods as well,” he says. “Now instead of just analyzing rate, we have to help somewhat control the costs.”
At Honolulu-based Outrigger Hospitality Group – a management company that operates luxury hotels and resorts in Hawaii, the Asia-Pacific region, and the islands of the Indian Ocean – leadership is shifting to a Total Revenue Management strategy where it makes sense.
“Because rising inflation has really impacted the costs of labor, goods and airfare, we analyze how to drive rate to offset those costs,” says Jenna Villalobos, Senior VP of Commercial Strategy at Outrigger. “We don’t limit occupancy, but we are focused on bringing in more quality business.”
That analysis includes noon-room revenue when applicable. At the properties in Hawaii, they’re ingesting and analyzing on-property Point-of-Sale spend, while in the APAC properties, where spa and F&B is managed in house, they’re able to build metrics like Total Revenue Per Occupied Room.
Another way revenue leaders are driving bottom-line performance is by driving more business direct, therefore skirting third-party commissions and some customer acquisition costs. Another is by managing and analyzing total revenue rather than just rooms revenue, including ancillary spend on F&B, parking, spa, etc.
But, for many hotels, accessing this important bottom-line data remains a challenge. And, without the proper resources, working countless hours to compile that data often doesn’t meet payoff requirements.
“If only 10% of my total revenue is from ancillary spend, without an automated tool providing me that insight, I can get a higher yield focused on other areas,” says Mike Medsker, Product Head at MDO.
For hoteliers with the right data at their fingertips, Medsker suggests a deep dive into assigning commissions to the various distribution channels, which will help you better analyze your current costs of acquisition.
Lastly, an increasingly important data set to consider is guest satisfaction, particularly longterm guest value. As hotels continue to drive rate and rely on fewer staff members to serve guests at the property level, naturally satisfaction scores are falling.
A July 2022 J.D. Power Hotel Guest Satisfaction study noted the surge in demand and steadily climbing prices have not been met with a corresponding improvement in amenities or services, and as a result, overall hotel guest satisfaction declined 8 points (on a 1,000-point scale) from 2021. “The single biggest factor driving this year’s 8-point decline in overall satisfaction is hotel cost and fees,” the survey noted.
With rates at peak level and without a resurgence in hiring at the property level, hotels risk leaving a bad impression on first-time customers or even displacing lifelong customers.
At Sea Island Resort on the coast in Georgia, leadership capped occupancy for a significant part of 2022, worried the thinned out team wouldn’t be able to accommodate high demand and deliver the service guests have come to expect. “Being five-star properties, we have a certain level of service that our guests expect and we expect to deliver,” says Billy Copelan, Director of Revenue Management.
Shifting your forecasting analysis to metrics that provide more insight on the bottom line is an important transition for hospitality leaders in 2023.
Amidst the pandemic, forecasts based on historical data became largely irrelevant, and hoteliers were left scrambling for new, more accurate insights into future travel demand. Meanwhile, forward-looking data became more accessible, and hoteliers have begun placing more importance on their own internal on-the-books data, overlaid with new third-party datasets that provide forward-looking market data, competitor benchmarking data, and web-shopping analytics.
“Many operators are looking at data from STR from a month ago and are still not looking ahead,” says Nicole Tomasso, Director of Revenue Strategy at Dragonfly Strategists. Moving forward, historical benchmarking should normalize, and now forward-looking indicators are there to overlay and provide additional insight.
“We can no longer rely on 2019 data as much,” says Cormac Daly, Revenue Manager and Rooms Controller at the Lotte New York Palace in Midtown Manhattan. “We’ve got to look at what’s happening now. It’s really important to immediately identify where we see trends, where we see pick up, and how the booking windows change.”
At Remington Hotels, recency is king. Leaders benchmark against 2019, but are much more focused on analyzing month over month trends. “For example, we look at September recovery compared to 2019 and then how that compares to October, November, etc,” says Chief Commercial Officer Raul Moronta. “Year over year is not as important – metrics from the last three months are probably what we look at the most.”
Leadership will expect continued growth, but providing results based on year-over-year comparisons will be challenging.
As an example, when forecasting demand for Q1 2023, comparing to Q1 2022 will provide little guidance as the U.S. was dealing with the effects of a strong Omicron wave. The same benchmarking challenges can be anticipated in Summer 2023: Graduations provide a large boost to many hotels; many graduations from the COVID-era were rebooked for 2022, and 2023 will see some year-over-year softening as a result, Tomasso suggested.
Recently, forward-looking datasets have become more readily available, aimed at providing a clearer picture of unconstrained demand and helping understand traveler decisions earlier in their booking journey. Hotel and flight search data, for example, helps anticipate future market behavior and provide a good understanding of booking intent.
“It’s not that our industry had a revelation, it’s just that is the data that’s available and most reliable today,” Tomasso says. “Looking backwards, it’s just not there anymore.”
She suggests tools that allow you to monitor forward-looking intent data by length of stay, country of origin, search terms, etc. Additionally, some hoteliers have implemented tools to measure search activity on their own direct websites – measuring what is commonly called “regrets” and “denials” – to get a better sense of unconstrained demand.
Once you start collecting and visualizing these datasets, you can begin the process of determining which of them actually correlate best to actual booking numbers, and how much impact they should actually have on your demand forecast.
Mike Medsker, myRevenue Product Head at MDO, suggests it’s important to blend both historical and forward-looking datasets.
When you think of forward-looking data as only the competitor benchmarking tools, you’re missing your own internal dynamics... It’s great to see the market is up 5%, but you need to understand the trends behind the numbers and how they’re going to impact your business internally.
At Miraval by Hyatt, a portfolio of wellness destinations and spas, an increasingly important metric is RevPOG, or Revenue per Occupied Guest, which analyzes the total revenue from all outlets versus the number of guests that are serviced in the hotel. “PMS reports very often don’t report on guests, or they don’t report it correctly,” says Cecil Hopper, director of revenue optimization for Miraval Resorts by Hyatt. “They might have aggregated outlet data, but nothing at a granular level.”
Now that you’ve identified the right demand, booking pattern, and consumer behavior data to shape your 2023 forecast, and applied the right cost analysis to provide a relatively accurate financial forecast for the year ahead, it’s time to share those baseline forecasts across the organization.
Centralizing data from each of your properties to help make smarter business decisions at the corporate level has become a priority for all owners and operators across the globe. As your forecast changes on weekly and even daily basis, you’ll want to provide leadership with easily accessible and digestible reports in real time.
“At a property level, the ability to look really granularly quickly is helpful. At an enterprise level, the ability to quickly look at macro level trends by aggregating all that data quickly is probably the most beneficial,” says Cecil Hopper, director of revenue optimization for Miraval Resorts by Hyatt.
James Wilson, Director Business Intelligence and Analytics Services at Outrigger Hospitality Group, deploys a similar strategy.
“A lot of my senior executives want to make sure we’re trending well in comparison to years past, that we’re going to achieve our forecasted and budgeted goals,” he says. “Versus my property teams, they want to go down to the geo level, the zip-code level, the room-type level. Having a tool to assist with leveraging that data is very beneficial.”
At Sea Island, Director of Revenue Management Billy Copelan takes pride in the fact that he’s built his own custom reports and scheduled them to send each morning to a leadership group. “I love building my own reports,” he says. “Everybody’s looking at them on a daily basis to really keep the pulse on what’s happening at our property, particularly what bookings are coming in, what our business is looking like for the future, how we’re pacing against previous years, things like that.”
Datavision by MDO connects the multiple systems required to run a property into a single platform, giving your entire organization a 360-degree view of your business. It allows for the easy creation of customized, visually appealing reports and dashboards that contain powerful insights into how to elevate your operations and customer service.
Datavision Analytics enables you to analyze revenue distribution for all key areas – rooms, food and beverage, spa, golf, group business, and more.
Datavision Forecasting enables you to create budgets and forecasts for daily updates on your property’s performance against plan, and connects to your back office systems.
Datavision Multi-Property seamlessly collects data from multiple properties, standardizes it based on corporate standards, and runs consolidated reports for a single view of your organization.
Datavision CRM helps you to identify key guests based on spend and stay patterns, so that your marketing and promotions can be tailored to drive more bookings and more revenue.
Datavision Financial Reporting allows you to generate daily revenue reports without any manual labor and distribute them automatically to users across the company.
