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05/01/2023

Hoteliers Set Sights on New KPIs Throughout 2023

Hotels have spent the last two decades focusing on growing Revenue Per Available Room (RevPAR), but today’s hotel leaders are choosing to focus on different metrics.
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It’s never easy to measure success during times of change. The hospitality industry has spent the last three years chasing metrics that might point to a return to its past heights. Even at the beginning of this year, many operators remained fixated on catching up to their revenue potential from 2019–so fixated, in fact, that many operators failed to realize the industry has blown past these expectations and entered into a new era of profitability.

One of the reasons the industry has yet to be able to bask in its recent success is that the drivers behind their revenue recovery are markedly different from past recoveries. While many hotels have recovered from a labor and operations standpoint, others are still mired in recovery. Hotel technology is needed to assist with operations and commercial management whenever possible.

In most cases, hotels have been able to push revenue expectations thanks to higher rates, often from different market segments or revenue streams before the pandemic. As a result, hotels have found difficulty setting goals for 2023, particularly as uncertainty around customer behavior lingers, including their willingness to spend and their overall desire for travel. In response, more and more operators are continuing to set short-term goals for occupancy and revenue based on current and emerging trends.

Some of these trends could include labor cost as a percentage of sales, the value of individual workers, and the impact of turnover on a hotel’s profitability.

The expectation many of these operators carry with them is that things will continue to improve. Still, a deeper analysis of more granular guest and travel data is highly recommended rather than relying solely on summaries and a supposed “big picture.” Few operators have a “big picture” of today’s market, so relying on smaller snapshots is essential. This hinges on deeper analysis using data from various sources on property. When operators have access to the data to set impactful short-term goals, an entire hotel’s operations can be further aligned to focus on the trends that impact profitability the most.

New Goals

Hoteliers have grappled with frustration as they enter another year of “recovery” despite strong operating metrics. Case in point: according to STR, hotel occupancy for February 2023 reached 60 percent, just 2.8 percentage points off from the same period in 2019.  Meanwhile, average daily rates are up 17.7 percent, and revenue per available room is up 14.3 percent over the same period in 2019.

Despite these gains, hoteliers across the industry feel they are still struggling to move the needle and make meaningful improvements. How can hotels aim for increased revenue if they are still focused on the last cycle’s major key performance indicators?

Hotels throughout the last cycle showed an outside preference for tracking hotel occupancy over all other metrics. And why not, when occupancy frequently broke records month after month until 2019? For those needing a quick reminder, in August 2022, U.S. hotel occupancy reached 67 percent, a figure the industry has been striving for since the pandemic. Then again, today's occupancy isn’t what it once was.

Hotels have spent the last two decades focusing on growing Revenue Per Available Room (RevPAR), but today’s hotel leaders are choosing to focus on different metrics. Operations with access to sophisticated revenue management and data analytics tools can dial onto “total revenue optimization,” whereby all hotel technologies are interconnected and can optimize revenue mix at every turn. However, profit margins behind meetings & events, food & beverage, and room bookings vary wildly in the hospitality industry. In practice, this means finding the value of $100 when spent on a room booking versus in the meeting or event space because they are not weighted similarly.

Lacking direction, many hotels have instead begun tracking overall profitability rather than any single metric. To track optimized profitability, hotels have begun to calculate their TRevPAR (total revenue per available room) or GOPPAR (gross operating profit per available room). This sounds like an ideal way to measure hotel success but doing so requires a significant shift in a hotelier’s mindset, not to mention changes to processes, procedures, and more.

Measure Twice

Measuring growth within hospitality has become more challenging over the past few years as operators' awareness of the drivers behind the hotel industry has increased, as well as the many ways external forces impact travel spending. Becoming aware of these forces has led hoteliers to seek ways to expect the unexpected, adding the unknown to their potential forecasts. When operators apply these principles to other areas of the hotel, such as ancillary services, a hotel can discern the total revenue potential of a property and raise its competitive advantage against others.

For example, global travel has been restricted over the past several years due to the fallout from the pandemic. However, earlier this year, both the EU and China unveiled plans to lift travel restrictions between Europe and China, and international travel has gained steam in earnest leading up to this announcement. The substantial value of the dollar against the Euro has impacted outbound tourism to the United States over the past few years. At the same time, Europeans are eager to travel, so U.S. operators should be looking at how these changes impact their property.

To track the Total Revenue Per Available Room (TRevPAR), hotels need to leverage advanced data analytics and tap the potential of revenue management technology to see the shifts and changes in market dynamics before the human mind can comprehend them. This will allow operators to calculate their potential for success and proactively react to new changes in the marketplace on demand. This ensures no revenue opportunities are missed, even as the marketplace evolves. With these capabilities, hoteliers can focus on strategic decision-making and ensure they provide the best possible customer service for the best available rate.

 

ABOUT THE AUTHOR

Working intimately with hotel organizations all over the world, Digna boasts a strong global background in hotel operations, revenue management, consulting, and strategic pricing. As Director Industry Consulting at IDeaS, Digna leads a global team of professionals assisting

hospitality companies of all sizes to build and enhance their total performance and price optimization capabilities. Prior to joining IDeaS, Digna spent 11 years at InterContinental Hotels

Group (IHG) with roles that included regional head of revenue management for Japan and Korea, the Middle East and Africa, and global pricing implementation and business integration manager.