Hotels: How to Stay Competitive During a Downturn

We all know how cyclical the hotel industry is.

Hoteliers are forever at the mercy of the ebbs and flows in supply and demand, changing travel trends and macroeconomic factors that have more of a negative knock-on effect on the hotel industry than they do other sectors; when you throw new disruptive technology into the mix, it can add unnerving uncertainty to your woes.

But when times are good, it’s easy to be taken by surprise when warning signs of a downturn emerge.

Such was the sense in the UK, one of OTA Insight’s key markets and home of its head office, when the London Financial Times ran with a story entitled “Consultancy warns of trouble ahead in UK hotel industry” in December.

Reporting on “debt-fuelled expansion prompted by the London Olympics [which] pushed asset valuations to unsustainable highs,” the paper went on to outline how “revenue per available room - the industry’s preferred performance measure - slowed in the first half of this year [2019] and hotel revenues outside London declined for the first time since 2012,” and that “supply would soon outstrip demand”.

As a hotelier, you never want to read these five words. But in North America, they can’t be far away; downturns might be experienced more severely in some world regions than others but few are entirely insulated against such declines.

So, how can hoteliers best weather the storm and come out the other side smiling and still in business, or, better still, actually thrive in these conditions?

The answer, of course, is found in a combination of factors: staying cool; being analytical, meaning you need access to the right data and technology; being creative, both in terms of increasing revenue and reducing overheads; and expanding on the things you already do when responding to year-round seasonal fluctuations.

Let’s explore some of these ideas further.

The first thing I’d caution against is significantly lowering your rates. It might increase demand for your hotel but if it reduces profitability, down goes the viability of your business.

Never forget, also, that it can take months or even years to shift your prices back up to their earlier levels if you drop them too far and in haste. This doesn't mean you shouldn't monitor your competitors' prices and your distribution channels, and adjust your prices subtly; just don't act rashly.

So, if you're not dramatically changing your prices, it comes back to getting the right sales and marketing mix, and making sure that your hotel provides the best possible experience so that people will leave good reviews and want to return.

There are all sorts of non-price offers you can draw on, whether promoted beforehand or offered as a surprise on arrival, such as drinks at reception, complimentary room upgrade or anything that shows you're putting the guest at the heart of your operation.

To reduce costs, you can cut back on the things that haven't proved successful. You can determine success by analysing your PMS data through the right business intelligence tools.

Key data-points to get a handle on include: booking patterns - which distribution channels your guests use, including OTAs and direct; upcoming events in your neighbourhood; rate fluctuations among competitors to inform your rate strategy without necessarily following the same pattern; and occupancy rates to get an idea of how much demand there is - but remember that, to coin a phrase, past performance is no guarantee of future success, so look out for any new technologies that can better predict future market demand.

Whether that demand is high or low, you need a plan, and it can be better executed when you work collaboratively across departments. Personalisation is key, and the success of any offers you create relies on close cooperation between revenue managers and marketing managers, who will be responsible for developing that plan so that the right offers reach the right guests.

Different types of hotel might have advantages over others in these lean times: sadly, independent hotels are almost always hit hardest during slumps. They don't have the economies of scale that the groups and chains have. And they can be exploited - using OTA Insight data, we see this, for example, in how they suffer more at the hands of unscrupulous OTAs who undercut them more than they do the non-independents, creating parity problems that affect their reputation and bottom line.

But, as we’ve discussed, by using good data and BI tools, hoteliers can spot problems as they arrive - or even before then arrive -  and capitalise on hidden opportunities. This applies as much to independent hotels as it does any other.

So fasten your seatbelts. It’ll be a bumpy ride but this advice should see you through it.