FUTURE PROOFING YOUR PROPERTY
Your first reaction to the next economic downturn should not be surprise but instead be ready to go.
The economy is cyclical. The boom phase of the cycle will give way to a softer economy just as surely as a recession proceeded the prosperity we are enjoying today. As an industry we can prepare to weather the next downturn with the least negative impact possible including minimizing empty rooms, lost revenue, laid off employees and reduced profits.
Future proofing is a combination of the following elements: vigilance, preparation and responsiveness.
Prosperous times sometimes can encourage a passive attitude to the future as managers focus (quite naturally) on making the best of the good times. The future proofing process begins with recognition that a downturn will eventually come. Once that recognition is accomplished the stage is set for ongoing watchfulness for signs of a developing decline. Several indicators are available for hoteliers to monitor, including:
- The pace of new bookings for future dates in comparison with the pace in similar previous periods. Group booking pace provides a long-range indication, offering a view six, nine or 12 months into the future. Transient booking pace provides shorter-range but nonetheless valuable evidence of either continued strength or potential weakness.
- National and international economic indicators such as those found in magazines such as Newsweek, Time, Business Week or the Economist as well as in numerous online sites. Downturns have dependable “hard” indicators that are reported by these sources and which are accompanied by the pessimistic buzz that prosperous times may be coming to the end of their cycle.
A vigilant mindset positions a hotelier to recognize downturns relatively early in their onset. That recognition enables them to act sooner and thereby take the steps needed to mitigate the impact of the demand drop that accompanies economic softness. Leaders can capture the early mover advantage in the marketplace as travelers shift their preferences to lower cost and higher value options.
The preparation element of future proofing has many aspects. Those in this article relate to inventory and revenue management as well as to sales and marketing activities. Several areas within these disciplines invite examination and, where necessary, adjustment to allow hotel management to move quickly and decisively when they see an economic downturn approaching.
Future proofing in the context of hotel sales and distribution begins with verifying that the property’s rate structure provides flexibility to quickly respond to changing demand in the marketplace. Achieving this essential flexibility is best accomplished through the creation of a series of rate tiers. The presence of these tiers, with successively higher rates moving from a lower to a higher tier, not only enables upward movement to a higher rate tier when demand is strong but also downward adjustment to a tier of lower rates when demand softens.
Each rate tier provides a coherent spectrum of FIT, corporate, group, promotional and other rates, allowing relatively easy movement from tier to tier rather than piecemeal adjustment of individual rates. Because of this ease, the multitier structure better protects corporate rate revenues while allowing lower (sometimes considerably lower) promotional rates.
The next area for review is promotions. Promotions (bed and breakfast rates, free Internet access, free parking at airport properties while guests are traveling) take time to devise, frame out and implement. Those devising and framing steps can be completed in advance, in anticipation of their potential implementation should negative conditions warrant. Partially completed promotions can then be left “on the shelf” for use if and when required.
Remember that promotions need not be developed from scratch or all be developed by you and your team. Now, when pressure to immediately respond is absent, is the time to ask questions such as:
- What worked well for our hotel during the last economic downturn?
- What would be required in order to repeat one or more of those successful promotions?
- What, if any, modifications might or should be made to them?
- What did our competitors do that worked well?
- Can we use the same ideas this time to gain advantage for ourselves by being the first hotel to introduce the promotion in our market?
Some promotions, such as fourth night free, may not only require internal accounting flexibility but may also stretch the capabilities of the hotel’s property management system. As promotions are considered and as some are prepared for potential implementation it is wise to verify the PMS’s ability to accommodate these possibly unconventional revenue allocations and, if changes in functionality are required, to move ahead with them.
Sometimes a package is a promotion, sometimes it is not. Regardless, packages are a powerful vehicle through which to offer highly attractive – and incremental revenue generating – propositions in the market. Packages bundle accommodation with one or more attractive add-ons at a price that drives business. Further, they can allow discounting without revealing the specific room rate, and so protect the integrity of the property’s rate structure.
Like promotions, package component pricing can challenge a property management system. Verification of the property management system’s ability to accommodate the proposed packages’ rate structure in advance is prudent. If it becomes apparent that changes are needed in the PMS this is the time to take the necessary action.
If designating a flexible rate structure and preparing promotions and packages are step one in the preparation phase of future proofing, step two is validating the distribution plan. Future proofing demands a detailed understanding by sales and marketing, revenue management and reservation staff of all of the distribution opportunities in all of the available channels – both those in use and those currently unused. This begins with understanding the additional opportunities available via the central reservation system (CRS) in which the property’s availability and rates are stored. The CRS is operated by either the lodging brand with which the property is affiliated or the representation company used by the property.
The CRS is the gateway to selling the property through the brand’s central call centers, through the global distribution systems, and through the brand’s Web site. There may be additional exposure opportunities present, opportunities above and beyond listing rack, corporate and program rates. There may also be specific procedures, or sales prohibitions, with which property staff should be familiar.
In focusing on this area, they should ask these questions:
- What are the package and promotion loading procedures?
- What is the approval process (if one is required) for listing of a new promotion by the property?
- How quickly can a proposed new entry be considered, approved and loaded in the CRS and on the brand Web site?
- Are there any obstacles or prohibitions about the promotions that can be listed, e.g., packages with third parties such as concert ticket promoters that may be restricted by corporate policy?
Once the options and opportunities available directly from the hotel brand or representation company have been determined and figured into the future proofing action plans, the next step is to identify the options available from third-party Web sites.
This process involves still more questions:
- What use is the property making of merchant model distribution options in the large Web site such as Expedia, Travelocity, or Orbitz?
- Does the property now, and at what point in a softening economy should it, offer additional inventory or lower rates in certain circumstances?
- What exactly is the forecasted occupancy or revenue point at which those actions should take effect?
- How much, if any, use is currently made of opaque distribution sites such as Priceline or Hotwire?
- At what forecasted occupancy or revenue levels should that use increase, if at all?
- Are there other Web sites in which participation could benefit the property during an economic downturn? What are they?
- What is the procedure for becoming active in them?
Channel management is the term for maintaining rate and availability information in all of the distribution channels – the brand CRS, the large third-party Internet sites, and all of the small specialty Web sites in which the hotel appears. Rate volatility is common in soft business situations and the challenge for reservations and revenue management staff to maintain accurate rates and availability data in every channel and site in which the property participates grows larger. A variety of computerized channel management tools are now available to hotels with which to automate and speed this data distribution. As part of the future proofing process, the hotel’s need for a monthly subscription to one of these tools should be determined.
The next step is to search for potentially useful shared sales opportunities. Can city or regional clusters of properties promote themselves to jointly achieve greater visibility than would be possible for a single property? Are there alliances in place – possibly coordinated by the brand or representation company – to facilitate such joint promotions?
Finally, a property’s readiness for another type of distribution warrants examination – the hotel’s public relations program. Great rates, packages and promotions are of little benefit without an awareness of them by potential buyers. A public relations program that pairs an extensive and up-to-date distribution list of printed and online recipients with relationships with local and regional travel writers will substantially increase the likelihood of broad awareness of your property and the appealing offers it has available.
Watchfulness achieved and preparations made, the third and final element in future proofing is responsiveness. When the indicators suggest and confirm that a period of demand decline is underway, the need is for prompt, measured response. Once the signs are clear, it is time to adjust group rates, complete the promotions, activate the packages, and become even more focused on the changing demand for accommodation.
By acknowledging the inevitability of an economic down turn, monitoring the signs for its arrival, preparing tactics for use when that time comes and timely implementing of those tactics, a hotel can weather the down cycle with the least disruption to its revenues, competitive position and internal resources.