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Managing RevPAR to flourish in a recession economy

June 10, 2009 - Mumbai.

It is no secret that the hospitality industry has been badly affected by the recession. The effect has been felt by the industry right across the globe. So, the question is, when the hospitality industry is taking a beating and growing at a negative rate, what strategies can a hotel adopt to counter the ill-effects of the poor economy?  The most obvious answer would be to beat the competition on rates and try to get in a larger share of the guests and hope to make up the loss of revenue with larger numbers. But is that really the right strategy which will help the hotel brand in the long run? And if this is such an obvious answer, what prevents the other hoteliers to adopt the same strategy and beat you in the game? As a forward thinking hotelier, you need to look beyond the obvious and put a sound strategy in place that helps the hotel prevent brand erosion and keep a healthy flow of revenue in the long run.

Use your head to fill that bed.
So what is the magic strategy that you, as a smart hotelier, can adopt to ensure that your revenue objectives are met without resorting to heavy discounting? First and foremost, you have to realize that to win this battle you will need to rely on your head.

Typically you would face a host of elements related to your hotel that would affect your business and revenues. Some would be fixed and some would be variable. For example, Location, size of hotel, brand positioning, pricing strategy, captive demand, distribution depth, etc would be some elements. Each element is interlinked and generally affects the working of the other.

There is a matrix of variables to manage and a host of permutations and combination to the matrix to deal with. Your constant objective will be to find the right mix with every change in the environmental factors. 
Use RevPAR as your compass in an ever changing world.
Defined as Revenue per available room, RevPAR is one fulcrum around which your marketing strategies can evolve. RevPAR can become your reference point to gauge how well your business strategies are working. As long as your RevPAR numbers are healthy and growing, you will know you are on the right track. If the RevPAR numbers are not so great, you know you need to try a different strategy.

RevPAR is great! But who will bell the cat?
Having said this, experienced hoteliers who like to get their hands dirty will say, “This may sound great on paper, but in reality, tracking and monitoring RevPAR is no easy task.” And they are right. It does mean poring over endless reports and deciphering complicated spreadsheets to extract relevant information. And by the time one set is done, the market rules have changed and we are back to square one poring over new reports and spreadsheets. By the time any intelligence is generated, the market has moved on and the information is obsolete. All the hard work is down the drain.
The obvious answer is automation! Instead of having your revenue manager manually agonizing over the numbers, put in an automated revenue management process.

Speed kills … the competition!
What will an automated revenue management system do for your hotel? It will speed up your business processes and help your revenue manager focus on the real need of the hour, viz. helping you fine-tune your marketing mix to deliver maximum results. Instead of spending countless hours, number crunching away to decode complicated reports and to update rates on the reservation system, he can now focus passing on recommendations on the instantly generated revenue reports and proactively focus on optimal pricing strategy, sales and promotion recommendations, yield management strategies and channel partner management.

In conclusion, beating the recession and thriving in challenging conditions is not just a matter of chance. It can be a real possibility. It will need the hotelier to look at the market from a new point of view. Buying customer occupancy through discounting and price cuts will only increase the sorrows for the hotel in the long run.  What is needed is an adoption of sound business strategy with a keen eye on maximizing RevPAR. Automating the revenue management system will help the hotel management team to move from reactive strategies to proactive strategies and help the hotel react faster to changing market conditions. Hoteliers who understand this reality will have the best chance to prosper … even in recessionary times.

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