Demand Slows, Hotel RevPAR Grows Strategies to Maintain Momentum into 2009

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October 01, 2008
Reservations | Market Conditions
Robert Post

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© 2008 Hospitality Upgrade. No reproduction without written permission.

No one could argue that demand for hotel rooms has slowed in the first half of 2008, yet despite flattening demand, hoteliers are holding steady on their rates—a very different scenario than that of the post-9/11 slowdown, when hoteliers slashed prices and dumped inventory into third-party channels without fully understanding the impact on their bottom-line profitability. The most savvy hoteliers in today’s market are maintaining price integrity, driving demand to their most profitable channels, and pursuing best practices to optimize revenue per available room (RevPAR).

Trends for the First Half of 2008
Statistics tell the story.  Although occupancy rates have declined in four of the five major regional world markets, RevPAR has actually increased. (See Figure 1.)  Recent studies also identify several trends for 2008 that make the difference between growth and decline:

  • Web-direct channel leads the way.  Data shows that as demand flattens, brand and independent hotels alike are increasingly investing in their Web-direct channel to grow business directly from consumers. This market trend has been evident for the past six quarters and reflects long-term and permanent changes in consumer booking behavior. In the first quarter of 2008, 36 percent of all central reservation office (CRO) reservations were from the hotel’s own Web site, or branded site, compared to 32.5 percent a year ago.
  • Travel agency channel shows strong performance and continued growth.   Data shows a continued increase in bookings through this mature channel.  The trend will continue based on the ability to generate higher average daily rates and net profit compared to other third-party channels. Projected bookings for 2008 will eclipse 2007 revenue with a total of 56 million transactions.
  • Opaque channels are on the move, stealing share from top third-party online travel agents (OTAs).  Opaque sites—third-party sites such as Priceline, that enable customers to choose a rate without knowing hotel brand in advance—showed a marked increase worldwide, from 5.8 percent in first quarter 2007 to 9.3 percent in first quarter 2008.   Clearly, consumers are still traveling and many are willing to be brand blind in the quest for the best value.  Hoteliers who don’t want to jeopardize their brand-rate position or lose these value-focused consumers to opaque channels will need to consider fresh approaches for converting these customers.  

Looking Ahead: 
Grow Direct Demand or See Profits Decline
TravelCLICK studies show that the best-performing properties (No. 1 or No. 2 in their markets) derive at least 12 percent of total occupancy from direct demand.   If your hotel seeks this level of performance, you must be prepared to invest and change your business processes as follows:

1| A market-to-close Web strategy.  Invest marketing dollars to drive qualified traffic to your hotel Web site and convert potential customers into booking guests. This approach includes:

  • Search engine optimization (SEO) and pay-per-click (PPC) media spend that positions your property and brings potential customers to your Web door—beginning the process of creating your unique value proposition.
  • Web design and content management to create your store front and control the guest experience at a lower cost.  A real-time content management system (CMS) enables you to keep your Web site fresh and relevant to search engines, and to control your site without the time and expense of third parties.  Your CMS will also help you build and maintain user-generated content through valuable interaction points where guests can post reviews, offer trip tips, and share local attraction comments.   
  • Conversion strategy requiring a Web booking engine specifically designed to close the deal and drive incremental revenue from customers at the point of purchase.  This may appear a simple process, but the reality is far different and requires a marketing/merchandising viewpoint versus a technology one.  The marketplace may offer no/low-cost add-ons to traditional PMS/CRS technology, but these are as antiquated as those systems and deliver substandard merchandizing performance.

2| Effective rate and inventory strategy: Support the 12 percent occupancy goal.  Conduct a detailed review and use pricing triggers to manage inventories and rates, and correlate rates with third-party rate pricing (i.e., rate parity).  Invest in analysis tools for rate monitoring and management.  Caution should be exercised when using automated revenue management systems, as they rely on historical versus current competitive rate information to determine pricing, which may cause profits to deteriorate in a declining marketplace.

3| Use of interactive business intelligence and online presence monitoring.  Invest in Web-based intelligence systems that can measure the effectiveness of your marketing investment and determine which channels are performing based on a comparative return on investment (ROI). Always know what your position is on top search engines, how your hotel is presenting on target OTAs, and—what industry pundits say is the top influencer of online purchases—what online guest comments and reviews say. Invest in tools and ultimately staff to measure and manage the guest experience and ensure client satisfaction.

Market conditions will continue to be challenging, but that does not prevent hotels from maintaining their profitability and realizing competitive market share growth.  Design your online business efforts with a clear focus on ROI.  Embrace the trends of consumer direct demand, commit yourself to the necessary business process changes, and manage your hotel based on a clear understanding of profit contribution for achieving your occupancy and service goals.

Robert Post is the president and CEO of TravelCLICK.



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