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I continue with the third part in my series on enterprise system pitfalls and now discuss the problem of what I call the infrastructure imbalance. I have two previous posts that introduce the topic of pitfalls of enterprise systems and discuss the pitfall of over abstraction.

Today I continue my series on enterprise system pitfalls and discuss the problem of over abstraction. Be sure to read my previous post which lays the foundation for this series.

Are we getting the economic return we should be with new technology innovation? In this article, I’m starting a series reflecting on common weaknesses in enterprise systems development, and am going to try to unpack as concisely as I can these pitfalls we fall into.  We’ll analyze why we stumble into these problems, our struggle recognizing the root causes, and the results.

HU talks with Bob Diachenko, the cybersecurity expert who discovered the breach, about steps hotels can take to prevent data incidents

A groundbreaking new report by the Urban Land Institute in Washington, D.C. explores sustainability in the hospitality industry and examines ways in which hotels are incorporating eco-friendly best practices into both operations and construction. The study includes insights from leading hotel owners, developers and investors.



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Adapting to the Changing Landscape of Group Demand Measurement; Part 1 of 3

09/19/2014
by Erik Browning

The hotel industry had a record setting year in 2013: It was the year of most rooms sold, highest rooms revenue, highest ADR, and highest RevPAR.  2014 is shaping up to be even better: Occupancy is projected to grow between 2.1 percent to 2.6 percent, and ADR is forecasted to grow between 4.2 percent and 4.5 percent.  In fact, in the United States, May 2014 RevPAR growth was a new record breaking 10 percent.
 
It has been well-documented that the stellar U.S. performance has been driven by the increase in the transient segment, but we are also finally seeing growth in group demand.  For example, the number of group rooms sold in June 2014 was 1.5 million more rooms than what was sold last June of 2013.  Exemplified in the table below, group occupancy growth is finally outpacing the growth of transient occupancy.  However, group ADR growth is only at 1.5 percent compared to the 4.2 percent growth of transient ADR. 

 

YTD 2014: Top 25 North American Markets

   

 

YOY Growth

Segment

Occupancy

ADR

Group

3.70%

1.50%

Transient

3.10%

4.20%

Source: Travelclick
 
With all of these positive indicators (record breaking performance, consistent demand increases, moderate supply growth and four years of positive RevPAR lift), why aren’t we seeing better growth in group ADR? Certainly some of this lack of growth can be attributed to group business booked between 2008 and 2010, the Great Recession.  However, the Recession cannot explain it all.  Let’s examine a bit more closely some contributing factors.

The most obvious reason for the lack of growth is the change in group dynamics: Meetings are getting smaller and shorter.  Back in 2005, group business represented about 39 percent of occupancy, and currently in 2014, it represents only 33 percent of the occupancy.  Another issue is the 12-month moving average of group demand change was in negative territory during the second half of 2013 through early 2014. This may have led some hotels to reduce group prices to be lower than what the market could probably have held.  These factors, and more, have made the group landscape more competitive. 
 
While there are various reasons for group ADR underperformance, let’s focus on how individual properties currently measure their group demand, the changes to group distribution, and then ultimately, the downstream impact on how they price group.

As noted earlier, until recently, group occupancy and group pace have been lackluster in the United States.  I can certainly empathize with the revenue management team during the group rate quotation process when the group pace has not been as strong as needed. At the same time, we have to recognize that most markets have already reached or surpassed previous peak occupancies.  Many markets have likely already hit their functional capacity with little to no space for additional occupancy growth.  For RevPAR growth to remain positive in the future, growth has to come in the form of ADR lift.  The prognosticators in our industry are all projecting 2015 RevPAR increases between 5.2 percent and 6.7 percent, with occupancy only contributing about 1 percent growth. 

Assuming that the transient ADR lift continues at the current pace of about 4.2 percent, transient rate growth will have to be even higher in 2015. More importantly, group ADR has to rise dramatically compared to the current growth rate of 1.5 percent to hit the overall RevPAR projections.
So how do we make this ADR lift happen?  In my next blog post, we are going to examine what is going on with measuring group demand and how you might be looking at it incorrectly. All of which could be leading to pricing decisions resulting in money left on the table.
About The Author
Erik Browning
Vice President of Business Consulting
The Rainmaker Group


Erik Browning is the vice president of business consulting with THE RAINMAKER GROUP. With 15 years of revenue management experience across a wide range of hotels in multiple destinations, including 10 years with Hilton Worldwide, Erik understands the hotelier perspective to help meet business objectives.

 

 
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