The success of the vaccine rollout and the subsequent easing of mask mandates, has resulted in a return to normality. Travel is resuming and hotels are returning to full capacity. It’s important for hoteliers to prepare for the new normal in a post-pandemic world. In this article, we will discuss how to maximize space and revenue in your hotel business.
Background
The supply-side suggests that capacity will be constrained. In the first quarter of the year, the hospital construction pipeline stood at 4,967 projects and 622,218 rooms, which was down from 5,216 projects and 650,222 rooms in the fourth quarter of 2020. This translates to a loss of 615 projects and 65,583 rooms from the end of the second quarter in 2020. Indeed, since the beginning of the global health crisis, the hotel construction pipeline has gotten smaller in each successive quarter. The peak of the pre-Covid-19 era was reached in the fourth quarter of 2019, when the hotel construction pipeline had 5,748 projects and 708,898 rooms. So we are seeing a significant supply-side crunch that will likely lead to a supply-demand mismatch down the road.
Despite the shrinking of the hotel construction pipeline, there has been appreciable brand growth in the last five years. We have witnessed the emergence of 115 new brands in that time and this is often in areas such as Atalanta, Dallas, Los Angeles, New York, Nashville and Orlando, where there is a robust hotel construction pipeline.
Room openings have been in decline since the pandemic began. After growing by 2.1% in 2018 and 2.2% in 2019, they declined by 1.8% in 2020. There is an expectation that they will rebound to 2% growth in 2020, translating to 109,394 rooms. One positive signal is that there were 21,528 new rooms in the first quarter of 2021, up from 16,300 in the first quarter of 2020. Expectations are that there will be 111,235 new rooms in 2022.
In terms of recovery, the United States is behind only China, Australia and New Zealand in terms of revenue per available room (RevPAR) indexed to the corresponding month in 2019.
Even though the supply-side is all over the place, demand is rising. Occupancy rates are on the rise, standing at 68% of their 2019 levels. Rate is at 75%, and annualized RevPAR is at more than 50% of where it was in 2019.
How to Make Your Hotel Leaner
Minimizing expenses is an important part of improving profitability during a downturn. Part of this means that each member of the team must become multi-functional. It means the general manager may have to join in cleaning guestrooms, and helping guests check-in. It also means that capital expenditure will have to be pushed back if they are above the budget, or there is a shortage of labor, or the business is suffering from the global supply chain disruptions. This is not the time to take risks. It may even mean that even the smallest renovations will have to be delayed until conditions improve. If your team is small, you may need to subcontract some of your functions to another company.
Many hotels experienced an erosion to their margins even before the pandemic and when the pandemic hit, their revenues went off a cliff, with some hotels experiencing 100% declines in revenue, having been forced to close.
Such hotels had to reimagine their operations. For instance, some decided to think of themselves as having two arms, an on-site operation and a corporate and support structure operation. It’s important to continue to apply the lessons of the pandemic and be flexible about how you envision your business.
A more scientific approach to your business is necessary. Regardless of how long you have been in business, you are likely not operating at your highest possible level of efficiency. You need to dive deep into your business model, and operations and be on a permanent hunt for efficiency. You need to create ways to maximize the amount of feedback you receive, so that you can reevaluate your hotel’s processes and eliminate inefficiencies.
One way to increase efficiency is to outsource more of your operations to brands who likely have superior know-how, services, rate and inventory management systems and other offerings that can make your hotel more efficient.
Optimizing Your Space
Optimizing your space is another important element of your strategy to develop a better hotel. One way this can be done is by pivoting service delivery and operations. You could, for instance, turn room service and a knock-and-drop service. You could enhance your marketplaces. Many hotels found that by enhancing their marketplaces, travellers used them for as many as three meals on any given day. Those marketplaces generated revenue thanks to opportunities arising from the sale of beverages and healthy eating products. Kiosk technologies have added to the possibilities in terms of optimizing hotel space.
Many hotels have seen it fit to use their outdoor space. By repurposing outdoor spaces, they are able to increase their available space while at the same time offering their guests a new space to have their meals and enjoy their time in the hotel. Take a look at how outdoor facilities manage their spaces, including restaurants with outdoor sections. Using their experience and best practices will help you develop a model that’s right for you and leans on the lessons of those with experience in this. The goal is to create something that responds to what your customers want.
During the lockdown period, many hotels worked on redefining how they would use their real estate based on its type and location. For instance, airport hotels usually serve airline crews and need to have specific kinds of amenities on hand. This means that some of their facilities had to remain open. Given the necessity of social distancing one innovation that caught on was to use ballrooms to hold events. This gave guests a space that was large enough to accommodate groups of 30 or so people and still provide each guest with ample room for social distancing. This was something that was unprecedented given that in the pre-pandemic era that would have been seen as a waste. I encourage you to read this LLC Annual Report, so that you can proceed to optimizing the legal aspects of your business.
