Tuning Your Hotel’s Engine: In Search of Occupancy (Part Two)
In part one of this series, I used the image of tuning an engine to illustrate a really important process for hotels: Determining what business to take, and at what rate.
Tuning this engine is an ongoing challenge, especially for major city hoteliers. No matter how well things are going, there’s always a thought in the back of your head: How long will this boom last, and for how long should I lock in business?
Two real-world examples can bring us closer to the answers.
Back in 2007, I was the Australian Head for an overseas-owned accommodation group. We were offered two opportunities to develop very large hotels in Melbourne. One was in the heart of the CBD, and the other was on the fringe.
When we took these proposals to the board, they told us to choose one. This was disappointing, since Melbourne’s occupancies were climbing steadily. Industry experts were forecasting 10% growth, year on year into the foreseeable future. Naturally we chose the CBD, although we knew the other site would be hawked to a competitor. The agreements were signed on Christmas Eve, and the opening was scheduled for 2010.
Then the GFC hit.
As a result of the market turmoil, we made drastic changes to our forecasts and revised our marketing strategy. We ended up targeting higher-than-expected numbers in base business, while moderating our expectations in higher-rate business. In other words, our Yield Management practices were skewed toward occupancy instead of rates. The strategy worked, and the hotel has been in successful operation ever since.
The second example goes further back into history. A Melbourne hotelier was operating a successful international hotel in the late 1980s when he suddenly did something strange. He started targeting aircrews and attracting them to his 400+ room property. The rest of the city thought he was mad.
Then the early 1990s recession hit.
Occupancies fell, and other hotels struggled to fill the gap—but because of its efforts to win the business of aircrews, this property maintained good occupancies, albeit at a middling rate.
Both examples show good yield management skills in action. Is it important to make use of the latest technology to shape your strategy? Absolutely. Modern systems can analyse past performance. They add in allowances for manually entered events, and give advice on how you should charge in the future.
But technology cannot read tea leaves. Even if your system had access to all the world’s financial data, and was powered by the world’s best economic brains, it wouldn’t work on its own. Effective Yield Management pivots on the intelligence, research and knowledge of the person using the data. It always has and always will.
Experienced hoteliers have seen the highs and lows, and are able to navigate with foresight. They actively read local business research, keeping an ear to the ground in terms of market insights. They take advantage of short-term opportunities, but always with an eye on the future, and never at the expense of long-term viability. In times of need, those with less experience will embrace business they would otherwise not consider, like cheaper inbound business or aircrew—and then discard it when conditions improve. They do so at their peril. Those clients have very long memories, and when they are needed again, they will not return.
Like a good team looking after a racing car, smart hoteliers will use the technology and tools at hand. But they always listen to the sound of the engine and survey the track. They know that in the end, the engine’s performance depends on their own skill and insight.
This is part two in a two part series about maximising your hotel's occupancy. For part one, please click HERE. For further industry insight, please follow the links below.