Hotel Asset Management and The Operator Focus

Is your hotel asset management approach performance based most of the time?

Are you playing the Operator role almost all the time?

Is it the case of you focusing on the trees and missing the forest?

I will lay out a strong case why often something else eclipses performance.

More importantly, your hotel owners are more focused on that something else rather performance.

Intrigued?

Read on..

This Part 1 of a 3 Part blog post series will cover:

Who is an Operator?

One of the foremost questions that come to mind when we talk about an operator approach is this.

Who is an Operator?

And what is the big deal about the approach?

To begin with, a hotel operator is often also called the hotel manager.

This is an organization or brand that is given responsibility to run the hotel operation for a fee.

These are often big brands who can run the hotel as: 

• franchises,
• hotel management contracts,
• leases and so on.

In short, an operator is one who calls the shots in a hotel operation.

It is evident that hotel owners are looking for something when they appoint a hotel operator.

Most often it is an efficiently run operation which produces business results.

You could say that business results are about performance.

And now let us look at what that operator approach could signify.

Hotel Asset Management & Performance based Operator approach

What is an Operator approach you may be curious to know?

And how is it different from a Asset Manager approach?

Why is it a big deal that it is a performance based approach?

Is all business not performance based?

Great questions!

Hang On, I will clear the air right away.

Yes, the foremost purpose of any business is to perform well.

In that goal, the first step is to earn revenue.

Revenue may be called the bloodstream of business.

Revenue Triggers are often KPIs (Key Performance Indicators) that contribute to revenue.

The following can broadly be considered revenue triggers for the Rooms department:

• Business Volume (Occupancy)
• Price (Average Daily Rate)
• Market Segments

Take a look at the Rooms department Statistics statement for Paradise Hotel.

Rooms Dept Statistics Jan-Jun

Business Volume & Hotel Asset Management

Business Volume is foundational for revenue generation.

This is irrespective of whether it is rooms or food and beverage or for that matter any other department.

It validates the capacity of a hotel asset.

That capacity could be:

• Rooms Available,
• Seats Available and in the case of a Spa operation
• Treatment Rooms Available.

A hotel is developed with a:

• defined number of guest rooms, 
• restaurant seats or 
• treatment rooms available for sale.

You could say that the capacity is the target.

If capacity is the target, where a hotel is in its performance is often based on the business volume.

Occupancy is the global KPI which is considered the barometer of not just business volume but also revenue.

If you said, a hotel is doing 90% occupancy, it is often also probably achieving its highest room revenue.

This is despite that, apart from occupancy, average daily rate is the other trigger that contributes to room revenue.

It is important to understand the significance of the occupancy revenue trigger this way.

Occupancy is More than Just a Rooms Revenue Trigger

An occupancy is not just indication of guest rooms sold.

It is also the trigger that often causes other revenue to be generated.

For example, during a peak month of say, 90% occupancy, the hotel guest is also using other services like:

• meal at the hotel restaurant (breakfast has the best chance),
• massage at the spa (if the hotel has a spa)

and so on.

This is known as the Multiplier Effect.

The Multiplier Effect is simply:

• the additional dollar of revenue 
• which is attributable to complimentary services offered
• from a base source in that same location.

That base source is the hotel guest as represented by the occupancy revenue trigger.

Often hotels forecast for total revenue in a particular month.

This means, more than the room revenue attributable to the occupancy itself.

What is that additional part you ask?

Well, they add a supplement of 10% (or any other relevant percentage based on circumstances) or more.

What is that supplement for?

It is for hotel guests patronizing other services like the restaurant or the spa.

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Price - Powerful Revenue Trigger & Asset Management

Price is the other major trigger for revenue generation.

Again, this is applicable for rooms or food and beverage or for that matter any other department.

If business volume validates capacity, price validates the brand or offering of the hotel.

Price is also a barometer of the value proposition that the hotel presents to the customer.

The higher the perceived value of the hotel's offerings, the higher the price that is commanded.

Price as a revenue trigger however has a unique attribute which is not anything like business volume.

That attribute is contribution to bottom line.

The price revenue trigger is also recognized in what is known as the positioning of a hotel in a competitive set.

For example:

• a hotel which is considered midscale will have a price much lower than
• a upscale hotel irrespective of what business volume it may operate at.

Hotel Asset Management and Market Segments

Market Segments are not considered on the same footing as business volume or price.

Yet, they have a powerful role to play as revenue triggers.

Market Segments are barometers of the hotel's target audience.

The composition of market segments in a hotel's room revenue will indicate the broad category or type of hotel.

It is also important to note that revenue through market segments are earned based on the hotel asset.

This is in the sense of whether it is a business focused hotel or a leisure one or any other category or type.

All this may further indicate whether the majority of revenue comes from the individual or group market segment.

Take another look at the Paradise Hotel Rooms Statistics statement.

It seems to be a individual market segment focused hotel.

Every hotel has its own type of dominant market segments in its revenue composition.

This also provides hints at the pricing level of the hotel.

For example:

• hotels which pre-dominantly depend on the tour group market segments
• will have lower average daily rates than hotels
• with dominant corporate or individual market segments.

Asset Management in a Food & Beverage department

Like rooms we saw earlier, the following can be considered revenue triggers for Food & Beverage department:

• Business Volume (Covers Served)
• Price (Average Check)
• Meal Periods

All points made for rooms will apply to these revenue triggers for restaurants in a food & beverage department.

In that vein, business volume and price are similar to the Rooms department.

Meal Periods play the part in the food & beverage department that market segments play in the Rooms department.

Profit and Loss Statement Oriented Hotel KPIs

Earlier, you saw how revenue contribution is dominated by occupancy, average daily rate and market segments.

That is why we called it performance based.

Or Business Results based.

Performance based also has another connotation.

That it is heavily Profit and Loss Statement oriented.

Meaning, revenue, expenses and profit.

This is what we could call an Operator approach.

What is a hotel operator most focused on?

Revenue, expenses and profit.

This approach can produce different types of bottom line (profit) results depending on the focus.

Whether focus is on occupancy or average daily rate or both.

Occupancy focus is often called the volume approach.

Average Daily Rate is often called the price approach.

Whether an Operator is:

• leaning more towards occupancy or price or both
• will determine how the profit or bottom line results will be.

A Profit and Loss Statement orientation produces this performance slant.

Why so?

Because the Profit and Loss Statement is often called The Performance Statement.

Is the Operator approach the only approach to achieving hotel KPIs?

Or the best approach?

The Operator approach is neither the only approach nor the best.

Often this approach misses the forest for the trees!

What do I mean by that?

Hang on, I am getting to that.

Hotel Asset Management - Are You Missing the Forest for the Trees?

Remember, earlier in this blog post I said that hotel owners are often looking for something else than performance.

That performance is not the only thing they are focused on.

Then, what are they focused on, you ask impatiently?

Yes, I am about to reveal that.

Remember also in our discussion on revenue we briefly touched upon capacity.

Capacity as in:

• Rooms Available for Rooms department, 
• Seats Available for Food and Beverage department and so on.

Well, owners are big capacity believers.

You look puzzled.

Hotel Asset Management - Capacity and Potential

Let me clarify.

Capacity looks at another side of the coin.

Potential.

If Performance is one side of the coin, potential is the other side.

What does potential mean?

It means that, it is more important:

• what the business can potentially produce rather than
• what is is currently producing.

You should be looking at hotel KPIs that are potential based.

Occupancy, average daily rate are merely performance based.

In other words, you need to step back and look at the forest and not only the trees.

For a discussion on this potential phenomenon, watch this space for Part 2 of this 3 Part series of blog posts.

In that post, I will clarify why hotel owners swear by potential more than performance.

Steps You Can Take Right Now

Meanwhile, you can apply these steps right now on your hotel performance based on the operator approach.

STEP 1

Examine your hotel KPIs from a Operator approach.

STEP 2

What is your focus on business volume and price?

STEP 3

Are you adopting a volume based (occupancy) or a price based )average daily rate) strategy or both?

STEP 4

What does your Performance Statement - Profit and Loss Statement say? 

STEP 5

Ask yourself whether performance is the best approach or is there something else, say potential?

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