Revenue Management Key to Hotel Success

By Carrie Rossenfeld
Originally posted on GlobeSt.com

SAN DIEGO—Accurately projecting room demand based on history and local activity is one way hotel owners and operators can stay ahead of the curve no matter what economic events may transpire, RAR Hospitality’s CEO Bob Rauch tells GlobeSt.com. We spoke with Rauch exclusively about the hotel market and what owners and operators can do to ensure success in 2016.

GlobeSt.com: With the current real estate cycle looking to end in the not-too-distant future, what can those in the hotel industry do to stay ahead of the curve?

Rauch: There are several areas where we can stay ahead of the curve. One is understanding revenue management thoroughly. We must accurately project room demand based on history and local activity, including, but not limited to, area booking pace, competitive rates and type of business. With that information, one can begin to move business from expensive channels like OTAs to direct channels. Further, understanding how long it takes to book that less-expensive business and whether or not that business might potentially be repeat business further enhances the likelihood of successful revenue generation. Lastly, holding rates up instead of “dropping our drawers” at the first sign of a slowdown. It has been proven by Cornell’s Hotel program and STR that this is a bad strategy.

On the cost side, constantly evaluating wage scales and staffing needs, forcing all department heads to bid all vendors annually, using zero-based budgeting and eliminating what I refer to as the “C” team will dramatically reduce cost and improve morale. The “A” team are the up-and-comers or stars. The “B” team are solid role players and the “C” team are expendable, but were hired based on immediate need.

GlobeSt.com: What are the greatest threats to the hotel industry currently?

Rauch: The greatest threats are new supply, the sharing economy and the impact of Airbnb in particular, interest rate increases, oil price increases, terrorism or perceived risks that reduce visa issuance, global economic stability and economic growth that is reduced after this election year. North Korea is another threat—when there is instability in both the Middle East and Asia, there are more chances for disruption. Claiming to test a hydrogen bomb is not something the US will or should take lightly.

GlobeSt.com: Where do the greatest opportunities lie in the hotel industry?

Rauch: Our opportunities are the continued need for lodging despite all warnings that videoconferencing would reduce demand (first mentioned in industry publications in 1982 and repeated frequently for two decades), as well as the yet-untapped growth in international travel. While listed as a threat above, Airbnb provides the lodging industry with the opportunity to embrace and adapt to the sharing economy by changing the offerings for guests to accommodate the needs of today’s travelers. Lodging is a noble profession that will grow due to the need for groups to meet face to face, salespeople to sell face to face and the perception by Americans and others in free nations that travel is a birthright.

GlobeSt.com: What else should our readers know about this sector?

Rauch: The lodging sector is cyclical like others, but is much more scientific now than ever before. Algorithms are sophisticated for revenue management, distribution channels are limitless, sharing economy entities have become mainstream and the competitors include apartment complexes, cruise ships, timeshares and more. Based on this, the cap rates are always higher for hotels than other asset classes, the vulnerabilities are real and the need for intense day-to-day management leaves many real estate investors on the industry sidelines.

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