Comment: The importance of scrutinising hotel revenue management practices
CBRE's Vaughan Sears on the lack of knowledge that is hurting the industry
The global hospitality industry is undergoing a quiet revolution. Market dynamics that previously governed this sector have changed dramatically over the last decade – and this is, in large part, being driven by the millennial focus on “experience” over luxury. Asia Pacific and European markets have reported an impressive surge in occupancy in recent years, whilst destinations, traditionally known for their luxury offerings, such as the UAE have experienced small decreases in overall occupancy rates. And yet despite high occupancy levels in select markets, Average Daily Rates (ADR) and Revenue Per Available Room (RevPAR) have been sluggish at best.
This is undoubtedly due to a variety of factors, in addition to the growing influence of the millennial traveler; increased price transparency, price-sensitive travellers and the addition of new hotel supply at cheaper rates being a few notable examples. Such trends are in many ways beyond the control of hotel operators. Consequently, it is important that hoteliers focus their attention on addressing the matters that they can influence and manipulate: And two of these areas are differentiation and market segmentation.
The number of hotel rooms and hotel apartments in Dubai is rising – according to the latest data by the emirate’s Department of Tourism and Commerce Marketing, this rose to 118,039 in the first quarter of 2019, an increase of 8% comparable with the same period last year. The rise of the mid-market sector in Dubai, in particular, is especially noteworthy. In line with plans to welcome 20 million tourists a year by 2020, Dubai is committed to diversifying its hospitality sector to appeal to every type of visitor – from the adrenaline junkies and those seeking cultural experiences, to families wanting an affordable getaway or those opting for a luxury-filled trip. Business travel is also an important trend that hotel operators must consider – especially as the emirate prepares for Expo 2020 and continues to be a regional hub for various business activities.
Revenue management, and its associated practices, is another key matter that hoteliers must start to scrutinise. Ultimately hotel operators are shifting their strategy away from maintaining occupancy at high levels – a method that effectively only “buys occupancy” and may, in fact, be damaging the broader market. It is interesting to consider the effect of such in other key destinations where higher room occupancy contributes to accelerated wear and tear of rooms and facilities. In recent years, hotel occupancy in Sydney, Singapore, London and Tokyo has been consistently amongst the highest in the world. Prior to 2010, occupancy at such high levels would have seen ADR growing at between 5-20% per annum. However, RevPar figures have stood still in the past nine years – except in the case of Tokyo. ADR and thus RevPAR figures in Dubai are also down year-on-year despite the fact that the emirate continues to report exceptional occupancy rates. There are of course a number of ways that hotel operators can address these challenges. In many instances, there is an inability on the part of consumers to differentiate between products meaning that price has become a key differentiating factor. Corporate travel budgets have also remained constrained which is negatively influencing the MICE and business segments. It is important that owners therefore move away from being incentivised according to revenue, as opposed to profits. The focus must remain on a fee structure that looks at maximising profitability rather than total revenue.
A challenge that appears to be global in nature is a general lack of knowledge about proper revenue management among some hotel operators. Inadequately conceived and poorly executed room pricing strategies do little to improve revenues and only end up damaging the wider industry. Dubai’s hospitality sector is constantly evolving, and hotel operators must ensure that they are responding to key global, and local, trends by utilising highly trained revenue management specialists and advanced platforms toanalyse and act upon micro and macro data. The sharing of best practices will help improve the overall sector and this will only serve to further strengthen Dubai’s increasingly diverse hospitality offering and adaptability.
Vaughan Sears is the senior manager, hotels & hospitality at CBRE Middle East.