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Nagib’s Corner: Hotel Industry posts record revenue in 2008, other metrics slide

Wednesday, June 24th, 2009

Some interesting key facts from the statistics below:

Full Service GOP:
·         2008: 34.3%
·         2007: 34.4%
o    Pretty good, all things considered!
Limited Service GOP:
·         2008: 51.2%
·         2007: 55.4%
o    A little worse than full service but pretty respectable, overall.
All things considered, this was not as bad as we may have anticipated. After all, 2007 was amongst the very best years the industry has had so the declines should not be considered precipitous or, as many of us felt, disastrous when viewed from the perspective of the entire year.

What did, however, contribute to the perception of ‘falling off the cliff’ was the following reality (from the article below):

The decrease in room revenue during the last four months of 2008 was US$1.7 billion when compared with the final four months of 2007. As a result, the total profit loss in the U.S. hotel industry in 2008 was US$2.0 billion, which illustrates that the room revenue loss post-Labor Day was essentially pure profit loss.

Hope this will help you reflect over the year with a more ‘perspective’ and less ‘depressive’ memory. More importantly, I hope your hotels did not experience results worse than those ‘averages’ listed above.

Take care

Nagib.

Hotel Industry posts record revenue in 2008, other metrics slide
Date: 2009-06-23

The U.S. hotel industry average daily rate reached a record high, ending 2008 at US$106.55, but Pre-Tax Income Profits for the year were down 7.9 percent to US$25.8 billion, according to STR’s Hotel Operating Statistics (HOST) Study.
According to the HOST Study, the hotel industry generated US$140.6 billion in room revenue, a 0.9-percent increase from 2007. However, the ongoing economic slowdown affected the hotel industry considerably. The decrease in room revenue during the last four months of 2008 was US$1.7 billion when compared with the final four months of 2007. As a result, the total profit loss in the U.S. hotel industry in 2008 was US$2.0 billion, which illustrates that the room revenue loss post-Labor Day was essentially pure profit loss. The Gross Operational Profit (GOP) percent as a percentage of revenue was 38.2 percent of the total revenue.

‘The hotel industry was hit hard by the decreases in leisure and business demand,’ said Mark Lomanno, president of STR. ‘Unfortunately we will be operating in an environment of declining demand and increasing room supply for a while, which will put additional pressures on room rates and profits. We just have to remember that this is a cyclical industry, and things are expected to get better towards the end of 2009. But, operators need to watch their cost structure and continue to maximize ADR where ever possible.’

The study included results from more than 5,800 hotels, the most participants ever to contribute to the HOST Study.

Other highlights of the HOST Study:

• Full-service hotels reported an average occupancy rate of 67.4 percent and ADR of US$164.31 in 2008, compared with 2007 when occupancy was 70.0 percent and ADR was US$166.69.

• Full-service hotels’ GOP in 2008 was 34.3 percent, compared with 34.4 percent in 2007. The GOP was equivalent to about US$21,972 per available room.

• The study showed the bigger the full-service hotel, the better the occupancy. Full-service hotels with more than 500 rooms reported an occupancy rate of 71.3 percent compared to hotels with under 150 rooms, which reported an occupancy rate of 63.5 percent.

• Among the limited-service hotels, the Middle Atlantic region had the highest occupancy rate (72.3 percent) and the highest ADR (US$147.50) among the geographic regions for the year.

• Limited-service hotels’ GOP in 2008 was 51.2 percent (compared with 55.4 percent in 2007), which amounts to US$12,842 per available room.

• Limited-service hotels’ Income from Fixed Charges (Gross Operating Profit after deducting franchise and management fees) was US$47.65 per occupied room night-up from US$84.15 in 2007. That represents US$11,406 per available room.

The HOST Study is the most extensive and definitive database on the U.S. hotel industry revenues and expenses. The study includes operating statements from more than 5,800 hotels. HOST contains information on hotel revenues and expenses, as well as presents information by department including rooms, food & beverage, marketing, utility costs, property and maintenance, administrative & general, and selected fixed charges. HOST is available in electronic, PDF or excel files, or printed versions. For more information and details about HOST e-mail ideas@smithtravelresearch.com.

About STR & STR Global
For more than 20 years, Smith Travel Research has been the recognized leader for lodging industry benchmarking and research. Smith Travel Research and STR Global offer monthly, weekly, and daily STAR benchmarking reports to more than 36,000 hotel clients, representing nearly 5 million rooms worldwide. STR is headquartered in Hendersonville, Tenn., and STR Global is based in London. For more information, visit www.smithtravelresearch.com or www.strglobal.com.

This article comes from Hotel News Resource
http://www.hotelnewsresource.com

The URL for this story is:
http://www.hotelnewsresource.com/article39541.html
Nagib Lakhani
RevMax Hospitality Consulting Services
O: (425)677-7866
C: (425)445-7750
F: (866)508-7866
nagib@RevenueMaxConsulting.com
4313 245th Avenue SE
Issaquah, WA 98029

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Nagib’s Corner: Maximizing NOI

Thursday, May 14th, 2009

We have good news but it sure is sprinkled with some tough stuff as well.

Reports have predicted around a 30% decline in NOI.

Companies are generally slower to cut costs at the onset of a slowdown and slow to add expenses back on when we’re on the upswing. The result is better NOI on a rising market, worse on the decline.

What can we do to ensure you maintain margins as best possible?

1. Avoid compromising on your marketing budgets. However, you must demand more accountability and returns on your marketing expenditures. Many ways to do this.

a. Track the performance of your sales team – for those who do not, you are missing out on the most powerful tool to manage your sales effort. It does not require fancy software or dedicated time from scarce human resources: USE YOUR NIGHT AUDITOR to track and manage who is in your hotels, the companies they represent and if your sales team has a communications trail with that organization.

b. Monitor the return on your marketing programs – your Front Desk can/should already be asking all guests the reason for their visit – add how they heard of you and record the responses. Also, add calls to action on your marketing programs that will make it easier to recognize/track the source of the guest visit.

2. Labor, labor, labor – mucho bucks here. Set your budgets to identify fixed vs. variable labor – Housekeeping, restaurant, catering, housemen, etc, are all examples where significant portions are variable. Identify the variable component, educate the department head of the relationship and then hold them accountable to maintain this relationship between revenue and labor-weekly, not monthly.

a. Reward success in maintaining this relationship of variable costs to revenue. It will force accountability and you will come out ahead, every time.

3. Cross training – this is a great time to make this mantra a reality. Front Desk cross-trained with housemen, Housekeeping, restaurant and catering, amongst many. More variety for the individual thereby making them more valuable team members while causing the performance bar on what it takes to be a long term player to rise exponentially.

4. Communications – everyone is mindful and aware of the situation. Let them know your challenges and engage them in solutions which they will be so well versed in identifying. Keep this ongoing, share results, successes and frustrations. Make sure you define what success looks like so they recognize it when they get to it. Simple but often overlooked.

5. Tighten reporting intervals. Check labor performance weekly (actual vs. projected on a proportional basis - % against catering revenues, $ POR for HK, etc). This can be done for almost all departments and will allow you to track progress towards achieving your labor goal.

6. Utility costs. There are very economical energy management systems that require minimal installation, minimal purchases and yet deliver stellar results. You can achieve recovery within a year or so. Huge savings possible.

7. Most of all, INSPECT WHAT YOU EXPECT. When results are expected, and you look for them, you will get them. Expecting without inspecting will always leave you wanting (I can be poetic too!)

Feel free to call if you wish to share thoughts on your approach or if you want to bounce off any ideas on process or strategies to manage the areas mentioned.

Call if you want to learn of the Trends for hotels in your regions.

Also remember, pontificating is easy, doing is tough. It never comes easy – but it has to come.

Thank you and take care.

Nagib

Nagib Lakhani

RevMax Hospitality Consulting Services
O: (425)677-7866 C: (425)445-7750 F: (866)508-7866
nagib@RevenueMaxConsulting.com
4313 245th Avenue SE
Issaquah, WA 98029

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Incentive Plans to Help Our Industry

Monday, April 20th, 2009

Cash incentive/bonus plans are not as effective during recessions. The cash typically gets used to pay down bills or to make a purchase that’s needed. 

If you want to provide an incentive to your employees and help the industry give trips as incentive. The trips can be to another of your hotels or resorts, or work a trade-out with a competitor. Most trips offered as incentives in our industry don’t directly impact rooms revenue, but they do impact F&B revenue and spending on recreational activities.

Most importantly, trips that include loved ones benefit employers both from the recognition of the loved ones, and for the trip itself.

Negotiated properly, trips as incentives can cost a company far less than cash incentives. 

Offer more trips to recognize more employees more often. A weekend get-away is a great incentive. 

Get creative on your incentives. Recognize your employees and expand travel as well. 

What is your company offering as incentives?

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Are you a Talent Attractor?

Friday, April 10th, 2009
Even hourly employees need to be highly skilled to enable hotels, clubs, restaurants, and other hospitality companies to succeed. Our industry does hire a lot of people at minimum wage. Those minimum wage employees still need to have the skills and attitude that our guests can identify with and appreciate. Most organizations emphasize skills for their management employees. Service businesses need highly skilled employees in both areas. 
Characteristics of People who are Talent Attractors:

  • Have personalities that people “naturally” are attracted to. Good attitudes, ready smiles, and a true interest in the well being of employees and guests.
  • Daily demonstrate the ability to teach employees core competency skills and attitudes. Talent attractors help people develop their skills fully. It’s not enough to teach/demonstrate the basics. Talent attractors take the extra steps to assure their employees are developing skills to take them to the next step in their career.
  • Talent attractors get people excited about their jobs, even if the job is dishwasher. How? By making sure each employee knows they are important to both the mission, and to the talent attractor. Employees find it easy to get excited about doing their best when they know their boss is excited and truly cares about the employee.
  • Measure the performance of their employees, explain the measurement and why it’s important, and then talent attractors give employees praise and feedback on how they can do better.
Talent attractors run Departments and businesses that “feel good.” The operation appears to run like a well oiled machine. 
Organizations with talent attractors have less turnover and feel the impact of economic downturns less. 
How? Because employees are motivated and excited, service standards are superior to competitors. They have more business to start with, and they lose less of that business in a downturn. Many find that business actually increases. Satisfied customers come back, even if the cost is slightly higher.
How do you become a talent attractor?
  • It starts with a “can-do” attitude.
  • Next develop the strategic direction for your Department or business. Part of that strategic direction is how people develop and gain additional skills.
  • Then be sure you understand the overall goal of your hotel, restaurant, etc.
  • Last, be sure you understand where to recruit to get the skill sets you need in your employees.
Each new employee needs to improve your profits every single week by a minimum of 10% their annual salary.  (Sales people by 20%.)
Different jobs respond to different recruiting techniques. Different generations respond to different information in recruiting ads. If you don’t know which recruiting techniques to use, reach out to organizations, like Securemploy to find out.
Talent attractors are in very high demand as employees. They are always ranked by employers in the Top 20%. Improve your promotional opportunities by improving your skills as a talent attractor
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Posted in Finance, Food & Beverage, Operations, Recruiting & Training, Revenue Generation, Sales & Marketing | No Comments »

Controllers need new skill sets to adapt to permanent changes in job market.

Tuesday, March 24th, 2009

Historically Controllers and Financial offices have spent majority of time in analysis, which means spending most of time looking at what has happened.

Business markets are rapidly changing permanently. To succeed long term businesses need to be able to adapt very quickly. In past, during downturns most business tightened down. To succeed today business need to quickly expand into new areas, penetrate new markets, and add innovative values to existing markets.

Historical markets for most hotel brands are changing rapidly. Everyone is trying to skim off the bottom end of the business at the next higher quality level above them.

The demand today and for the next several years will be for Controllers and Directors of Finance who have:

-Exceptional communication skills instead of transaction skills.
-Can switch gears to concentrate on how to bring more value to their organization. (Become a profit center instead of a cost center.)
-Have ability to look at new ways to do their jobs.

Instead of concentrating on how things affect cost, concentrate on how things can add value to the business. Spend more time on Sources and Uses of Funds Statements. When looking at Revenue and Yield Management concentrate on how it can be grown instead of controlled.

In your hotel has the budget become a crutch to avoid making a decision. “We can’t do that, it’s not in the budget” How many times do hotels do monthly variance analysis on a budget that was blown out of the water the first quarter. Why?

Are you willing to share? We’d like to hear from Controllers/Directors of Finance on what they are doing to help their hotels/companies grow revenue and improve value.

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Don’t Downsize Yourself Out of Business (or a Job)

Tuesday, March 24th, 2009

Lot to be said for old saying: “You’ll never cost save yourself to prosperity.”

Smart hotels and companies are looking to grow value-added business. What’s a value added business? Most obvious in recent years has been the addition of spas and spa services at many hotels.

15 years ago Accounting and Finance represented 2.5% of the average business budget. Today that’s down to 1%. Why? The Department is viewed as a cost center instead of a profit center. Departments that help generate revenue and profits get rewarded.

Finance in our industry has spent most of it’s life looking backward, evaluating results. This economy requires Controllers and Directors of Finance who can look forward and help their companies.

What do you feel your role as Controller or Director of Finance is in identifying new value-added propositions for your hotel/company?

-Helping identify new sources of revenue?
-Adding value to existing sources of revenue to improve margins?
-Helping identify how to increase revenues from select market segments by adding value?
-Identifying how to use out-sourcing to reduce product and labor costs?

I’d like to hear from you. What are you and your hotel/company doing in the above four areas? Other areas?

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Recognizing Revenue & Your Role in Driving It

Tuesday, March 24th, 2009

View revenue generation as a marathon race instead of sprint. Companies need revenue every month, not just next month or next quarter. Financial institutions are forcing businesses to spend most of their time concentrating on short-term revenues.

Is this happening at your property? Your company? What are you, as Controller or Director of Finance doing? How are you helping drive revenue? What are you doing to help the property/company assure revenue and ADR for the long term?

Recently talked to one company that prepare annual budgets and projections, but their real emphasis is on rolling the whole process over every quarter. That means they don’t have to start over every year.

Likewise, they establish a desired ADR, annual occupancy, and ROI for each property, for each of the next three years as well as a target 7 years out.

Each Department is aware of their role in generating revenues and ROI. Expense Departments are encouraged to identify ways they can contribute to revenues.

Some of their hotels have Both Revenue/Yield Management and Sales Departments. Their Select Service hotels only have Sales. Each time a hotel is asked for rate concessions the hotel can immediately see how the requested rate impacts revenue immediately and long term. This way the hotels can evaluate how best to negotiate and structure the business for a win-win, now and longer term.

This enables the property Controllers and Corporate Finance Department to assist GM’s and Corporate Management in advising owners and financial institutions on the proper revenue generation both short term and long term.

I know many of your hotels and companies are doing similar things.

To aid all of us, we’d like to hear what’s working for you. What challenges are you dealing with? Let’s get some dialogue going to make all of our jobs easier.

Tom Ferree, CEO, Ferree & Associates

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Anybody wrestling with what inflation can do to multi-year contracts?

Tuesday, March 24th, 2009

We are fortunate to have several multi-year contracts for corporate transient business. We also have several companies that book multiple groups per year. They are asking for very major concessions for 2009 and we would like to tie them into multi-year contracts to minimize the impact on long-term revenues.

There’s starting to be a lot of talk that inflation could significantly exceed 10% within 3 years. Is anybody putting in inflation language in multi-year contracts? Anyone willing to share how they are wording those?

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