In owning a hotel, getting to profitability could mean doing this differently

In today’s tricky hospitality market, savvy hoteliers have had to find creative ways to remain profitable amid emerging and challenging trends. The hotel industry has never been able to chart a clear path to normalcy following any economic disruption and it has constantly been challenged to pivot its focus based on changing global trends. Therefore, it is a good idea for owners and asset managers to rethink their fiscal strategy for the remainder of the year. 

Hotel operators have expressed optimism over the past two years as they await a return to profitability among corporate travelers and events, trends that, in many cases, have yet to materialize. Growing top-line revenue in this environment is far from easy, but it can be done with careful planning and decision-making, erring on the side of people and productivity over short-term gains. 

First, operators must be less influenced by the forecasts they receive from the brands and third-party data analysts and make decisions based on real-time information. Analyzing current numbers instead of comparing them to monthly or yearly trends should be the foundation for current forecasting. Many hoteliers today are operating under the impression that the optimism of early 2023 is not translating to predictable trends in 2024. Instead, updating your models and looking at smaller sample sizes is essential to increase accuracy. Any forecast farther than 90 days out is likely too ambitious, and accuracy must be preserved above all else. 

Hotels should also revisit their expense projections multiple times throughout the year. Though the value of some products and services has normalized, inflation and price fluidity continue to surprise consumers and business owners. In many cases, this year’s budgets are already obsolete and it’s time to go back to the drawing board and set new expectations for the remainder of 2024, focusing on fiscal sustainability and a reduction in operating overhead. 

Less is More

Quick quiz for hoteliers: How many managers and how many full-time employees are on your staff? Many operators have too few hands on deck to manage operations, but others could be misusing resources in the wrong places. As a result, hoteliers often find themselves trying to achieve profitability despite a 70% to 80% allocation overhead on each of their guestrooms. This issue is eating at hospitality from both ends—hampering operations lacking workers and driving up costs to unsustainable levels in fully staffed businesses. Hoteliers are looking for ways to leverage technology and reduce the reliance on labor when managing redundant functions, not only as a cost-saving measure but also as a means to reduce stress and workload among hourly associates. 

To help maintain control over their properties, hotel leaders must rethink and adjust the key performance indicators they consult. Operators should focus on growing profit per available room, driven by reduced fixed overhead costs, to stimulate revenue growth without adding to their team’s workload. The first thing hotels can do to improve operating costs in this area is to rethink the approach to scheduling and find ways to reduce missed shifts. Increasing reliability and lowering extraneous expenses goes a long way toward creating a consistent operating and guest experience and help keep a lid on last-minute decision-making. 

The hospitality industry was designed to be personable; it runs on communication. Managers and hotel leaders must be more available to their workers. When leaders find ways to eliminate layers in an organizational chart, they can create more direct relationships with senior leaders. As an industry, we must find more ways to connect the most experienced individuals on property with owners and line-level workers to transfer their experience, not just information. This is the best available method for catching trends as they emerge, while rebuilding hospitality’s base on skilled workers, reducing long-term labor costs. 

Change is Constant

Many in the hotel industry are looking at the trends impacting hospitality, at how business travel is still in flux, and how leisure bookings have been more evenly spread across destinations and are still deciding to stay the course until a “more favorable” moment arises. The moment they are waiting for is likely never going to come. The industry is in a constant state of change, continually iterating and never returning to the past. The goal is to adapt to these new economic conditions and deliver the best possible guest experience, above all else. 

To do this, hotels must avoid cutting anything that impacts the guest experience. After all, the concept of the annual meeting may be gone, but events still thrive in smaller bites. Hospitality sales departments need to know these customers more personally and court them more actively. Salespeople who have taken this approach have seen an increase in banquet and meeting rentals, as well as higher engagement scores. Most importantly, closer interactions between sales and travelers help keep hotels informed on what trends are driving bookings and how to adjust their strategy in response. 

Lastly, controlling overheads involves reframing the concept of productivity. From moment to moment, hotel workers are among the most productive workers in any industry. However, hotels as a business often struggle to set realistic goals beyond identifying the next revenue plateau. Workers enjoy being part of something that creates opportunities for others or helps others enjoy their lives in new ways. If operators can identify these drivers and reframe them as clear goals, they may be surprised to find how effective hotel workers are at hitting their mark.   

These represent just a few ways the hotel industry is losing its obsession with unfocused forecasting in favor of growing profit per available room. It starts and ends with people and is sustained on high-quality service and sold hospitality fundamentals. Most important: the willingness to adapt to the world as it is today.

Story contributed by Ted Darnall, president and CEO of lodging and technical services, HEI Hotels and Resorts.