Total Profit: With Revenue Roadblocks, Operators Shift Focus to Costs

Hoteliers can no longer rely on the healthy revenue growth they’ve experienced over the past few years. To retain profit margins, they must shift strategies to controlling costs.
Total Profit: With Revenue Roadblocks, Operators Shift Focus to Costs

As hoteliers refine their forecasts for the remainder of 2024 with a focus on steadying profit margins, an evident deceleration in top-line revenue has many shifting their focus to controlling costs. 

Recent reports point to increased pricing pressure across the industry and demand patterns that have flatlined after years of post-COVID growth. Some experts, as you’ll read below, suggest that the return of group business may never materialize as many hoteliers across the industry have been counting on.  

In essence, this means hotel owners and operators can no longer rely on the steady near-term revenue growth they’ve experienced over the past handful of years. On the flipside, while inflation seems to be moderating, the costs of operating a hotel – namely labor and amenity costs – continue to rise. To simply keep profit margins where they are, hoteliers must shift strategies to controlling these costs. 

As such, it is a good idea for owners and asset managers to rethink their fiscal strategy for the remainder of the year, recommends Ted Darnall of HEI Hotels and Resorts, in a recent HOTELS Magazine article 

“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,” Darnall says. “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.” 

Some tips for profitability from Darnall: 

  • Put less influence on forecasts provided by brands and third-party data analysts and instead 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.  
  • Revisit expense projections multiple times throughout the year. "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,” he says. 

Darnall says 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 to reduce stress and workload among hourly associates.  

Eroding Profits in the F&B Department 

One area hoteliers have struggled to optimize profitability is in the Food & Beverage (F&B) department.  

In Hospitality Investor, Editor-in-Chief Patrick Whyte says the F&B sector is struggling overall, and that includes hotel F&B. From increases in energy costs to ingredients and labor, cost increases are outstripping revenues, he says.  

Whyte says that while a luxury hotel or resort is expected to offer a range of F&B services, including room service, there is increasing pressure on room service in the mid-market that may lead it to become expendable. 

“F&B is out of sync. It’s not like guests don’t want to spend money in hotels – they’re spending more on the average rate, they’re spending more on wellness, spa and leisure activities, golf, albeit it’s slowed down year on year,” Michael Grove, chief operating officer at HotStats, told Whyte. “But they’re not spending money in the food and beverage outlets in hotels, or nowhere near enough to offset the cost increases." 

Analyzing non-room revenue trends and centralizing data from all the revenue sources across a hotel, including F&B, will be key to making more profitable decisions in 2024 and moving forward. 

Control 'Customer Capture’ Costs 

In HOTELS, columnists Katie Krieger and Susie Park from the JLL Hotels and Hospitality Group may have coined a new term for the longstanding challenge of rising hotel room distribution costs, recently analyzing “cost of customer capture.” No matter what you call it, increased distribution costs continue to pressure operators’ bottom lines. 

“All stakeholders continue to be focused on maintaining and growing profit margins — distribution channel mix and associated cost of capture are critical pieces of the puzzle in preservation of it,” the article says. 

Kreiger and Park highlight a new channel beyond traditional partners like Expedia and that has growing implications on distribution costs: credit card companies that offer incremental incentives to book through their platforms.  

"It’s critical for owners to choose the right operating partner that understands cost of capture and can deploy a meaningful marketing plan. Even shifting 5% to 10% of the hotel’s base of business from higher-cost booking channels can lead to meaningful profitability improvement and associated increases in asset value, the pair say. 

Reaching for Total Profit Optimization 

To help maintain control over the future success of their properties, hotel operators must focus on growing profit per available room, driven by reduced fixed overhead costs. Driving revenue growth without adding to the team’s workload will be essential. 

Access to the right data will help hoteliers make the best possible decisions. Business intelligence software pulls in data from more than 100 systems to enable centralized access to a hotelier’s property or portfolio’s most critical insights. Watch this demonstration of how access to rich, interactive data visualizations allows you to review your most important portfolio here. 

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