Seeking solutions to increase hotel profitability

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Seeking solutions to increase hotel profitability | By Jonathan Humphries — Photo by EHL

Those are some of the questions we posed at a hotel ROI breakout session at the I nternational Hotel Investment Forum (IHIF) in Berlin earlier this month, with the aim of drawing out solutions from the panelists taking part.

Recent trends show RevPAR (revenue per available room) has been on the rise despite terror attacks and the global financial crisis, while global gross operating profit performance has declined across many markets. Since 2000, according to data from HotStats, improvements in gross operating profit per available room (GOPPAR) across a significant sample of hotels in the UK, have dramatically lagged behind gains in TrevPAR (total revenue per available room).

Putting this into context, Jonathan Langston, co-founder of Hotstats, said this showed "how driven we are to focus on profit conversion as a key performance measure of the hotel industry. RevPAR tends to flatter to deceive because it doesn't tend to take into account rises in OTA costs."

"Looking forward I suppose where we don't see much yield compression coming through to increase values, the only way to enhance value for owners and create more of an alignment between operators and owners is to extract more profit out of the business, to drive the bottom line, absent any yield compression and rising capital values."

The reasons for the declining gross profits are many, ranging from the OTAs increasing their share of the business to wage increases, and ultimately a more complex and competitive operating landscape. In the lively session, we discussed what could be done to reverse the trend. The panelists identified the following possible solutions:

As an industry, it was agreed we need to stay relevant. Given the challenges we face today, we have two choices: 1) do nothing; or 2) do something different. If we do nothing, we will be unable to reverse the trends; however if we do something different, we have a chance to be more profitable, survive as an industry and of success.

Revenue Management

Jonathan Humphries

Senior Lecturer at École hôtelière de Lausanne (EHL)
Jonathan Humphries

Jonathan Humphries is a senior lecturer at École hôtelière de Lausanne (EHL) and is the chairman and owner of HoCoSo, a Swiss-based hospitality consulting company specializing in asset management and advisory services within the extended-stay hotel and serviced apartment sectors in Europe.


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