Why Asset Managers Need Hotel Demand Management

Note: This is part 1 in a series of 5 articles following our recent Hospitality Management MBA Bootcamp at ESSEC Paris. The session on Asset and Demand Management was conducted by Alex Slors of Alex Slors Consulting

Asset Management’s objective of increasing the asset value rests on three main stakeholders: the Owner, the Hotel and the Operator. Working in an increasingly complex environment and structure, Asset Managers have an ever-growing need for reliable data to ensure the three parties are working jointly to improve/optimise asset’s performance.

This means understanding the financial objectives, while working with Revenue Managers, to expound the limitations of distribution, and working closely with Marketing to increase the promotion and marketing activities to improve demand and coordinate for optimised delivery.

Hotel Demand Management is a holistic approach to finance, revenue, distribution and marketing. By properly using the hotel’s data, and aggregating it into usable and comparable data points, risks in the decision making process are drastically reduced.

Hotel Demand Management is crucial to Asset Management.

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The Asset Management triangle explains the relationships that increase asset value and the key conclusion that:

“Only when all three parties function well and get a FAIR SHARE of the cake can we maximise on the overall ASSET VALUE and reach an OPTIMUM in valuation.”

The Asset Manager in the middle of the triangle needs to ensure that relationships and agreements between the Hotel, the Owners and the Operators are optimised; and to work closely to understand what is generating the demand, and how to properly cater to that demand. To do this, Asset Managers use Demand Management tools, which properly analyse data, seeing that good data reduces risks and opinions.

Understanding the three stakeholders:

The  Owner/Investor invests capital into the hotel, with hopes to improve the value of the investment through an exit strategy, and expects a return on investment. Depending on the investor this can be a long term dividends strategy, or a sale/merger return.

The Hotel manages day-to-day activities in the hotel. The main objective of the Hotel and its staff is to take care of the guests. A Hotel’s executive team is concerned with profit and loss, but its main focus in day-to-day activities is guest experience and satisfaction. This tends to put some strain on the Owner/Investor and Operator relations, because improving quality often means increased costs.

The Operator attempts to increase the top line revenue by ensuring the average price and occupancy keep increasing. Experienced operators keep an eye on the bottom line. But the Operator’s main concern is often focused on the top-line through a revenue maximisation strategy and rarely a profit optimisation strategy, which again puts strains on the Hotel and the Owners, who have slightly different objectives.

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In the middle of this back-and-forth is the Asset Manager, who needs to make the following three objectives work together to increase the value: improve guest experience and reputation, to increase perceived value (Hotel); improve top line revenue, to show growth (Operator); and develop a healthy bottom-line revenue according to the planned exit strategy (Owner).

Again, the one factor that aligns the three vectors is data, understanding the demand, predicting where resources will be needed to satisfy that demand, and analysing the weaknesses of the structure to request investment all rely on data tools.

Hotel Valuation vs. Revenue & Distribution

What is asset value?

The monetary expression of what something is worth.

Increasing revenues and decreasing costs has a direct impact on the asset value. This is how decisions made by Asset Managers may impact owner’s decisions of assets future (sell, keep, and change management structure).

Examples for the value growth drivers are:

Increased Revenue: optimising rates and distribution to increase occupancy and average rate, are “easy” ones. Then there are more detailed elements such as understanding which segments should be focused on what will also increase ancillary revenue.

Decreased Costs: while hotel staff will always try to increase quality by increasing personnel and renovating the hotel, better training of staff and improving service through higher customer care can decrease costs on the long term. There are more mundane tasks such as removing services and options that cost money, but aren’t being used. Through the use of modern Hotel Demand Management tools to analyse data, one can analyse the cost of distribution, which can have an immediate effect on the bottom line. As hotels have seen recent years as the Cost of Distribution has increased at a dramatically faster pace than Revenue has increased leading to a significant drop in profitability and has led to an investment gap in tools

Smarter Investments: such as understanding changes in ancillary revenue at the bar or the restaurants can help improve investment in the right place, which will not only increase the ancillary revenue, but often also reflect in guest satisfaction.

Reduced Risk: by having more data, available faster, one can improve decisions, and because one does not count solely on opinions, the risk for investors and the rest of the hotel staff reduces appreciably.

Market Situation: being plugged in with correct data sources such as STR Global, one can know in advance how the market is performing, spot trends in higher and lower performance for the market, and understand how one is performing compared to the market.

In Summary

Asset Managers and the field of Hotel Demand Management are both data centric, and they need rapid access to reliable data, properly presented. By working off data, to coordinate internally and to reduce the risks, Asset Managers can take better decisions, and formulate finer strategies for the three stakeholders in a quickly evolving marketplace.

This article was originally written by the SnapShot team. It has been moved here as part of the Shiji Group family of hospitality technology brands.