October 20, 2020
Hotel Budgeting 2021: Planning for a season unlike any other
Jos Schaap | ROOMDEX
Around this time of year hoteliers would normally be in the throes of preparing their annual budget for next year. General Managers and back-office teams would be knee-deep working on business plans. It means hours of devising strategies and confirming revenue expectations for the coming year. But this is 2020, the year like no other, and the future has never been cloudier.
Most hotels had just begun to implement their 2020 budget when the COVID-19 pandemic hit. No one could have envisaged what was about to happen next. The global tourism industry was brought to a standstill, causing massive job and revenue losses. The industry is now running about 40% to 50% behind pre-COVID-19 occupancy levels, and there likely won’t be much change over the next 10 to 12 months. According to the forecast by STR and Tourism Economics, full recovery in demand for U.S. hotels “remains unlikely” until 2023, while room revenue will remain down until 2024. It has been calculated that the impact of coronavirus in the United States is more severe for the hotel industry than the September 11 attacks and the 2008 recession combined.
How Can a Hotel Budget for 2021?
Budget season is always stressful but budgeting for 2021 is a completely new experience. Business survival will be a big concern. The economy will be under significant pressure from the pandemic and no one is certain of what the new year will bring. In times of crisis, the first reaction of many businesses is usually to adopt a short-term cash-optimization approach making swift adjustments to their operational and investment strategies. However, cutting expenses can have an adverse effect, creating an unsustainable workload and decreasing guest satisfaction. So, how do you begin?
Going back to sound basic principles is key. This includes, utilizing and maximizing existing hotel resources and making operations as efficient as possible.
Maximize Value with Upgrade Opportunities
With the onslaught of Covid-19, pressure on occupancy and REVPAR room has imposed unprecedented challenges to owners and operators. With the likelihood of reduced occupancy rates for the foreseeable future, revenue strategy should focus on maximizing your rate, and the value of each guest, as much as possible. Upgrades are a simple and effective way to increase revenue per booking and fill the gap of missing dollars.
And we don’t just mean upgrading to the next available room category. In times of low occupancy, if you find your suites are empty and unlikely to get, you hotel should ignore the normal premium room rate. Instead recognize that premium hotel rooms are hotel space that you can get revenue from. Luxury hotels are being hit the hardest with many suite products sitting unoccupied. Every additional dollar made through an upsell or upgrade is an almost 100% addition to the margin and contribution of the hotel.
Invest in Technology When Budgeting
While every dollar truly counts right now, in a world where higher-standards of hygiene, reduced human interaction, and social distancing will be the norm, at least for a certain period of time, having the proper tech tools in place is a priority. Technology can help support your future success in operational excellence. “Keeping cost down is important, but technology needs to be efficient. If it can allow any one of us to do our jobs better or faster, there’s a price for that. Time is really important and very expensive.” Chris Chapin, The Olympia Companies.
Most hotels hear “artificial intelligence” and “touchless kiosks” and assume they are luxuries they can’t afford. But both drive efficiency when you need it most and pay for themselves in very short order. Just by upgrading to a cloud-based PMS, hoteliers set themselves up for success in both the near and long-term. Open API’s extend your capabilities and allow for interfacing with other applications that can help you reach financial goals. There is a myriad of technology options out that will deliver great ROI while optimizing your guests’ experience.
Budgeting for 2021 is a new horizon for all of us. Financial-planning is not a business-as-usual process and crafting the perfect budget will be a challenge. “There’s no operator and no owner that’s going to go into 2021 with an annual business plan and a budget that they can have any reasonable degree of confidence that it’s going to realize itself the way it’s planned out,” Richard Jones, SVP and COO at Hospitality Ventures Management Group. While there is no one right response for everyone the coronavirus crisis will end and people will travel again. And when they do, hoteliers must be agile enough to increase their share of existing demand, maximize revenue and emerge stronger than they were pre-pandemic.