Backing Up Strategies

By Aditya Sahay & Simran Saggu

Dear Diary,

The pandemic has left all of us in a state of disbelief. Most of us are thankful to have made it through the worst phase safe and sound. With the vaccination drive going on in full swing across the globe, people are back on the road. The pandemic has been so brutal that unsurprisingly, every industry has gone through drastic changes throughout the pandemic — the hospitality industry is no exception to this.

In 2021, I witnessed that the market behavior has been surpassing expectations, especially for Special Events and weekends. Hotels in my portfolio were happy to post higher KPIs for most of the events throughout the year. The question that arises is — What is driving this performance? Is it the market? Is it Revenue Management?

A look at performance of hotels in my portfolio indicated that the rates are recovering quickly — making Special Events ideal to post strong performance numbers. One would argue that the bigger players in the market used RM as a practice pre-COVID as well — so what changed? Revenue Management as a practice carried their learnings from the past downturns of 2001 and 2008 into 2021- these downturns taught RMs that they need to be more aggressive with the rates, if they are too conservative then the recovery could be dragged forever. Easy lesson to learn, hard lesson to execute because you need to find opportunities to hold or raise rates in a volatile market. Tracking booking windows, watching channel production, understanding the segments that were traveling — all this analysis is key to understanding where those rate opportunities are. In the past year, one of the key market behaviors I observed shortening booking windows. As the RM team and the property team took notice of this, the results were quite amazing.

Taking Labor Day weekend as an example — for one of the hotels in my portfolio, I observed, 90 days out from the actual event day, the Average Daily Rate (ADR) at which the bookings started to flow was ~20% below 2019 figures. As the pace of bookings was slow, the revenue posted at 90 days to the event was negative as compared to 2019. Pre-COVID, in this situation, we would have dropped rates to stimulate demand. If it persisted the team would have continued to dramatically discount, in a strategy that could only be called panic RM. This time we knew that the booking windows were shorter, hence held on to our strategy.

It was scary as ADR and Occupancy continued to trail 2019 but it was a good thing that we held on because around 10 days before arrival, 2021 ADR started outperforming the 2019 ADR the Yo2Y difference inflected from negative to positive. As it has been observed that in the last few days arrival, the bookings see a surge — this further helped the hotels to propel past 2019 and attain higher performance. As we look at the recap of the event, on average, the hotels witnessed a 200bps-400bps jump in their Revenue Generation Index (RGI or RPI).

The observation is not an isolated event — similar strategies worked for the portfolio of hotels for July 4th weekend and subsequent events as well.

This helps individuals and firms understand that one of the key elements in the post- COVID world — We need to reset our expectations from the market performance, and make sure that we read and understand the new dynamics of the market. This has gained utmost importance as we look at RM vertical as well as Pricing Strategy as a whole. As we move towards 2022, which is expected to have slightly longer booking window as compared to 2020 and 2021, the RMs would need to adjust the restrictive strategies equally far out and back them as they move closer to the arrival date — this would help the hotels to maximize their key performance metrics.