Hotel Resort Management Company Must Watch Price and Supply

Maximizing profit is the fundamental reason why one hotel resort management company is more successful than another. Also, achieving higher net operating incomes is often a product of demand and getting the best price for available guest rooms in correlation to it. According to these recent PKF Hospitality Research reports, of which we have highlighted three major excerpts below, late 2011 and 2012 should see significant rises in profitability: – “Beginning in Q1 2010, demand for hotel rooms started to increase. As this new demand outpaced the change in supply, increases in occupancy led to a recovery in ADR and profit margins during the second half of the year.” – “Our current Hotel Horizons supply forecast calls for very little supply growth during the next five years. The occupancy and ADR variables from which new supply is triggered are not projected to return to levels that warrant supply additions until 2012-2013at the earliest. Returning to Chart 1, these levels occur approximately at long-run average occupancy and equilibrium ADR—ADR combined with occupancy that provides satisfactory returns to developers and capital suppliers. This news, coupled with the 18-month development time of a hotel and a PPI forecast that remains at elevated levels, translates into small levels of new competition throughout our forecast period.” Here is the full story complete with statistical analysis to evaluate how your hotel resort management company performance compares. – “After analyzing the results of the 2011 Trends® in the Hotel Industry survey, the relationship between price positioning and profits appears to be as strong as the correlation between room rates and the ability to grow revenue. In general, hotels in the highest room rate categories achieved the greatest increases in net operating income in 2010. Conversely, properties in the lowest rate categories either achieved minor increases in profit, or suffered their third consecutive year of declines on the bottom line.” View the charts and read more from this hotel management advisor here. Taking all of the above into consideration, one main objective is to ride the demand factor and achieve the highest room rate while staying head of the supply curve. However, as supply is diminishing and demand rises, many hotel development advisors will be advocating that this is the time for lodging developers to start building again. Thus, the cycle begins where supply starts to impact demand and pricing and profits are potentially reduced. How is your hotel resort management company handling the current demand and supply issues in their respective lodging markets? Is there a plan in place that factors in any increased supply slated for a particular city or county? If so, what can you share with our readers that relates to the studies discussed in this blog.