REVPAR: when empty hotel rooms “go to waste”
If many hotels are struggling to take off, it is due to a “kamikaze” mentality, which represents a complete departure from normal market logic.
While in every other sector, before starting a business, market research is conducted to ascertain the presence of a real economic advantage in making a certain investment, in the hospitality sector the exact opposite occurs: one thinks first about mixing the concrete and building the facility (the real estate property is considered a good investment, regardless of its intended use), and only then focuses on the rest.
“God gives according to need” seems to be the motto of those who decide to build a hotel.
But, apparently, in many cases this doesn’t really work out.
The problem is that some embark on a business adventure, like a motley crew, without analyzing whether or not a given location lends itself to the investment, without giving any thought to the other competitors with whom they will have to share the pie (which will inevitably yield smaller and smaller slices).
Fixed costs and the correlation with potential revenues are not taken into account.
This approach is similar to that of a naive painter: it is one thing to create beautiful and appealing artworks, but there is no guarantee that someone will be willing to buy them.
Thus, we arrive to the heart of the matter: the other mistake that is often made is that of deceiving oneself into believing that one can impose one’s prices on the market.
High prices are randomly named for a room merely because budgets need to be balanced.
But those who think this way lose sight of reality: truthfully, the customer gives two hoots about the accounting statements of any given facility.
What he is actually interested in is spending as little as possible.
After all, would you grant your employee a salary raise merely because he claims that his standard of living is high and, therefore, he needs more money for spending?
The answer is self-evident, as is that of the customer.
Indeed, given the same level of service, the choice falls on the most convenient offer.
The customer is the true employer and one must be equipped to respond to his logic.
So, the moral of the story is that the rooms remain unsold and the much-feared fixed costs begin to mark the beginning of the end. Indeed, when rooms begin to remain unsold, chain reactions can be triggered which risk bringing about a collapse: investors begin to feel the effects of financial hardships, employees begin to fear for their jobs, tensions rise and service quality drops.
And the (few) customers flee.
But there is also another problem: for far too long entrepreneurs have had a partial vision in assessing the market.
They have always chased logics related to average daily rate per room or occupancy.
On the other hand, they have never considered these two aspects together, i.e. the average revenue calculated by taking into account both the sold rooms and those that remain unoccupied.
We are talking about REVPAR (revenue per available room): this (unknown) must become the real reference point for those who intend to improve a hotel’s performance!