Three directors from some of London’s top hotels gathered at The Marylebone Hotel last month to tackle real revenue-management issues, from commission-hungry OTAs to rate-parity struggles and front-desk fails. Linda Foley, Paula Frey and James Byrne explain how boutique hoteliers nationwide can protect their profits
FIRST MEET THE REVENUE GURUS
Director of hotel revenue
Corinthia Hotels and Resorts
Having cut her hotel revenue-management teeth in a central-reservations role, Paula Frey found her calling. She went onto manage revenue at high-end hotels including Mountbatten Hotel, London and Mandarin Oriental Hyde Park before moving into a group role overseeing EMEA for the latter. Today, you’ll find Frey at her London base, from where she directs revenue management for Corinthia’s 13 properties worldwide.
London director of revenue
The Doyle Collection
Linda Foley also began her revenue-management career in a central-reservations role at a luxury London hotel, Grosvenor House Park Lane. Working her way up, she too landed a job at Mandarin Oriental — where she first met Frey — and spent seven years managing revenue from the head office. She joined The Doyle Collection four years ago and now directs revenue for its three luxury London hotels from our host property, The Marylebone Hotel.
Director, Eccleston Square Hotel
Coming from a family of hoteliers, James Byrne runs the 39-key Eccleston Square Hotel with his sister. Having studied finance and economics at university, he takes a keen interest in revenue management, though it really falls under the remit of his hotel-school graduate sibling. Having been thrown in at the deep-end directing a hotel in the competitive capital, Byrne faces many of the challenges encountered by other boutique hoteliers.
What are your daily revenue-management responsibilities?
Linda Foley: We would look at the STAR Report [from STR Global] and the pickup report — the business on the books (BOB) generated by the property management system (PMS) — three or four times a day. It’s important that it’s a fixed report so if the GMs run it they’re looking at the same numbers we’re looking at.
Paula Frey: The STAR Report is a good indication that I monitor on a daily basis — this is where we’re benchmarked against our competitor set and it tells you whether you were first second or third, based on the figures entered by hotels the day before. I also monitor pickup reports daily, the daily selling strategy and any other strategies implemented to see if they’ve been successful or not. For example, there’s one hotel where the competition is always doing better in terms of weekend occupancy rates and it’s just due to the location. So we’ve tried different selling strategies and they’ve not worked so we’re now pricing the hotel as the highest on a Saturday because it doesn’t matter where we price it, we’re never going to win the occupancy game. So we’re trying to win the RevPAR game on rate and so far it’s paid off.
James Byrne: For us it’s difficult to find the right competitive set [identify comparable hotels] for the STAR Report because we’re very unique. One set is based on location and the other is based on the product and that gives us an idea of where we are. Location-wise though, we have a lot of big hotels around us so it’s difficult to compare occupancy at a 39-bedroom hotel to a 200-300 bedroom hotel. As owner of a hotel, I’m reading the STAR Report every day and I’m reading the pickup report every two hours. London is so price-sensitive; if you’re priced out by three to five percent it will have a huge impact on your occupancy. There’s a tipping point and once you find your niche, you want to be priced 5-10% below the market — that’s when you see the big occupancy increases. If you’re right on the average, we find it’s difficult to compete but as we’ve got older we’re able to increase our prices.
For a boutique hotelier looking to expand property or portfolio, when should they look to recruit a revenue manager?
Byrne: Ultimately it’s a decision I’ll make on gut. Perhaps once I get to my third property I’ll think about it. For now we have a solution [outsourcing] that is cost effective and works very well. Even if you hire your own revenue manager there’s no guarantee they know what they’re doing so it’s a very difficult decision for an expanding hotel group to come up with an answer to that.
Frey: It depends on the cost because it comes down to your ROI obviously. If you look at cost of salary, I wouldn’t go as far as a revenue manager for you with 39 bedrooms. You could look for a strong reservations manager — someone who wants to move into the next role — but you’re still looking at an annual salary of around £30,000. Then you’ve got sick pay and holiday pay, and what are you going to do when that person’s off?
Foley: I’d recommend a good revenue-management company or a number two from a five-star hotel.
How much power do OTAs have over your business?
Byrne: OTAs have a huge amount of power because there are so many hotels in London. During the down period — end of December, January and February — everyone’s trying to get occupancy over rates so people are willing to cut off their left arm just to get people through the door. They don’t realise that in the rates they’re paying there is 20% VAT, sometimes OTA commissions of around 25%, then there’s credit-card fees, so the costs can go as high as 55%. And then you have to clean the rooms so the end margin the hotel is left with is tiny. If hotels continue to give OTAs more access to lower rates, higher commissions, then long-term OTAs will eat up the business. Of course you have to use them to get the occupancy, but there has to be some sort of limit where people say ‘no, it’s not working’.
Frey: When I was back at Mandarin Oriental, it was Expedia that was the biggest third-party and they had control of the market. I remember sitting with Expedia saying you’ve got too big for your boots, you’ve got to reduce your commission for us as a company, we’re 22 hotels, it’s ridiculous — and they’d say you’re small fry to us, we don’t give a damn about you. That was Expedia’s attitude and now Booking.com has the same attitude and we’ve created this monster. They’ve been smart in the way they’ve invested in advertising. I can talk to one revenue manager who says we should all group together in the luxury market and pull off these sites because we’re paying them too much commission — we could do it but we’re six or seven hotels, we won’t make any difference to them. And how could you tell your GM that you’re going to cut them off when that channel gives you €2m of revenue a year.
Foley: Unfortunately, OTAs are increasing. When I started in revenue management, business coming through OTAs — so Expedia, Booking.com, Lastminute.com, Laterooms.com for example — was around 3%. Now they’re up to as far as 16% average for a hotel in London, depending on the time of year. It’s not ideal. It’s an expensive channel; commission can average 25-30%. Your own website should be producing about the same, but it’s slightly under at the moment. The rest comes through the Global Distribution System (GDS).
It sounds like an increasing reliance on OTAs is eating into hotel revenue, how are you addressing this issue?
Foley: OTAs are a necessary evil. You have to work with them, they have such buying power and they have so much advertising spend — they have millions and they’re all advertising on television and everywhere now.
Byrne: But if hotels want to keep the upper hand they have to stay strong and resist the temptation to give into OTAs, because in the long run they’re shooting themselves in the foot. They might gain in the short term, but in the long term they’re just going to have their whole business eaten up. It’s ‘prisoner’s dilemma’, one hotelier gives in and everyone else gets screwed. If everyone stays strong, OTAs won’t take over the industry.
Frey: That’s a very naive approach because in some of my properties in Europe, 50% of their leisure business from third parties comes from one online travel agency and that can equate to more than €2m revenue a year. So you can stay strong on your commission levels, but if you’ve got figures like those you can’t just dismiss it.
Byrne: I’m not saying they’re not good at bringing business into the hotel, but the commission levels they’re charging are so high.
Frey: We don’t overpay commission, we fix it.
Foley: Yes, with that level of business coming in you can negotiate your commission down.
Byrne: Don’t give them the competitive edge, you’re just cannibalising the business. Don’t give into flash sales, don’t undercut your website, don’t offer exorbitant commissions — that’s what I mean by staying strong.
Frey: Unfortunately, all hotels feel that way and in other markets it’s the same.
How can hotel websites compete with OTAs when the first result that comes up upon searching for a particular property is often the OTA page?
Byrne: A lot of it comes down to the need for regulation. Google is a big factor in hotels’ reliance on OTAs because they allow OTAs to bid on individual brand names, including hotel names. That’s where revenue management and ecommerce blends together. OTAs are spending £100m a year on pay-per-click adverts. The majority of people who type a hotel name into Google click the first link, which has been bought by Booking.com for example, and the traveller thinks that is the same as booking with the hotel directly. Some might select the OTA purposely because they trust Booking.com more than the hotel, which I can understand considering the scale of its advertising.
I don’t mind if Booking.com goes to Saudi Arabia and brings me incremental business, I don’t mind paying 15% commission on that business. But I hate it when I travel to a foreign country, acquire a new customer, then that customer books through Booking.com because the OTA has bid on your name on Google. If you stopped that from happening, I think the majority of OTAs would lose 50% of that business overnight.
Frey: Yes, if you Google a hotel, nine times out of 10 Booking.com will come up so as bookers, if you’re not paying attention you click straight through to Booking.com.
How can you use pay per click advertising to your advantage?
Frey: You can increase direct bookings using pay-per-click advertising the same way the booking engines and the third parties work with Google — you can do it yourself.
Byrne: The only way to do it is to lobby the government to restrict the rights they [OTAs] have to bid on your name on Google, that’s the first thing.
What other ways can you incentivise people to book direct through your hotel site?
Frey: We’ve tried different things to get people who have booked through third-parties to book direct when returning, we’ve given them redemptions but it doesn’t drive anywhere near the volume you want.
Foley: Many people will get their loyalty points with the OTA, they’re also offering various benefits for booking through them. All these people are checking in, we need to encourage them to book direct through the website — it’s guaranteed best rate.
Byrne: Yes, if you’re booking through OTAs and expect to be upgraded, that’s not going to happen. If there’s an upgrade available, we’ll give it to the people who book direct. Often the people who book rooms at low rates are the most demanding guests.
Foley: And they’re probably not going to come back, they’re just going for the cheapest rate and they have unrealistic expectations for the price.
Byrne: Giving people an incentive to book direct helps but it can’t be financial. We have an incentive that has halved our OTA percentage of business and our overall business increased year on year [the property offers a free mini-bar to guests who book direct via its website, see ecclestonsquarehotel.com]. Ensure your website is slick, fast and it’s easy to book. The biggest element though is rate parity — if the OTA’s price is £2 below yours, they’ll get the booking.
So let’s talk about rate parity.
Foley: So rate parity means everyone should be selling the same rate. If you go onto a website and you’re selling at £100 for example, everybody is selling at £100 for that same property and the same room tariff.
Byrne: The problem is that the Office of Fair Trading (OFT) and people who don’t know anything about the industry think that is price fixing. What they don’t realise is that the travel agent is just an agent — they’re an extension of the hotel and the competition in rates is between the hotels. There doesn’t need to be competition between the agents, they are just an arm for the hotel to be able to sell the product. One of the biggest issues we have is maintaining rate parity. At least half to 70% of our front desk manager’s time is spent fighting for rate parity when we’d like them to be training the staff, making sure we’re focusing on good service.
Can you communicate your hotel’s value-adds via OTAs?
Byrne: This is one of the big issues we have as in our room rate we have a lot of added values. We found it hard to communicate through the OTAs what the added values are. The only way added values have an impact is on your reviews, you hope those will create loyalty.
Frey: As long as they have the lowest rate and they’re getting the commission they don’t care.
Byrne: People always say ‘why don’t you include breakfast in the rate?’ Hotels want to upsell to guests when they arrive to avoid paying commission on the breakfast too. I’d be interested to know what percentage of hotels in London include breakfast in their best available rate (BAR).
Is it worth being on OTAs just for the exposure? For example, do travellers find your hotel there, then go to your website, find the same rate plus perks and book direct?
Foley: You’ve no real way of tracking that, unless you’re on a referral website where they can track how many bookings or referrals are sent to your website.
Byrne: And if that happens your OTA ranking could go down because the OTA looks at the capture rate.
Foley: They [the OTAs] have different models that push your position on their websites because it’s not static — you don’t sign up and you’re guaranteed to be on page one. Where you appear on the page is partly based on the OTA commission levels you set, which can be anything from 18% up to as far as 50%. But even those hotels paying 50% commission to the OTA aren’t necessarily going to be at the top of the list because if you haven’t had enough bookings coming through, or you’re not getting good reviews, or you’re not preferred, or you’re not responding to your guests’ comments, or the quality of your content isn’t the best — your photos aren’t professional, it all influences how you’re positioned on the OTA.
How can you train other hotel staff to be revenue savvy?
Byrne: I’ve probably visited 500 hotels in London and every time I’ve asked the staff ‘how can I get the best rates?’ and the employee has said book through Expedia, or another OTA. That was a big realisation for me. I need to make sure my guys understand the different ways that business comes into the hotel, and the different cost of each channel. So I explain it in terms of gold, silver and bronze. Direct is your gold channel, we need as much gold as possible. It’s also important to make sure the staff are trained with regards to handling complaints and reviews. That’s something we didn’t focus on until recently. We were badly ranked on the reviews sites because we were stubborn with guests who complained, but in the space of three-to-four months, we’ve gone from 380 of 1072 hotels in London on TripAdvisor to number 243 [as ranked on February 18, 2014].
Foley: It’s the responsibility of the hotel manager or front-desk manager to make sure all complaints and reviews are responded to.
Frey: Managing the GM is just as hard as managing the third party. They care about the channels, but it’s the top line [they’re looking at]. The channel is bringing business in, but at the same time it’s driving average daily rate (ADR) down. Achieving the bottom line, gross operating profit per available room is the most important factor.
Any final words for small boutique hoteliers looking to improve revenue management?
Foley: They should be looking at their BOB a couple of times a day. They should also be looking at their segments — corporate, leisure, groups — so they know where business is coming from so they can identify trends. Look at rates at least once a week and increase or decrease depending on demand.
Byrne: Systems-wise, you probably don’t need a full-service point of sales system, but a channel manager might be worth investing in because it’s relatively inexpensive. Your PMS should be tailored to small businesses and be able to connect to a channel manager. Maybe also look at hiring an outsourced revenue manager. We have a contractor who does a lot of consulting for London hotels and they know what is happening in the market. They analyse the pickup reports so we don’t have an automated revenue management tool. They advise us around three times a week and we change our rates accordingly.
Foley: The ROI will outweigh the costs. There’s money to be made from good revenue management and hotels are leaving it on the table.