Finance

Traditionally, RevPAR was the gold standard metric to apply to revenue KPIs. It was and still is used as the measure of financial market strength. While RevPAR is a good depiction of profitability when the market is in a "typical" state, it can obscure a hotel's performance when it veers away from the norm – a condition the industry hasn't seen since early 2020.

I am happy to see this topic gaining momentum. Profit optimization in today's environment is key to your entity's success. Revenue optimization will continue to evolve and grow in sophistication as the practice matures, as the distribution landscape changes around it, and as new technologies emerge to support and disrupt hotels' strategies.

Back in 2014, I published an article "Things you didn't know about RevPAR (or: ARPAR as a better performance indicator" where I described the new index for profit tracking and profit maximization I had developed: Adjusted RevPAR (ARPAR), which also made its way to wikipedia and has been adopted by hospitality companies across the globe.

Just like any accounting topic, flow through and flex ratios look complex to many, and the interpretation with both the positive and negative signs resulting from the calculation also seems complicated. However, just like any accounting topic, once we take a few minutes and explore some examples, they are actually quite simple and amazingly useful.

Flow thru is first of all "a concept" and it's wrapped around the idea that if revenues go up or down my profit "should" react in a prescribed manner if I'm doing a good job as a manager controlling my payroll and expenses. It's rather straightforward when things move up together, for example, revenues are up 100k compared to the same month last year and my GOP is up 60k – my flow is 60%.

The simplest way to calculate profit flow through is take following steps: 1. Determine difference in dollar amount between Current Period Profit (Net Income, GOP or other profit KPI) and Previous Period Profit. This is A in the formula that will follow.

First things first: THERE IS NO NEW NORMAL! The new normal was a mix of government imposed social distancing restrictions that lead to increased costs coupled with mass layoffs and reduced available inventory = Pay it, suck it up or leave it.

Focus to increase NOI, I think is an import topic and item to think about when hotels are working to further optimize revenue. So finding revenue with a high margin is key. A first process to implement, ideally fully automated would be upselling of room upgrades, and monazite early arrival and late departure.

Historical data has become completely obsolete because of the pandemic and the current inflation. If your King Room went for $200 on September 20th of 2019 at 75% occupancy, how much should you charge in 2022 at 60% occupancy, citywides down by 70%; corporate groups down by 40%; corporate transients down 35% and Inflation at 8.5%?

Post Covid-19, more than ever what will get reinforced is that resources (human & others) will follow business volumes more closely even given that the hospitality is a seasonal business for decades.While this may not necessarily cause drastic changes in rank and file headcount, in my opinion what will definitely be shaken up is the managerial level and the manager to employee ratioMore supervisors and assistant managers will be expected to take on managerial roles while managers will be expected to become more hands on - ready to take on an assistant manager or sometimes even supervisor role when business volumes are strainedCubicle bound managers (if ever in the hospitality business that scourge existed!) will be eliminated;I see something else coming - the back or rather heart of house roles like finance, human resources, engineering may now need to become all round operation individuals and contribute to serving the customer; after all, say, in finance, what accounting will need to be done when there is no customer coming through the doorAs far as leadership is concerned, what will change is a mindset of general managers becoming hands on - they may not have the luxury any more of delegating to a RM or HM who honestly may not be thereGiven volatile business levels, having combined property and regional positions may not be justifiable as a business decision; moreover, in that combination, the property focus will now become 100% which again negates any combination positions being thought ofIn all of this, and underpinning strategies, a Flexible Budgeting process will become mandatory - flexibility in headcount levels in conjunction with fluctuating business volumes, remuneration cuts when business volumes drop below a certain point, increments tied to incremental revenue and bottom line and so on.If hospitality was and will always be a seasonal industry it is going to become an industry of focused business volumes metric driven resource utilization strategiesBottom line retention will be dictated by the customer in all of these scenarios

During the peak period of the pandemic, we saw a widespread purge of unit, area/regional, and corporate level leadership roles being consolidated or purged altogether. Those initiatives were taken to preserve cash flow by controlling labor-related expenses.

I think in life you get what you pay for. My point of reference here is a full-service managed and branded hotel. I believe when you pay for and get an executive team that has all the critical bases covered your hotel will get better results in all areas, including service, engagement, and profits.