Lisbon, the 15th of November 2017
Madeira, Azores, and the North are the regions with the greatest losses, according to a study by BlueShift that assessed the effectiveness of revenue management by region
Inefficiencies in the management of the “boom” in tourist demand cost the hotel industry €47 million per year
BlueShift – Achievers Make the Change, a hotel management and consulting group, has just completed a study on the evolution of key performance indicators in the hotel industry over the past five years – between 2012 and 2016 – focusing on the effectiveness of revenue management in various regions of the country. One of the study’s highlights is the losses resulting from management inefficiencies, particularly in the regions of Madeira, Azores, and the North, assessed by the consultant at around €47 million per year, representing about 12% of the sector’s results nationally.
Examining the period from 2012, the year before the start of demand, to 2016, a record year for Portuguese tourism, BlueShift’s study compares the evolution of Occupancy Rate and Average Daily Rate (ADR) in each region of the country, seeking to assess to what extent organizations were able to take full advantage of the new growth cycle.
According to BlueShift’s experience, operational profitability is maximized through growth based not only on Occupancy Rate but also on ADR, as this variable has a 100% “flow-through”. In other words, the growth of one euro in price translates directly into results. However, if that same euro is generated through occupancy, variable costs must be subtracted, passing only the remainder to results (typically around 40 cents in an optimized operation).
The ability to grow in price depends on many factors external to the hotel company, such as the destination’s starting point (in markets with very low occupancy, the priority is to achieve an operationally efficient level of activity), the predictability of the competitive context (ability to anticipate growth), or the “natural” channel mix of the destination (the higher the contracting, the greater the inertia of the price).
However, this ability also depends, to a large extent, on the behavior of hospitality players. Companies with fewer skills and tools tend to grow primarily through Occupancy Rate since “keeping the door open” is enough to attract more customers. In contrast, companies with greater planning and forecasting capabilities will strategically manage Revenue Management, pushing some – or even most – of the demand pressure onto the price variable in search of better operational profitability.
The study, which does not intend to assess the individual performance of each company but rather the dynamics created in each region by the combination of actions by different players, allows three major trends to be inferred:
- The ability to grow in a balanced way, leveraging ADR and profitability, is not exclusive to more mature regions, such as Lisbon and the Algarve, but is also observed in less developed destinations with higher fragmentation of supply, such as the Center and the North.
- Destinations traditionally more dependent on Tour Operation, such as Madeira and the Azores, face the greatest difficulties in channeling demand pressure into increases in ADR, doing so with a delay of two to three years, significantly longer than the contracting cycle itself.
- The inertia of Price is exacerbated in contexts of uncertainty about the competitive scenario, where companies do not assume the growth trend in their contracting and channel management decisions. In these cases, situations can arise where high occupancy growth is accompanied by a sustained drop in prices. The Azores region, which has dealt with scenarios of high uncertainty regarding air connections, is a paradigmatic case.
BlueShift estimates that, in the three regions where delays of two to three years were recorded between the surge in demand and the upward response of ADR – Madeira, the Azores, and the North – the value foregone by hotel companies, in terms of operational results, amounts to around €47 million per year.
About BlueShift – Achievers Make the Change
Led by Francisco Nogueira de Sousa and Filipe Santiago, BlueShift – Achievers Make the Change positions itself in the market as a comprehensive and integrated solution for investors and operators in the sector. Organized into “Achievement Centers,” led by specialists with high expertise and competence in each area of the business, such as Operations, Revenue Management, Sales Management, Marketing, or Finance and Control, totaling twelve specialized units, BlueShift’s service portfolio includes integrated or partial management of hotels and restaurants, as well as consulting in all phases of the investment cycle. This ranges from concept development and feasibility studies to commercial, operational, or support services optimization.