By Rachel Grier, MD Asia-Pacific, IDeaS – A SAS Company
The Asian hospitality sector is undergoing a sustained period of development and growth with a total pipeline that exceeds all other regions combined. In the Asia-Pacific region alone, there are 2,400 hotels under contract to be opening in the coming years (according to the January 2015 STR Global Construction Pipeline Report). With hotels being developed at this rate, existing hoteliers can expect new rooms totalling over 540,000 to hit the market soon and with it, new challenges for capturing a market share and producing profits.
While the growth in the number of properties across Asia is a reflection of the overall health of the regional hotel sector and is supported through an ongoing RevPAR lift due to the pricing power gained from increased demand and historical muted supply, some markets in Asia haven’t been as fortunate. Take a market like Bali, for example, where oversupply is such an issue that The Indonesian Tourism Industry Association (GIPI) Bali chapter chairman, Ida Bagus Ngurah Wijaya commented, “We are facing an oversupply of accommodation in Bali. The government should take real action as the oversupply is also causing a price war, with customers being offered inexpensive hotel rates. If the government has no policy, Bali will become a cheap holiday destination.”*
Hospitality centres like Bali that are challenged by oversupply should be seen as a warning for hoteliers in Asia as the construction and investment pipeline boom continues to drive new supply (25% of which is in the highly competitive and price driven economy segment) All hoteliers, whether they are facing issues around oversupply themselves or not, should pay particular attention to markets like Bali, because it gives them an opportunity to watch what happens when supply dampens demand in a market. While it’s unlikely the supply change in every market will be the same, it is likely the effects of increased supply are coming to many more markets, with the potential to eat away at pricing power.
Increased supply, especially in a high occupancy market, poses an interesting problem for revenue managers. If rates are generally stagnant, and a hotel is already operating at a high occupancy, how can hotel management drive RevPAR? It is common practice for Hoteliers to optimise their busy days, and find the stay patterns that favour shoulder nights. However, in times when rates can’t be driven and occupancy is already high, hoteliers should consider asking the following questions to drive better revenue:
Are you anticipating your peak demand early enough to close out discounts and yieldable, fixed rate business?
We all know that hoteliers live and die by their forecasts. A detailed forecast of demand influences marketing and operations and drives the very way in which a hotel operates. In markets faced with oversupply issues, forecasting by day, and by segment, and outside of a normal booking window will present hoteliers with insights into the total available demand with price sensitivity in mind. From there, hotels can put the proper controls in place to ensure they’re accepting the most profitable demand mix.
Are your groups displacing higher rated transient demand on busy nights?
In highly competitive hospitality centres throughout Asia that may be at risk of suffering from current or impending oversupply, hoteliers need to pay careful attention to the group mix in their properties. Hotel managers need to better understand that the displacement of transient demand over the requested group dates is key in helping you make the right decision to accept or reject a group. Hoteliers should also factor total group profitability including ancillary spend as well. If groups are weighing down a hotel’s ADR, the revenue manager needs to be empowered with accurate and detailed information to ensure that their total revenue is making up for any ADR losses.
Do you have an appropriate strategy in place that favours shoulder night business during peak demand periods?
Developing an understanding of a hotel’s demand by arrival date and length of stay allows for proper management of a property’s peak days and the surrounding shoulder nights. This goes back to anticipating a hotel’s peak demand days well in advance so as to have the time and strategy to hand to be able to actively drive the LOS within the occupancy mix across the property’s shoulder nights.
Does your online reputation afford you the ability to command a few extra dollars over your competition?
A hotel’s online reputation relative to their competitors’ can certainly be a factor in pricing power. Hoteliers in Asia should compare their online reputation to their competitors and explore these opportunities to drive rates. If they don’t currently undertake this practice, hotel management should enlist the help of their operations team to get them there. Hoteliers in the Asian region need to think differently about their online reputation and start utilising it beyond operations and marketing; they need to use online reputation for competitive pricing and to drive better rate outcomes.
Are you overbooking effectively?
In a situation where a hotel has to address operational challenges associated with existing in a market influenced by oversupply, revenue managers need to take advantage of every opportunity they can, and there is no excuse for empty rooms or forced free upgrades on busy nights in your destination. All hoteliers need to develop a solid understanding of their cancellation and no-show rates to ensure optimal overbooking of not just the hotel, but by room category as well. They need to make sure to balance their overbooking decision with the opportunity cost of walking a guest.
As the rest of the industry enjoys the luxury of driving RevPAR with rate, hoteliers operating in markets with oversupply issues like Bali will have to find more sophisticated and advanced ways to take advantage of revenue opportunities if they want to remain ahead of the market. And, the rest of the regional hotel industry would do well to take notice. If they haven’t felt the pressure of new supply yet, enjoy the ride! But, with hotel investments continuing to heat up, supply pressure is on the way.