In our previous issue of Trends, we reflected
on the operating results for our national sample of hotels
for the year ended, 1999. It is remarkable that earnings have continued
to grow for seven consecutive years and at the very healthy
pace of 11% nationally, last year. In fact, we expect that
earnings should continue this growth pattern in 2000, as
we anticipate a further increase in the 10% range. However,
it is becoming more difficult for many properties to find
the opportunities to continue to drive significant earnings
growth.
Pannell Kerr Forster has been able to assist operators in
the identification of opportunities to enhance revenues or
curtail expenses without making significant changes to the
nature or style of the operation. We have gained considerable
experience over the years from analyzing both successful
and unsuccessful operations. In general terms, the more successful
operators have discovered ways to make the most out of the
business that the property already has. We believe our experience
could be quite valuable to many other operators.
In the current market, a frequently recurring situation
is where a specific property is below market share in average
rate, with no obvious reason why. The reasons can be
varied ranging from the business mix to simply not asking
enough for the product. The answer or solution may
stem from a more objective assessment of the quality of the
asset or the market position of the asset relative to the
competitive group of hotels, a better understanding of the
mix of business relative to the competitive market and the
seasonality of the area and/or how the brand reservation
system is being utilized. A good starting point for
any operator, whether they are trouble shooting for problems
or preparing their annual business plan, is to have an objective
assessment of the market positioning of their asset.
The issue of how the brand reservation system is being utilized
is also very topical. The emphasis on branding of hotel
assets has never been greater in this country than it is
today. Accordingly, many more people are dealing with
franchise organizations and are utilizing the systems. The
cost is considerable for an operator and the expectation
level is quite high in terms of the level of contribution
or performance from the particular system. However,
success is not automatic. Operators must work with
the system and be very familiar with how it can best serve
their particular needs.
Today, franchise systems are much more complex and sophisticated,
but so are the support services available from the franchisors. Franchise
support people are thus an obvious starting point to determine
where revenues are being lost and/or ensuring that the operations
people are maximizing the benefit from the system.
The robust markets of the past few years may also have allowed
operators to become less diligent on the cost side of the
operating equation. Specific attention should be paid
to travel costs, energy consumption, payroll and property
taxes. A review of our annual operating Trends may
provide a useful overall benchmark to compare your property
against, or perhaps a custom benchmark analysis may be required. Careful
thought should be given to the operating approach in all
departments. The fact that something has always been
done in a specific manner doesn’t mean that the approach
should not be changed.
Finally, the time to reflect on the quality of your asset
may be at hand. Most of the competitors within a market
will have improved their product or may be in the process
of renovating or upgrading. There may also be new supply
on the horizon. It is not recommended that operators
wait until there is new competition to begin renovations.
The foregoing comments are intended to stimulate some thought
in terms of how the earnings of an asset can be enhanced
by taking a new or different approach to the business that
already exists at the property. At PKF, we have
been successfully assisting our clients to this end for many
years and would welcome the opportunity to discuss any particular
situation that may exist in an operation. Please call
us in either Toronto or Vancouver if you would like to explore
ways to improve your operation’s profitability.
David Larone, Director
Pannell Kerr Forster
