Hotel Optimization: Maximizing space, revenue and development

Clockwise from top left: Elaine Simon, senior managing editor, Hotel Management; Ron Loman, SVP of operations, Real Hospitality Group; Jen Chauvin, VP, catering & event management, Aimbridge Hospitality; and Raul Moronta, chief commercial officer, Remington Hotels. (Hotel Management)

As travel resumes and hotels return to full capacity, hoteliers will need to prepare for yet another new normal—this time, a post-pandemic one. Questex Hospitality (parent company of Hotel Management and the International Hotel Investment Forum) and AAHOA partnered to present Day 1 of Hotel Optimization Part 4, a virtual conference with insights from industry insiders on how the hotel sector is adapting to constant changes. The first day of the two-day event was sponsored by Spectrum Enterprise.

Hospitality Snapshot

After a welcome from outgoing AAHOA President and CEO Cecil Staton, JP Ford, SVP and director of global business development at Lodging Econometrics, presented an update on the U.S. hotel construction pipeline.

At the top of 2021’s first quarter, the pipeline stood at 4,967 projects with 622,218 rooms, down from 5,216 projects and 650,222 rooms in Q4 2020. “We've lost about 615 projects and 65,583 rooms out of the pipeline since the close of the second quarter of 2020,” Ford said. In fact, each quarter over the last year has been a decrease from the one before, with the pre-COVID peak of 5,748 projects with 708,898 rooms reached in Q4 2019. 

While development may be down quarter over quarter and year over year, Ford noted significant brand growth over the past half-decade, with 115 new brands launched since 2015. “We have exploded with new brands over the past five, six years,” Ford said. Several markets—New York, Los Angeles, Atlanta, Orlando, Dallas and Nashville—still have “pretty strong pipelines,” he added. 

After the number of room openings increased 2.1 and 2.2 percent in 2018 and 2019, respectively, 2020’s openings growth rate dropped to 1.8 percent. Ford expects 2021 to have a growth rate of 2 percent, with 109,394 rooms opening throughout the year. In the first quarter alone, the country got 27,528 new guestrooms—a promising sign for the future, Ford said, given that the first quarter of 2020 only got 16,300. “It bodes well for new hotel development moving forward,” Ford said, predicting 2022 would have the same growth rate with 111,235 rooms opening.

Ali Hoyt, senior director of consulting at STR, offered a snapshot of  hotel performance across the U,S. hotel industry. The U.S. is “comfortably” in third place in the global race to recover from the pandemic, she said, just behind Mainland China, Australia and New Zealand going by revenue per available room indexed to the same month in 2019.     

Occupancy and demand are steadily improving as summer begins at about 68 percent of 2019 levels. Rate, meanwhile, is at about 75 percent and annualized RevPAR is more than halfway back to 2019 levels—“which is encouraging to see after the very steep declines across all of these key performance indicators we saw in 2020,” Hoyt said. At 59.1 percent, occupancy on a weekly basis was the highest STR has seen since the start of the pandemic for the week ending May 15, she added, down 11.6 points compared to the same week in 2019. 

STR’s top 25 markets—urban hubs that rely on group business and corporate travel—have been hit very hard by the downturn, Hoyt said. “We've seen leisure travel come back; it hasn't been quite the same story for the top 25 markets. But we are now starting to see some of those occupancy gains.” In Florida, Miami and Tampa have been performing very well throughout the pandemic, which Hoyt credited to the markets’ leisure strength. On the flip side, group-reliant markets like Seattle; Chicago; Boston; Washington, D.C.; and San Francisco still have a “fair number” of full-service hotels that remain temporarily closed. “These are upper-upscale and luxury hotels that cater to corporate travelers and group meetings,” she said.

The Development Scene: Dirt, Deals & Dollars.

After a break sponsored by Jacaruso, the next panel weighed the pros and cons of jumping back into hotel development. 

Moderator Daniel Lesser, president & CEO, LW Hospitality Advisors, asked the panelists what silver linings they had found in their recent development plans. AAHOA Chairman Biran Patel noted the lessons the industry has learned during this crisis: Don’t overleverage or overspend on assets, keep liquidity at hand, maintain strong relationships with the lender and the brand and take care of your employees. “We all know that inflation is here,” he added. Government rescue programs helped keep businesses afloat, and now American hoteliers, as taxpayers, will have to pay for that support. Still, he added, there’s a silver lining: The industry is resilient and usually comes out better for its challenges. 

Mitchell Salaman, VP of franchise sales & development mid-Atlantic and northeast U.S. with IHG Hotels & Resorts, said he sees a lot of money out there—“and the smart money is looking for these markets that have been resilient.” Investors are seeking low-cost operational opportunities, he added. “The hardest part is going to come down to their financing.” 

Youngbin Park, VP of acquisitions & development at Hersha Hospitality Management, said the pandemic encouraged more regular communication between owners and management, and that trend may last for a while. “Going forward, it's going to be a lot of touch-and-go, still,” he said. “Things are not going to be stabilized anytime in the near future, so you're not going to just want your monthly call. You're still going to have to do a lot of the updates and communications in between the monthly calls.” 

Tips for a Leaner Operation

The day’s third panel, sponsored by Bounte, offered advice on how to minimize expenses in a downturn. 

“A leaner operation now just means that all hands are on deck,” said Tracy Ripa, SVP, North America operations at Wyndham Hotels & Resorts. “GMs and owners are rolling up their sleeves, they're getting in there, they're checking in guests, they're cleaning guestrooms.” Capital investments might have to be deferred if renovations are not within the budget or due to labor shortages or other challenges in the supply chain. “That's making it harder for us to do small renovations.” Hoteliers with smaller teams than in the past might also subcontract some responsibilities to companies like Jacaruso, she added. 

Before the pandemic, Justin Jabara, president of Meyer Jabara Hotels, said his team noticed some margin erosion. Once the pandemic hit, revenues fell off 40 percent to 100 percent as properties limited occupancy or closed. “That forced us to reimagine our operations, and we broke it up into two buckets,” he said. “It was the on-property operations and then the corporate and support structure operations.” With the worst of the pandemic (we hope) behind us, Jabara plans to continue applying those lessons. “We're not out of the woods yet, and there's a lot of ground that was lost financially over the last year and a half that we need to make up for.”

Apple Leisure Group runs all-inclusive properties, said Javier Coll, the company’s group president of global business development. “If you're selling a product that has eight, nine restaurants, you can try different food-and-beverage experiences during your stay, but you can’t fully shut down four of them just to cut costs,” he said. The company stepped up communications with regular feedback in order to reevaluate every process. “We've been in business for 20 years as a hotel chain, but even after 20 years, we recognized that we were not as efficient as we could [be], and by re-evaluating every single process, every single customer interaction that we have, we were able to change some of those processes to be more efficient.” 

“People need to lean on the brands,” Ripa said. “Brands have services that they can lean on, and instead of having to manage their rates and inventory themselves, they can ... lean on us to help manage that for them so that they have more time and less people that have to service the gaps.” 

Putting Your Space to Work

The day’s final panel, moderated by Hotel Management Senior Managing Editor Elaine Simon, examined new ways hoteliers can make the best use of all their space. 

Jen Chauvin, VP of catering and event management at Aimbridge Hospitality, said many of the hotels in Aimbridge’s portfolio pivoted various operations and service delivery. “So room service became knock-and-drop,” she said. “We enhanced many of our marketplaces and saw the traveler using those marketplaces for up to three meals a day.” The revenue that was generated through those marketplaces came from some beverage opportunities and some healthy eating opportunities, she added, and kiosk technologies are shifting how restaurant spaces function.

Outdoor spaces have helped hotels in Real Hospitality Group's portfolio expand their capacity, said Ron Loman, the company’s SVP of operations. “Repurposing some of those spaces, being able to provide areas for folks to enjoy their meals was a focus. That's something that we did in all our hotels,” he said. “We're taking best practices from some restaurants that we had seen [and] engaging with the management teams and figuring out what their customer is looking for. That's really what it came down to.” 

Once the shutdown began, the Remington Hotels team began figuring out what to do based on property types and locations, said Raul Moronta, the company’s chief commercial officer. For example, hotels near airports that frequently serve airline crews are obligated to have certain amenities available, he said, so that forced those hotels to keep some facilities open. With only small events on the calendars, the hotels put groups of 30 into the otherwise empty ballrooms to maximize social distancing. “We would have never done that for a group of 30 [before], but ... because we were not displacing any other business, it makes sense for us to use that space a little bit differently.” 

Watch Hotel Optimization panels on demand.