Let’s talk about losing money. It doesn’t show up on the P&L the way it should because losses are frequently subtle. In fact, as an industry, we have little understanding how much and what types of revenue we’re squandering in preventable losses.
Losing money can be a central issue when it comes to overbooking practices, where the lost revenue due to empty rooms must be balanced with the hard cost of compensation, often required to remedy the overbooking. There is also the soft cost of the dissatisfied customer, a cost that may be the greater of the two in the long run. The minimum hard cost of loss in overbooking is price adjustment for downgrading, opportunity cost for upgrading, or discounts for the guest for their next stay along with transportation to a different property, assuming they will ever consider your property again. The minimum soft cost is loss of a potentially valuable repeat guest and the resulting knocks to the reputation.
So consider this. Every day in your rooms division potentially worse losses are occurring, and no one identifies them the way that overbookings tend to be planned for. You are “walking” guests within your own hotel. Every time a guest checks in believing she will receive one type of room but receiving another instead, you have effectively walked that guest.
If you move them from a double bed to a king, then you haven’t lost anything but goodwill. (Believe it or not, some guests prefer the double and the soft loss here shouldn’t be overlooked.) If you move them from a standard to a suite, you haven’t lost reputation, but you have lost money unless, of course, you have upsold. (For the record, a study showed that the increase in guest satisfaction from a complimentary upgrade is only marginal compared to the opportunity loss.) If you downgrade them from a deluxe to a standard, you have lost both money and reputation, and it’s probably worse than if you had overbooked and rebooked them to a similar category of room in a different hotel. They are getting less than they expected.
The looming problem here is that most properties don’t know how many times each day this is happening and what the total cost of the losses is? Suffice it to say that a percentage of every day’s ADR is being wasted, and it can’t be remedied until there is some tracking and accountability established around the problem. We track tiny bottles of liquor and peanuts from the mini-bar. We track the cost of the miniature shampoos, conditioners, soap, and even rolls of toilet paper. We track the cost of housekeeping and laundry. But we’re not tracking the true cost of the way we transact rooms on property, a cost that has an invisible impact on revenue and ADR.
Pierre Boettner, Founder and CEO, hospitalityPulse
Pierre Boettner spent his entire life between hotel operations and hospitality technology. In 1993 he pioneered an industry-first forecasting and pricing tool for Mövenpick Hotels and was later involved in many system innovations, helping hoteliers improve their distribution capabilities. Recognizing the increasing difficulty of managing rooms operations, he and long-time colleague Denis Bajet founded hospitalityPulse in 2013. This company has dedicated itself to solving the most complex operations tasks still requiring daily human intervention. Pierre Boettner is a graduate of the esteemed Ecole hôtelière de Lausanne.