When Supply is Hurting Rate Growth

Questions Indonesian hoteliers must ask when supply is hurting rate growth, Rachel Grier, Area Vice President, Asia Pacific for IDeaS



Questions Indonesian hoteliers must ask  when supply is hurting rate growth


Written by: Rachel Grier, Area Vice President, Asia Pacific for IDeaS
The global hotel sector has undergone a period of sustained growth over recent years. Markets like Singapore have benefited from higher levels of demand (9.3 per cent yearly growth*), which has led to increased rates of occupancy (5.5 per cent yearly increase*) and ultimately supported the revenue hotels have been able to generate per available room (7.2 per cent yearly rise.*) However, while many hotel centres are growing profits as a result of increased levels of business and consumer travel, other destinations in Indonesia have not been so fortunate. 



The high-profile market of Bali remains a popular tourist and honeymoon destination, but the destination only recently attained an operating environment where foreign visitor numbers were growing at an annualised rate of 23.5 per cent. However, the Indonesian Hotel and Restaurant Association (PHRI) has called for a halt in new development construction to help increase the occupancy rate of existing property and limit the impact of oversupply.

“I think we need a moratorium. Several regions like Bali, Yogyakarta and Bandung, already have too many hotels,” said PHRI chairman Hariyadi Sukamdani.**

This unique situation, where enhanced numbers of potential guests are visiting a destination and yet occupancies actually decrease, is a direct result of new developments coming onto the market, leading to an oversupply of hotel rooms.

Increased supply, especially in a high-occupancy market, poses an interesting problem for revenue managers. If rates are generally stagnant, and your hotel is already operating at a high occupancy, revenue managers are challenged to figure out how to drive RevPAR. In times when supply is impacting a hotel's ability to increase room rates, Indonesian-based hoteliers should consider the following questions:

Are you anticipating your peak demand early enough to close out discounts and yieldable, fixed-rate business?

We all know hoteliers live and die by their forecasts. A detailed forecast of demand influences marketing and operations and drives the way in which a hotel operates. In markets faced with oversupply issues, forecasting by day, and by segment, and outside 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?

Hoteliers facing challenges of oversupply should 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 make the right decision to accept or reject a group. Hoteliers should also factor total group profitability including ancillary spend. If groups are weighing down a hotel’s ADR, the revenue manager needs to be empowered with accurate and detailed information to ensure 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 in 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 Indonesia should compare their online reputation to their competition 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. Local hoteliers 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 is operating in a market influenced by oversupply, revenue managers need to take advantage of every opportunity they can; meaning there is no excuse for empty rooms, or forced free upgrades, on busy nights. 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.

While some hotel markets are able to increase their room rates in line with greater levels of demand and occupancy, hoteliers in Indonesia (and other markets experiencing oversupply issues) will have to find more sophisticated and advanced ways to take advantage of revenue opportunities if they want to remain ahead of the market.

References:
*https://www.htrends.com/trends-detail-sid-100727.html
**http://www.thejakartapost.com/news/2017/11/14/government-asked-to-stop-issuing-licenses-for-hotel-construction.html


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Hotelier Indonesia News: When Supply is Hurting Rate Growth
When Supply is Hurting Rate Growth
Questions Indonesian hoteliers must ask when supply is hurting rate growth, Rachel Grier, Area Vice President, Asia Pacific for IDeaS
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