BERLIN—Cutting costs and enhancing revenue are key components of a universal language for hotel owners. The concepts were front and center during last week’s International Hotel Investment Forum.
Four high-profile owners of European hotels agreed during the “The owners’ view: Increasing profitability” general session that cost management is the key to maximizing returns for every hotel owner.
Anders Nissen, CEO of Stockholm-based Pandox, said the discussion should be more about productivity than about costs, which he learned early in his career when he first became a general manager.
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“That’s a big difference,” said Nissen, whose company owns and/or manages 143 hotels with approximately 31,500 hotel rooms in 15 countries. “With cost, you cut something. You close your restaurant or you take away one person in reception and you make the guest experience less good.
“Productivity is to increase revenue of a working hour,” Nissen added. “That’s how you use your organization better.”
The bottom line for Pandox is the top line, Nissen said.
“It’s a big difference to work with productivity than to work with cost cutting,” Nissen said. “That is always, always the No. 1 priority at Pandox. That’s one of the reasons that our growth went from €40 million ($49.5 million) to €50 billion ($61.9 billion) … it’s about (how) to control our productivity, always.”
Thinking outside of the box
Neil Kirk, principal with London-based Henderson Park Capital Partners, said his company is looking differently at common perceptions in the hotel industry to ensure a cost-effective mentality.
“What we’re trying to do is step away from the standard KPIs everyone looks at,” Kirk said, noting that the company eschews questions such as how controls cost growth compared to the previous year or to its competitors. “It’s actually about stopping and starting again and saying, ‘Are we doing things right anymore?’”
In August 2017, Henderson Park acquired the 1,059-room Hilton London Metropole and the 790-room Hilton Birmingham (U.K.) Metropole.
Kirk said determining the best way to deliver its business with a model the customer wants is the most important aspect of cost efficiency for all of its hotels.
“It’s making sure our cost space is fixed or linked to actually what we’re trying to drive,” he said.
An amenity such as roomservice versus grab-and-go facilities, check-in preferences and digital keys versus traditional keys are ideal case studies, Kirk said.
“It’s about actually trying to look at our cost space and build that up from the base every now and again,” Kirk said. “Yes, we all look at how we did last year, how we’re controlling it, but what we need to now look at is to make our cost space correct for the hotels we’re running rather than just trying to fit the cost to a growth structure that’s been in place for years.”
Approaching it from new angles
Meanwhile, AccorInvest CEO John Ozinga continues to look for cost-control and revenue-enhancement measures within AccorInvest’s portfolio of 891 hotels—55% of which was recently sold to a group of sovereign funds and institutional investors for €4.4 billion ($5.4 billion).
“We talk about selling rooms, but it’s the ancillary business which we’ve been developing quite a lot,” he said. “F&B is one of the big components where we can drive change. We can change the perception of the brand; we can change the perception of the building, the operator.”
Ozinga pointed to the company’s decision to upgrade the F&B experience at the Novotel Canary Wharf in London.
“We were able to give a whole new experience to the guests, and that drives revenues,” Ozinga said, adding that the property “is number three in London in terms of selling brunch—at a Novotel, and that’s something which wouldn’t come to mind in a normal way, so to speak.”
There are other ways AccorInvest is looking to find cost efficiencies, the CEO said.
“F&B is a big driver. We need to be careful to be pushing it,” Ozinga said. “But then the rest of the business is about what you do with the space you don’t use. How can you deliver more revenues to these unoccupied spaces?”
The company in 2017 launched AccorLocal, which is a way to sell hotel-driven services to the people who live around the properties, according to Ozinga.
“Also looking at meeting space, some space when you have too many rooms,” Ozinga said. “Converting maybe part of it into apartments could be also something which could drive value while still completing the brand in a way.”
AccorInvest is also working on energy savings, on better profiling its guests and its loyalty programs—all of which gives the company the benefit of having less cumbersome revenue coming into the business, according to Ozinga.
“When you can drive all this, you can increase both your revenues and your profit,” he said. “That’s at the end what we’re looking for.”
It all starts at the booking
Cody Bradshaw, managing director and head of European Hotels for Starwood Capital Group, said the line item his company focuses on to make a difference is cost per booking.
“There’s a lot of cost per booking beyond OTAs, including in the branded or even independent world,” Bradshaw said. “Particularly when you look at the branding situation, you’ve really got to drill down into the detail and list out every potential transaction-oriented loyalty program, sales and marketing-oriented fee, telling them what is your cost per booking as you think about contract negotiations, brand selection or channel management.”
But there are other aspects of driving cost and revenue efficiencies that have Starwood Capital Group’s attention, according to Bradshaw.
“Beyond the rooms department there’s been a lot of headwinds in terms of cost inflation a number of us have been challenged by in recent years, not only related to currency fluctuations, but energy prices, that sort of thing,” he said.
Bradshaw referenced rising labor costs several times during the panel.
“There’s been a number of countries sort of rolling out a national minimum wage, which the industry is … we’re all big supporters of, but when you look at it, the full implementation can be a 20%-plus increase,” Bradshaw said. “It challenges us to think about how we are managing the variable component or even a fixed component of our labor. Labor’s often 50% of your cost, and historically we are a very inefficient industry.
“Countries are rolling out significant increases in minimum wage,” he added. “At the same time, these governments like to pick on our industry. We’re like the first one they tap into to increase (value-added tax) to add tourism surcharges to increase business rates on properties. It’s a strange phenomenon that when governments come under pressure, they end up attacking the very industry that is really the key to their success, which is attracting foreign visitors, creating jobs and increasing domestic spending. So that’s been a big focus of ours in recent years.”