The hotel industry, along with the rest of the tourism sector, was one of the most affected by lockdown and restrictions.
Finally, after months of economic turmoil, the hotel industry is slowly recovering. The road ahead will be a long one, and it may not look the same as before, but the industry is pivoting.
In April 2021, the US hotel industry’s GOPPAR (gross operating profit per available room) was at its highest level since the pandemic became a serious reality in February 2021. Averaged at $35.45, this profit is an increase of 235 percent compared to April 2020.
Moving forward, hotel owners and investors that are considering buying a hotel will also need to consider revised key hotel metrics and COVID-19 regulations.
The Hotel Industry Starts to Recover
When the world went into lockdown in March 2020, multiple sectors shut down. Many expected the global lockdown and travel ban to be a couple of weeks, but the restrictions extended month after month.
Booking cancellations and empty rooms were a regular occurrence and had a devastating effect on the tourism industry. An estimated 50 million jobs in tourism were lost worldwide.
Now, hotel profits are finally starting to move in an upward direction.
As travel opens up in phases, the demand for hotels has started to increase. The hotel industry is positioned for future success, but these metrics won’t be measured exactly the same as before.
Lockdown Has Shifted the Hotel Metrics
There are a few considerations to keep in mind when setting up performance indicators post-lockdown.
- Competition is significantly higher as hotels across the nation scramble for fewer guests
- Post-lockdown guests expect a memorable experience, so the extra mile needs to be considered (within resource limitations)
- COVID-19 has increased internet use by 70%, so there’s a good chance that your guests will leave a review – and read reviews – before booking
- Saving costs is key, and collaboration across departments can optimize expenses and increase profits through upselling
- Guest will have different expectations compared to pre-lockdown travels
All of these factors will play a role in determining hotel metrics post-lockdown.
Key Hotel Metrics Post-Lockdown
Each of these measurements is an isolated metric that plays a part in larger success. They will have an impact on one another and require constant review for improvement.
Net Operating Income
The net operating income refers to the profit after all expenses have been paid.
The profitability measurement is an indication of how well the hotel has operated in reference to total revenue and total expenses. Net operating income plays a critical role when investors evaluate a property.
Net operating income is determined by several other factors and, therefore, not the easiest metric to measure. Rallying different hotel departments to work closely together and overcome the crisis is one way to see positive results in this particular measurement.
Gross Operating Profit Per Available Room (GOPPAR)
The GOPPAR gives hotel owners an overview of how the business is performing at a high-level view. As a metric, GOPPAR measures operating profit in comparison to the number of available rooms over a period of time.
The measurement is tasked with showing how revenue compares to the hotel’s operational performance and considers various expenses.
GOPPAR gives a broad overlook of the business success, especially during phases of growth, scaling back, and striving to deliver higher value.
Total Revenue Per Available Room (TRevPAR)
TRevPAR has become an increasingly important metric during these unpredictable times. The performance indicator assesses total revenue per available room. In many ways, TRevPAR has stepped in as a priority over RevPAR (revenue per available room) by approaching the metric in a more granular manner.
The comprehensive metric takes into account that guests expect more than pre-lockdown. By doing so, TRevPAR considers potential revenue from all departments and inspires an upselling strategy.
Average Daily Rate (ADR)
The ADR will largely depend on the hotel’s historic performance and the quality of service it provides in comparison to competitors. The average daily rate is calculated by dividing the number of rooms that host guests by the revenue earned from their stay.
The ADR needs to be carefully calculated and increased over time. As a general rule of thumb, the higher the ADR that a hotel measures, the better the quality of guests.
Occupancy Rate
Occupancy rate is an age-old metric that serves as an important metric for the hotel’s overall success. Referring to the percentage of available rooms sold over a period of time, the goal is to have an occupancy rate as low as possible.
On its own, the occupancy rate is only a partial sign of success. It needs to be considered in alignment with other metrics, such as ADRs and TRevPAR potential, to gauge its true value.
For example, hotels lowering their prices to attract guests after lockdown will have a decreased profit margin. Over time, this price adjustment will pivot again to attract guests of quality over quantity.
Sentiment Scores
TripAdvisor reports that 80 percent of survey respondents read at least 6 – 12 reviews before making a decision. The journey toward an internet-based world was greatly impacted by the event of the pandemic.
As a result, guests review hotels before booking a stay and are likely to share their experiences afterward.
Social proof and public sentiment is a growing metric to consider when measuring the success of a hotel’s operations.
A Holistic View of Success
One of the best ways to measure success is to determine leading and lagging indicators.
Leading indicators will lead to the end results but may be hard to measure. Lagging indicators are usually easiest to measure but sometimes more difficult to influence.
Assistance from the Hospitality Industry Experts
At NewGen Advisory, we pride ourselves on being leading hospitality brokerage experts. With our finger on the pulse of industry news and developments, we’re able to offer trusted lender services to investors selling or buying a hotel.
Contact us today to find out how our expert team can assist during these unfamiliar times.