A Better Way to Evaluate Extended Stay Hotel Development or Acquisition Opportunities

By: Jeremy Gilston - Manager, Client Solutions

By now you’ve probably seen the news that extended-stay hotel development is booming. With many new shovels going into the ground, experts don’t anticipate this growth slowing any time soon. To complement the surge in extended-stay hotel supply and development, we introduced Length of Stay data to our Trendline report, effectively taking the guess work and estimation out of extended-stay investment analysis.

Historically, extended-stay hotel stakeholders have evaluated a variety of traditional performance measures when selecting a market and underwriting an opportunity, including estimating extended-stay demand (7+ night stays) because Length of Stay data was not available at scale. This often led to inaccurate or incomplete valuations. Now, by using our Site Selection Report paired with a Length of Stay Trendline, stakeholders can make better informed investment or divestment strategy decisions by evaluating the typical hotel performance metrics broken out by Length of Stay (LOS).

Kalibri Labs’ client, Mark Skinner, Partner at Highland Group, recently said “For the first time, we have empirical data which provides accurate accommodated hotel room nights distributed by length of stay and ADR. A Kalibri Labs Extended Stay Site Selection Report provides a thorough understanding of an extended-stay lodging market.” - July 2019

Extended-stay hotel stakeholders use Kalibri Labs Length of Stay data to confidently and accurately approach extended-stay hotel acquisition, disposition, and development. Please reach out for a personalized product overview or schedule a demo.

 

The following is a 4-step geographic-based approach to identifying an extended-stay opportunity using Kalibri Labs LOS data.

How to Identify the Opportune Submarket for Extended Stay Development

Below we’ll compare the seven submarkets of Austin to the greater market performance to identify the best location for an extended-stay hotel.

STEP 1: Review Demand Analysis

Kalibri Labs: Austin, TX Site Selection Report March 2019 TTM

Kalibri Labs: Austin, TX Site Selection Report March 2019 TTM

The demand analysis profiles 7+ LOS and 30+ LOS reservations broken out by extended-stay and non-extended stay brands to show how much LOS demand exists and which type of hotels are actualizing these bookings. This information for each submarket is then indexed against the total Austin market performance to illustrate relative demand capture for 7+ and 30+ night stays. For example, the Austin South submarket’s 30+ night stay reservations booked at non-extended stay hotels as a portion of the submarket’s total reservations is more than double that of the greater Austin market.

 
Kalibri Labs: Austin, TX Site Selection Report March 2019 TTM

Kalibri Labs: Austin, TX Site Selection Report March 2019 TTM

STEP 2: Examine Supply Analysis

The supply analysis profiles extended-stay hotel and non-extended stay hotel supply. This information for each submarket is then indexed against the total market performance to illustrate supply by submarket. For example, the Cedar Park submarket’s extended-stay supply as a portion of its total supply is more than double that of the greater Austin Market.

 
Kalibri Labs: Austin, TX Site Selection Report March 2019 TTM

Kalibri Labs: Austin, TX Site Selection Report March 2019 TTM

STEP 3: Assess Market Opportunity

The Market Opportunity Index, also broken out by 7+ and 30+ LOS buckets, is then a product of the non-extended stay demand index divided by the extended-stay supply index. The theory is that an area with 7+ and 30+ reservations being booked at non-extended stay hotels, that is also underserved by extended-stay supply, would indicate an opportunity for extended stay development. As such, the higher the market opportunity index number, the greater the extended-stay opportunity.

 

The example below unpacks the Downtown Austin 7+ LOS 218 Market Opportunity of 218:

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Underwriters use the Kalibri Labs Site Selection Report to best identify which market has opportunity based off unaccommodated extended-stay demand and which submarket is the right location to capitalize on the extended-stay hotel opportunity.

STEP 4: Underwrite a Specific Opportunity

Once the market is vetted and the best submarket is selected, performance data for a grouping of hotels should be ordered using the Length of Stay Trendline report to best underwrite the existing or potential asset.

The Digital Disruptions Hotel Leaders Should Be Most Concerned About

Cindy Estis Green, CEO and co-founder of Kalibri Labs, discusses the costs and implications of the latest digital disruptors in the hotel space. In the accompanying video, she provides an in-depth analysis on the increased intermediation and the future state of the industry.

Cindy explains Google, Amazon, and Facebook are just a few of the large tech titans that have their sights set on travel. The concern is that these tech players have strong connections to such a vast audience that the connection to their users may supersede the connection that hotels have to their customers. Anytime there is a 3rd party involved, there are costs associated, so the more hotels spend on customer acquisition costs the less they have to reinvest in the property, staff or to improve the guest experience. The sheer scale of these players is unlike any of the intermediaries the industry has worked with in the past, so it is new territory, and one that should be met with caution. Hoteliers must ensure their customers stay connected to their brand and beyond understanding the cost it takes to acquire the guest initially, leaders need to think about what it takes to keep that customer over time.

So as an industry, we must track the costs, but it's more than that. It’s about maintaining the critical relationship between a hotel, its brand and its customers.

To learn more about a revenue strategy platform and hotel benchmarking reports developed to uncover the most profitable opportunities in the market – please schedule a demo or contact us today.


Why Only Half of Convention Attendees Book inside the Room Block

PCMA, the Professional Convention Management Association, and Kalibri Labs partnered to conduct a study on the behavior and stay patterns of city-wide convention attendees. Mark Lomanno led the team effort and, in the accompanying video, he explains that Kalibri Labs was selected due to the very granular nature of the Kalibri Labs database and the ability to determine individual guest stay records (without personally identifiable details). For the purposes of the research, while we don’t know necessarily who was in the hotel, we do know they were part of a convention, in that city, in that hotel, on that day, which can lead to very powerful conclusions.

The Takeaways

  • 51% attendees book outside the room block

  • 25% of attendees didn’t book through conference organizers

  • Attendees felt it was more important to get loyalty points than to get lower price in block

  • Majority (67%) not in room block paid more so price wasn’t the main driver

For the full analysis, please visit PCMA to download the complete study.

For DMOs and CVBs, we have a series of reports to help you better understand your destination.

For more information on how you could use the Kalibri Labs database on a unique project of interest, please contact us

Top Hotel Performance Takeaways from the San Francisco Moscone Center Renovation

By: Jeremy Gilston - Manager, Real Estate Revenue Strategy

Hotels funded most of the Moscone Convention Center’s renovation, so which chain scale is seeing the most impact after completion?

Jeremy Gilston analyzes the April 2019 edition of the San Francisco GEO HIPO (Hotel Industry Performance Overview) to find out which types of properties have seen the most tangible benefit from the Moscone Convention Center Renovation.

Background

The Moscone Convention Center, San Francisco’s home to major city-wide events, finished a $551 million expansion the first week of January 2019, increasing the facility’s square footage by 21% and making it the 15th largest convention center in the country (1). Within the Tourism Improvement District of San Francisco, a Moscone Expansion District (MED) was created in 2013 (2) to fund the expansion. As such, hotels covered two-thirds of the construction costs.

The Results

At the chain scale level of detail, it becomes clear that the upper tier hotels are benefiting the most from the Moscone Convention Center improvements. While hotels across all chain scales experienced year-over-year occupancy declines and ADR growth as of April 2019 YTD, Upper Upscale hotels experienced +9.21% COPE RevPAR performance growth as compared to Upper Midscale hotels whose COPE RevPAR declined -5.6%.

Luxury and Upper Upscale hotels are in closest proximity to the convention center, further explaining why these chain scales benefited the most from the Moscone renovation. Nearby hotels include a Marriott Marquis, The Park Central, W Hotel, and InterContinental.

In addition, the convention center is attracting large technology industry and high-profile events (3), whose attendees tend to prefer upper tier hotels. For example, the largest gathering of presidential candidates in California since September 2015 occurred at Moscone in the first week of June 2019. For these reasons, the market’s channel mix and growth trends are expected to continue in 2019 in line with April 2019 YTD figures.

The Details

The highly granular view of market performance in the San Francisco GEO-HIPO illuminates the true drivers of growth from the Moscone Convention Center renovations, which is highlighted in the graphic below.

Since the completion of the Moscone renovations, San Francisco’s ADR growth was driven by Brand.com, GDS, and Group business. While most convention center business books within the room block, a substantial portion does not. Group ADR experienced the most growth, +17.41%, making it the highest-COPE ADR channel as of April 2019. Additionally, the Group Room Night Share increased over 7%, making it the second largest portion of the total demand at 18.67%. These factors comprise the Group COPE RevPAR growth of 20.38% as of April 2019 YTD.

Other notable year-over-year performance metrics for April 2019 YTD are outlined below:

  • Guest Paid RevPAR was up +6.2%, which is well above the total US performance (-1.6%)

  • Occupancy -4.2%

  • Brand.com Demand Share +5.2%

  • Group Demand Share +7.1%.

  • COPE ADR +9.6%

  • COPE % +0.6%

  • Loyalty Contribution +5.3%

  • Booking Lead Time +3.8%

  • Global Review Index +2.9%

To gain macroeconomic insight and to better forecast revenue projections, consider purchasing HIPO reports in the markets most important to you. Reports are available for the U.S. Market and 25 major MSAs (GEO HIPOs).

Download a sample HIPO report or contact us for questions regarding custom markets.


Appendix:

The Hotel Industry Performance Overview (HIPO) is Kalibri Lab’s market-based hotel industry performance report, which enables key stakeholders in the hotel industry to stay up to date on market trends and improve their business decisions. The report features unique metrics to the industry such as customer acquisition costs, loyalty contribution %, booking lead time, average length of stay and more.

Footnotes:

(1) “$551 Million Moscone Center Expansion A Bid To Win Big Tech Conferences". www.SFChronicle.com, 2019
(2) “San Francisco Tourism Improvement District”. www.SFTID.com, 2019
(3) "California 2020 Countdown: Democratic Contenders Converge In California, Joe Biden Takes A Pass". The Mercury News, 2019

 

MAXIMIZE RFP SEASON SUCCESS WITH HUMMINGBIRD PXM’S THIRD PARTY INSIGHTS

By: Stefanie Wood - Director, Client Engagement

Before we know it, RFP Season will be underway. Understanding where the most profitable business exists in the market (from which agencies and which accounts) should be your top priority in the preparation leading up to RFP season. Unless you’re using Hummingbird PXM’s Third Party Insights module, you’re only seeing top line GDS production.  With Hummingbird PXM you can see all channels being booked, the COPE Revenue (Guest Paid with direct customer acquisition costs removed), and the loyalty contribution of each account in order to build the best strategy to attain your corporate goals for the upcoming RFP season.

In the accompanying video, Stefanie Wood, Director of Client Engagement at Kalibri Labs, walks through a checklist for using Hummingbird PXM to ensure successful RFP preparation. If you would like a personalized demo of the Hummingbird PXM used in this example or have questions about Kalibri Labs data, please contact us here for a quick reply.


First, you can use Hummingbird PXM to assess your current Corporate production and identify where to remix business: 

  • Filter for Traditional Agency, Corporate and a Trailing Twelve Month timeframe. 

  • Review your results for Top Agency COPE Revenue, Growth/Decline at both Property and Benchmark, Lead Time, Length of Stay and Loyalty %

  • Determine which agencies you want to further review and click on their IATAs (hyperlink)

  • Analyze agencies full worth, weekday vs. weekend results, COPE RevPAR contribution/booking pattern and COPE ADR Ranges

  • Compare COPE to Guest Paid Results to understand what your customer is paying and associated costs of acquisition

  • Review Channel and Rate Category production

  • Take advantage of Agency Info to establish or further your relationship

Second, you can use Hummingbird PXM to benchmark agency production to determine which agencies and therefore Corporate Accounts make sense for the property to pursue.

  • Keep the same filters set for the Property Audit and sort by Selected Period by Benchmark

  • Review your Benchmark’s top COPE Revenue producers, some will overlap with your top agencies and some will be different

  • Run through a similar exercise as when looking at your Property’s results to understand if this is business that make sense to pursue

  • Armed with all the insights we’ve gathered, we can now make informed decisions regarding our current business, the Benchmark’s performance and where we can actively create Business Cases and bid on RFPs appropriately

Insights lead to informed business decisions that lead to profit growth. Take advantage of the level of granularity that Hummingbird PXM’s Third Party Insights module is able to lend to you in preparation and execution during RFP Season. Continue to use Third Party Insights throughout the year to track results and refine your Corporate strategies.

Learn more about Hummingbird PXM, our revenue opportunity engine.

Contact us if you have any specific questions or requests.

A 6-Step Guide to Underwriting Channel Mix Opportunities

By: Jeremy Gilston - Manager, Real Estate Revenue Strategy

Having spent several years underwriting hotels using traditional industry data sources, Jeremy Gilston shares an in-depth six-step guide to making your projections more accurate by underwriting channel distribution using the Benchmark & Trendline Report from Kalibri Labs.

 Step 1. Underwrite the Market Dynamics

Step 2. Examine the Annual Market Trends

Step 3. Analyze the Subject’s Relative Performance

Step 4. Identify Peak Channel Mix opportunities

Step 5. Optimize the Channel Mix

Step 6. Project the Cash Flows

The analysis below contains the full detail on each step. If you would like a personalized demo of the Benchmark and Trendline report used in this example or have questions about Kalibri Labs data, please contact us here for a quick reply.


STEP I: Understand the Market Dynamics

The subject of this analysis is an upscale branded hotel in a prime beach market. The comp set contains 8 similarly-positioned branded hotels located in the surrounding area, all of which are 2 to 5 miles from the shoreline. Barriers to entry in this market are high and there is no known new supply anticipated to compete directly with the hotels in this analysis.

During prime beach season, the subject and comp set hotels are the lower-priced alternatives to the beachfront hotels and resorts. Given this context, the first step is to view monthly Guest Paid RevPAR trends, which reveals what guests are willing to pay in the market by month.

There are clear performance peaks during the prime summer months (June, July, and August) each year for both the subject and comp set. Additionally, the subject hotel (blue) garners higher RevPAR throughout the year.

STEP II: Examine the Annual Market Trends

The annual performance trend data provides insights into market stability and indicates future performance.

Both the subject and comp set have exhibited performance growth since 2015, peaking in 2018. March 2019 TTM appears to perform slightly below FY 2018, suggesting market stabilization. As such, without knowledge of new economic development anticipated to spur additional hotel demand, there is little evidence to support future top-line revenue growth projections for the area.

STEP III: Analyze the Subject’s Relative Performance

In reviewing the traditional metric of Hotel Collected RevPAR, the subject hotel has stabilized at around a 116 index, making projections for a higher index difficult to support. However, insights into COPE RevPAR expose ways to position this asset for future profit growth.

This step shows the historical COPE RevPAR Index peaked in 2017, which was driven by occupancy.

STEP IV: Identify the Peak Channel Mix Opportunities

Although the subject’s peak Guest Paid performance year was 2018, it achieved peak COPE index performance in 2017, which is the true measure of profitability.  After analyzing market seasonality and the subject’s peak year of COPE RevPAR performance, the next step is to better understand the channel mix.

Through a higher relative COPE index via Brand.com, Property Direct, OTA, and FIT/Wholesale performance, the subject was able to out-perform its competitors.

STEP V: Optimize the Channel Mix

Because the subject hotel’s peak COPE RevPAR performance was driven by occupancy, the hotel can optimize its channel mix by strategically offsetting demand in favor of higher-rated business. This step involves identifying each channel’s COPE ADR during the peak occupancy months to better understand the optimal channel mix for increased profitability. This is just one of the many ways to identify COPE ADR-based channel mix opportunities:

During the peak occupancy month, July, the subject achieved the highest 2018 COPE ADR via the Brand.com, Voice, and OTA channels. While the subject garnered high Voice occupancy indexes (>200 all summer), there might be room to increase profit through Brand.com and OTA.

Because the subject hotel achieved 94% Occupancy in July 2018, capturing additional demand is not reasonable. As such, the hotel must offset other business to achieve higher profit. In this situation, the optimal mix would be to offset Property Direct, GDS, and Group business with additional Brand.com and OTA room nights. This analysis is reasonable so long as the subject’s brand, location, level-of-finish, and positioning can support the change in mix.

STEP VI: Project the Cash Flows

Each firm adheres to its own practices regarding projections, which can be based on factors such as planned capital improvements, loan-to-value ratio (LTV), debt-to-income ratio (DTI), and expected internal rate of returns (IRR). This next and last step is the culmination when the underwriter will apply the insights and analysis from steps I through V to project the asset’s future potential. The following is a rudimentary example of this type of analysis based off the July opportunity analyzed in step V.

Assuming the 2018 demand and COPE ADR remains in Year 1, simply shifting the July Brand.com Occupancy Index back to the index the subject achieved in 2017, its banner year of performance, adds approximately $11,000 in additional profit. Given that the hotel does not have meeting space or catering, it is important to note that displacing group rooms would not impact ancillary revenues.

Utilizing a standard 8% Capitalization Rate on the additional profit projected for July of Year 1, this analysis yields approximately $135K in additional asset value, which equates to over $1,000 per key. Note that the above analysis is just one example of the many opportunities that can be unearthed with the granular information included in the Benchmark & Trendline Report. The party underwriting the asset will decide which opportunities are feasible and how risk-tolerant or risk-averse to be in the projections.

After walking a client through this analysis, the client said “This is truly impressive. I look forward to working with [Kalibri Labs] a whole lot more.”

Appendix:

Glossary of Metric Definitions

Benchmark & Trendline Report Overview

What is driving the industry’s move to revenue strategy?

When the hotel industry started adopting revenue management as a practice, it was born out of a need to manage rates and inventory at a very transactional level. Very often front office managers, reservations managers and others who didn’t necessarily sign up for this job, were being asked to also be ‘Revenue Managers,’ but not to quit their day job. As the discipline has evolved, grown and become more scientific in its approach, we’ve discovered that there is a real need to keep the business strategy top of mind and the term “Revenue Strategy” was born.

Revenue Strategy continues to evolve as a way to manage all of the many moving parts:

  • Managing the overall strategy of the channel mix, including the acquisition costs associated with that business

  • Adding groups on the books to the right time

  • Working to collaborate between disciplines of sales, marketing, digital marketing, and operations to have a successful overall strategy for the hotel

It’s no longer about limiting one person in one role to manage all the rate decisions on a day-to-day, hour-to-hour basis but really focusing on the overall long term strategy for the hotel and its business.

Contact us to learn more about a revenue strategy platform that tracks acquisition costs and surfaces the most profitable business for both your hotel as well as opportunities that you could look to win back from the benchmark group.

What impact might Airbnb have on the hotel industry in another recession?

A lot has changed in the past ten years since the depths of the ‘Great Recession.’ In 2008/2009, Airbnb was only just launching and really wasn’t a major player, however, Mark Lomanno explains how things may be a little different the next time around, as consumers booking habits have changed and their accommodation preferences have evolved. When consumers tighten the purse strings, hotel pricing tends to be very reactionary during a recession. It’s not unrealistic to think, if unemployment rises and people need to make tough decisions, this could cause an influx of alternative accommodation inventory as homeowners seek to monetize their own homes to make ends meet. As more supply enters the market seemingly overnight, what sort of impact does this have on hotel pricing in an already distressed market?

Keep an eye on Airbnb supply in your market, and the health of the hotel industry in your market.

Does this type of scenario keep you up at night? Let’s discuss what insights can help you stay better informed on the trends in your market.

Three Metrics to Know Before Deciding to Develop Downtown or in the Suburbs

A Philadelphia Analysis

By: Jeremy Gilston - Manager, Real Estate Revenue Strategy

Understanding and utilizing the following three metrics will have drastic implications on the type, size, and level of finishings (chain scale) selected for a hotel development in a major downtown urban area when compared to the outskirts of that same market.

So what additional unique data can a developer utilize to make better development decisions?

1. Channel Mix

2. ADR By Channel

3. Booking Lead Time by Channel

With rising labor costs and interest rates at this stage in the cycle, development opportunities are becoming harder to find. Today we’ll review a Hotel Industry Performance Overview report to compare the downtown Philadelphia market (Center City) to the larger Philadelphia MSA to explore how Kalibri Labs’ granular data can allow for better-informed investment decisions.

Downtown vs surrounding suburbs.

As expected, the downtown Philadelphia market, Center City, experiences higher RevPAR than the larger Philadelphia MSA, which includes Center City in addition to the surrounding suburbs (Appendix 1). This is due to diversified and increased demand, compression nights, city-wide events, in addition to other macroeconomic forces that exist in a downtown urban market. As such, in 2018, Center City experienced the following when compared to the larger Philadelphia MSA:

Occupancy - + 9%

Guest-Paid ADR - + $58

COPE RevPAR - + 60%

Sure, building costs such as materials, land, and labor are central considerations when looking to build a hotel in a major city as opposed to its suburbs, but what about channel mix?

Channel Mix

Philadelphia MSA

Group – 18%

Property Direct – 20% 

Philadelphia Center City

Group – 34%

Property Direct – 9%

This channel mix breakout will help a developer identify just how much meeting square footage is required to capture group demand.

ADR by Channel

The graph below outlines the rate differential between the previously addressed sources of business. A top-line analysis must be done to understand the channel mix trade-off when determining a development site. Group has the highest ADR in the Philadelphia MSA and third highest in Center City, whereas the Property Direct ADR is 50% less in the Philadelphia MSA as compared to Center City. Therefore, (and as a former underwriter, myself) a developer’s underwriting model should project the additional revenue by channel in order to make the most informed investment decision:

Group Revenue = Captured Group Demand x Group ADR

This analysis should also include an ancillary revenue per occupied room (POR) estimation to account for additional revenues not captured in the Group ADR. Ancillary revenues typically include meeting room rentals, food and beverage, AV equipment, and more.

Booking Lead Time by Channel

Another valuable metric in this analysis is booking lead time by channel. Group business in both Center City and the greater Philadelphia MSA both have about a ~45 day booking lead time. It is important to consider that Property Direct (Appendix 2) books less than two weeks out in Center City and has a longer lead time in the Philadelphia MSA. This means that a group-heavy Center City hotel can fill roughly a third of its available rooms with high-rated Group business a month and a half in advance.

Understanding this has implications for the rest of the channel mix as well as sales and marketing costs and may ultimately allow the hotel to be less reliant on more expensive indirect channels such as online travel agencies (OTAs).

Conclusion

Before conducting a highest and best use analysis, know what data is now available to you. If a developer is considering building a hotel in a downtown area or a suburban area, they will make a better-informed decision when considering these three important metrics: demand mix, ADR by channel, and booking lead time by channel. These metrics inform how a developer can build the optimal hotel and staff a sales and marketing department to capture the highest-rated business with the lowest-associated expenses.

To learn more about our suite of hotel development reports and specialized insights for the hotel investment ecosystem, please schedule a demo.

Consider purchasing a HIPO Report to gain macroeconomic insights into a market before spending millions to develop a hotel.


Appendix 1 – Geographic Definitions

Center City Philadelphia (Defined as Zip Codes - 19102, 19103, 19104, 19106, 19107)

Philadelphia MSA (Defined as Counties - New Castle County, DE (10003); Cecil County, MD (24015); Burlington County, NJ (34005); Camden County, NJ (34007); Gloucester County, NJ (34015); Salem County, NJ (34033); Bucks County, PA (42017); Chester County, PA (42029); Delaware County, PA (42045); Montgomery County, PA (42091); Philadelphia County, PA (42101)                                                                                                                  

Appendix 2 – Definitions

REVENUE TYPES

COPE Revenue
COPE stands for Contribution to Operating Profit and Expenses and is a form of net revenue after booking costs are deducted from Guest Paid Revenue. These costs include channel and transaction fees, retail and wholesale commissions, loyalty fees, and amenity costs (luxury hotels only). COPE Revenue does not account for Sales and Marketing expenses.

Guest Paid Revenue
The amount of revenue a guest pays for a booking, whether they pay the hotel directly or a third party. This includes the portion the hotel keeps plus the wholesale commission paid directly to a third party such as a traditional wholesaler or OTA (merchant model or opaque).

CHANNEL DEFINITIONS

Group
Bookings from Group market segments, regardless of the booking channel.

Property Direct
Transient bookings made with the property directly. Typically includes reservations made with the front desk through walk-ins or calls as well as contract/crew bookings. This does not include groups/meetings, rooming lists or other sources that are tracked separately.

Voice
Transient bookings made through a call center, central reservations office, or on property reservations desk.

The 3 Things Every Revenue Manager Needs to be Successful

The three things that every revenue strategy leader needs to be successful, according to Jennifer Hill, VP of Client Engagement at Kalibri Labs, are:

  1. Access to granular data

  2. Time to strategize

  3. Collaboration with colleagues

Let’s dig in.

Access to Granular Data

Having detailed data segmented by Channel, Rate Category, and Cost of Acquisition allows the revenue strategy team to take specific actions with confidence that they are precisely targeting where the demand is coming from for their hotel, or for their competitors, in order to shift the most profitable business that exists in the market to their hotel.

Access to Granular Data.JPG

Time to Strategize

It is critical for a revenue strategy leader to have time to analyze and implement those strategies in order to avoid being reactionary and stay on the front foot taking a proactive approach to their revenue strategy.

Collaboration

Lastly, collaboration amongst the different revenue strategy disciplines and breaking down the silos between them is really important. Learning from your colleagues market experience and having a forum to review the strategies, discuss the insights and ideas and collaborate to operationalize those strategies will be crucial to a revenue strategy team’s success. 

For more information about a revenue strategy platform that is built with that framework in mind and to foster productive revenue strategy conversations, please contact us or schedule a demo.

What is your Optimal Business Mix and how can you calculate it?

Jennifer Hill, VP of Client Engagement, explains the two core components that make up Kalibri Labs’ proprietary Optimal Business Mix (OBM) algorithm. The first phase is a much more in-depth look at the competitors in the market which goes far beyond the current subjective nature of selecting a traditional comp set. The competitive benchmark group defined by the Optimal Business Mix algorithm looks across all the reservations in the market and breaks them down by rate segment and weekpart, in order to find similar business that the subject hotel could have realistically competed with on that day for those room nights.

With Optimal Business Mix, a hotel is no longer limited to comparing against the average of a fixed group of hotels for all of their business. Instead the hotel can focus on the best they can possibly achieve for each rate segment and weekpart. This means the subject hotel likely competes with a much broader set of hotels than they have in their current traditional comp set.  The Optimal Business Mix algorithm can identify the competition by specific rate segment and weekpart, producing a much more highly targeted unique benchmark group for each segment and weekpart, like weekend group vs. corporate weekday. 

The second major piece to the Optimal Business Mix algorithm is the actual optimization component where we compare your historical performance with the optimal availability in your market. We are able to parse out and identify the capturable business in your market and show you which of those room nights are available from which of those competitors so you can focus your efforts on activating strategies that drive that business back to your property.

For more information on Optimal Business Mix, and our Revenue Strategy Platform, please schedule a demo or contact us.

Accurate Underwriting for Extended Stay Properties

Underwriting.png

Underwriting an extended stay hotel using length-of-stay metrics can better inform bottom-line projections, according to Jeremy Gilston, Manager of Real Estate Revenue Strategy. With that in mind, we’ll explore a recent case study that sheds light on how Kalibri Labs' more granular data set led an investor to more accurately assess an extended stay transaction.

Challenge

A mid-sized hotel investment firm was looking to acquire an upscale full-service property in a prominent Midwest Suburb that converted a year prior from a DoubleTree by Hilton to an upscale extended stay property. The converted hotel had not realized its anticipated performance growth and was underperforming in the market. In assessing this deal, leadership believed there was considerable upside opportunity by increasing average length of stay and thus mitigating some operational expense with room turnover. They needed a way to understand just how much extended stay demand was achievable in order to more accurately project top-line performance and associated expenses.  

When underwriting the property based on traditional data sources at first, this investor’s initial calculations did not get them close enough to the asking price to put in a competitive offer.  However, they still believed their hypothesis and sought out more granular data for their due diligence to project more accurate and refined profit potential for the property.

Solution

The investor used a Kalibri Labs Extended Stay Market Profile report powered by a database that houses more than 33,000 U.S. hotels and transaction level data from over seven billion bookings. The insights contained in this report, which benchmarked the subject property against a selected comp set and the greater market by length-of-stay buckets, allowed the company to underwrite this property in a new way. With this data, they could more accurately project extended stay occupancy by length-of-stay penetration and link this to specific line-item expenses and Housekeeping Key Performance Indicators (KPIs) such as Full Time Equivalents (FTEs) and Minutes per Occupied Room (MPOR).

This investor struggled with a way to justify their analysis until they could confirm the long term stay volume in the market, stating “It was amazing to see that level of detail. Nobody else is doing this – the fact that [Kalibri Labs is] able to provide Extended Stay data for the market and for the competitors is unique and allowed us to put together a realistic and competitive offer.”

Results

The data in the report supported the investor’s upside hypothesis to the tune of +$400k in Net Operating Income, allowing them to confidently increase their offer.  Because of this data, the company put forth a competitive bid that was far better informed than the original take and put them in finalist contention for the property.

To learn more about Extended Stay reports, a variety of other use cases or to review sample reports, please book a demo or contact sales.

Tips for communicating with your owner or asset manager

According to Jennifer Hill, VP of Client Engagement at Kalibri Labs, Revenue Strategists should always have a seat at the table with owners and asset managers when there are other disciplines represented. When at the table, Revenue Strategists should provide simple, clear and effective messaging as to what is happening in the market, why it's happening and what they are doing to accomplish a particular strategy.

It's really important to be able define a challenge or upcoming obstacle, understand how they are going to implement their strategies, and then deliver that message very clearly so that the owners and asset managers understand it’s a known problem but the team is aware of it and taking a proactive approach to resolve it. If the team is celebrating success, it's really important to showcase how that success was accomplished and the obstacles the team overcame.

For more information on a Hotel Revenue Strategy Platform built with that framework in mind, please schedule a demo.

What are some leading indicators of another economic recession?

Is another recession looming? It’s the question on the minds of analysts and leaders across the hotel industry. When asked if the hotel industry is more or less prepared for another recession, Mark Lomanno, partner and senior advisor at Kalibri Labs, couldn’t help but laugh. He said, by every measure hotels should be more prepared, having seen a few of these over the last 15 or 20 years, but being prepared and behaving accordingly are two entirely separate issues.

Access to advanced metrics at the market or U.S. level can aid in tracking the cycle strength and can help project whether we’re at the start or end of a particular cycle. Mark mentions how one new leading indicator from these advanced metrics would be a contracting Length of Stay and Booking Lead Time which may signal that tides are starting to change and budgets are tightening.

In the case below, a 6-month look at the YOY% change of Booking Lead Time and Length of Stay appears to show both metrics growing, or at least holding steady, versus same month in the previous year, indicating the health of the industry remains in tact.

Booking Lead Time continued to expand versus the same time in 2017 but trended downward last fall, prior to ticking back up in December.  

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Hotel distribution and the booking trends of consumers are light years different than even 10 years ago at the start of the great recession. Ensure you’re using next-generation metrics, powered by the Kalibri Labs database, to better understand the conditions in your market.

 
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U.S. Hotel Industry Performance Overview (US HIPO)

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Market Level Hotel Industry Performance Overview (Geo HIPO)

 

Are you evaluating the correct hotels in your comp set? How to know and what to do about it…

Mark Lomanno explains how hotel benchmarking is quickly changing. Historically, the way the industry has evaluated success is viewing a subject hotel or sub-market against an aggregate, whether that be a comp set, or a chain scale catagory in a certain market. There has been a movement from average to optimal, where hotels are less focused on the average of a localized grouping of hotels and more tuned into the best they can acheive, based on real market data.

Hotels don't compete with each hotel in their comp set for 100% of their business. Kalibri Labs has introduced the Optimal Business Mix algorithm that enables hotels to see what hotels they compete with for each segment of their business and rate categories there is captureable opportunity for the subject hotel to go after. This paradigm shift moves hotels from striving for average, to optimal.

Hotel operators, asset managers and revenue managers, learn more about Hummingbird PXM, our hotel revenue strategy platform or contact us.

Brokers, underwriters, and those in the hotel investment community, learn how Optimal Business Mix can be applied to hotel real estate reports.

Read the featured article on HotelMarketing.com.

Metrics Made for the Digital Age - Going Beyond RevPAR

Mark Lomanno, Kalibri Labs’ partner and senior advisor and former STR president, talks about the power of big data. When hotel data is sourced at the transaction level with rate code, channel, arrival/departure dates as well as price and acquisition cost information, the granularity and level of detail allows brokers, underwriters and developers to go significantly deeper in terms of analysis.

Mark also shares a brief history of hotel performance benchmarking, from the accounting consulting firms who produced the first industry standard metrics, to the late 1980s when Smith Travel Research pioneered the benchmarking field, to where we are today with Kalibri Labs creating a new set of benchmarks and metrics for the digital age.

Learn more about our subscription based Industry Performance Reports.

Reports for Brokers, Underwriters and the Hotel Investment & Real Estate Community.

Or learn more about options for Destination Marketing Organization & CVB’s.

What impact has Airbnb had on hotel development supply?

Mark Lomanno, Partner and Senior Advisor at Kalibri Labs, analyzes the impact Airbnb has had on hotel development supply. When looking to develop a new hotel, he says, developers at least need to take pause and consider how alternate accommodations may affect the market and how they might operate differently in peak periods or during a down cycle.

According to Lomanno, the presence of Airbnb is definitely something people are, or should be, evaluating but perhaps haven't completely adjusted their models to account for the influx of supply in accommodations and this newfound demand for alternate accommodations.

He goes on to describe that the effects of Airbnb go beyond just additional supply in the market and that some hotel companies have evolved their brands and developed new hotel concepts.

More information on hotel comparable short-term rental supply in your market is available - click here to learn more.

Kalibri Labs' 2019 Hotel Industry Performance Forecast

Text originally published on HotelsMag.com - “How changing booking habits will impact 2019 profits

By: Mark Lomanno

Heading into 2019, when looking at the traditionally tracked metrics of Hotel Collected RevPAR, ADR, and Occupancy, we expect US the lodging industry to perform generally in line with the last several years. Supply growth looks to remain steady at the long-term average, and demand should continue to outpace the level on new room growth by a small amount resulting in rising occupancy. In fact, national occupancy numbers will again reach all time high levels since performance data began being accurately tracked in the 1980’s. Therefore, that supply/demand relationship will remain strong, which is the primary driver of ADR and RevPAR growth, however at levels well-below what the underlying fundamentals would suggest. See figure 1 for Kalibri Labs’ 2019 traditional metrics forecast.

While there are many factors at the root of the sluggish room rate growth over the past several years, one of the more compelling drivers has been the rapid shift in the way customers book hotel rooms. In 2019, at a national level, more than half of all hotel bookings will be made online versus only 35% just 4 years ago. This has a perceived effect on pricing power at the property level and the associated cost of the bookings is greatly impacted. Specifically, in the same four-year time frame, more than 201,400 rooms booked per day have shifted to another channel away from Property Direct, the most direct means of booking a reservation via walk-ins or phone calls handled directly by the front desk staff. That level of change in such a short time period is staggering and will continue to have a profound effect on ADRs and hotel profitability.

Generally, that shift in booking behavior has resulted in increased reservations through either brand.com or the OTAs. On a per room night basis, in the same time frame, the average daily rooms booked through brand.com has risen by approximately 203,000 rooms booked per night compared to an increase of about 186,000 rooms booked per night through the OTAs. Further analysis of these results displays an increase of about 270,000 incremental rooms booked per night, in absolute room night demand over the same 4 year period. Chart 2 shows the change in room night booking demand by channel between 2015 and our forecast for 2019. It’s clear that the majority of the change in consumer behavior is happening in 3 main channels. It must also be pointed out that while an examination of this dynamic by market or property type would reveal considerably different magnitudes of change, the underlying pattern would be the same.

In addition to the industry standard metrics shown in figures 1 and 2, Kalibri Labs has projected many other advanced metrics displayed on Chart 3. As shown, booking costs per room (measured as the costs directly associated with the booking, like wholesale commissions, retail commissions, loyalty investment and channel costs), will continue to rise in 2019. While these costs, aggregated at the national level, are a blended result of all the booking channels, the costs associated with certain channels are increasing at a faster rate than others, both from an absolute cost perspective as well as a booking volume perspective.

In 2019, the industry will continue to see increases in loyalty contribution, or the percentage of bookings made by loyalty program members, which we expect will rise about 2% to just under 50% of all room night bookings. Again, this is a meteoric rise from just 5 years ago when industry wide loyalty contribution was about 40%. Also shown in figure 3, we project the change in booking lead time, up slightly over 2018 and average length of stay, which should remain mostly flat over the prior year.

With modest changes in most metrics year-over-year, it’s important further analyze more advanced metrics that can give context and nuance to the standard industry metrics, and when actioned correctly, can potentially drive more Net RevPAR.

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For more information on using the Kalibri Labs database for your hotel revenue strategy and benchmarking needs, please visit or contact us.

How will Revenue Strategy improve the health of the hotel industry?

As Cindy notes, many hotel owners and operators are not as readily aware of the impact of customer acquisition costs on the overall asset value of the hotel.

 

Where do you see the discipline of Revenue Strategy going over the next 5 years?

Cindy Estis Green explains that an organization built around revenue strategy absolutely needs to be in place going forward. Today, the industry is dealing with a certain set of costs, channels and segments of business but they will inevitably change and processes need to be in place to manage and measure the opportunities and costs that arise from the constantly shifting distribution landscape.