Revenue managers, being the savvy bunch that they are, know that outliers are important. How they and their colleagues respond to these exceptionally slow or busy days in their forecasts can have a profound impact on their ability to meet key revenue and profitability goals.
So naturally, when the “The Big One” is coming to town they tend to sit up and take notice.
Whether it comes in the form of the Olympics, the Super Bowl, the World Cup or an international superstar’s latest tour arriving in town, a major event is sure to keep hoteliers on alert for the best ways to capitalize on and adapt to the extraordinary market fluctuations that come with it.
What hoteliers should know when a major event is coming to town
While it’s easy enough to surmise that a huge event coming to town means hotels will be busy, understanding the impact is much more nuanced. As hoteliers think through how they adjust to major events, they may find some surprises along the way. We’ve highlighted a few takeaways to keep in mind.
1. Major events may send “regular” business packing
With so much attention focused on the influx of event-driven travelers, it can be easy to lose sight of how this event surge will impact your typical group and corporate business guests—particularly in the lead up to the event.
For many group and business travelers, the prospect of being anywhere near the epicenter of the Olympics or another similar-scale event is a non-starter. Whether they’re looking to avoid event demand-driven cost increases, the crowds, logistical hurdles, or some combination of the above, hotels close to the action should brace for a potential drop off in business from this segment in the immediate lead-up.
In fact, when IDeaS analyzed the data for 30 London-area hotels during the 2012 Olympics, there was a clear drop in occupancy prior to the event as group and corporate business steered clear of the city.
Steve Green, principal solutions engineer at IDeaS and long-time hospitality revenue management professional, says it is vital to not only understand the characteristics (price sensitivity, booking window, propensity to cancel, propensity to buy down if rates are available, etc.) of the new demand to come but also those of the formerly reliable business that will be displaced.
“There is a ‘net-gain/loss’ equation to keep in mind – especially in the days and even weeks pre- and post- many major events,” Green says. “Be thoughtful in your budget and forecast projections so that these tremendous opportunities don’t end up falling short of expectations.”
2. A room can be found
While occupancy will almost assuredly climb in nearby hotels during the course of a major event, data shows it’s still possible for travelers to find a room. For instance, check out STR’s exploration of the impact hosting the Super Bowl has on host markets. Some years the inn is getting awfully close to full with occupancy north of 95 percent (New Orleans 2013 and Phoenix 2015), while others are in the 70-80 percent occupancy range.
Of course, there’s a host of complicating variables to account for—fan enthusiasm, the overall quantity of rooms available in the market, ease of venue access within geographic footprint, etc.—that will influence how hoteliers’ approach an event. But data shows that in some markets, it may backfire to price rooms like they’re the last bed to be found for miles.
3. Cancellation and overbooking management is key
As Tracy Dong, principal industry consultant for IDeaS, noted in a blog in the lead-up to the 2020 Tokyo Olympics, it’s critical for hoteliers to think through how they’ll minimize the impact of potential last-minute cancellations. Green explains that a thoughtful, proactive approach to developing and implementing cancellation policies is essential.
“Poor policy planning creates greater uncertainty and last-minute chaos,” Green says.
One tried-and-true approach is to implement phased pre-payment restrictions and longer cancellation periods. So instead of your standard cancellation notice period, guests with a change of plans will need to inform the property anywhere from 7 to 28 days in advance to avoid losing out on their partial pre-payment. When terms and conditions are clearly communicated at booking, these tightened terms are generally accepted by the public during high-demand events, and will provide your hotel with time to adapt and minimize the financial impact of a cancellation.
Wholesale contracts are another potential sticking point on this front. Many hotels will have a large portion of their inventory tied up in these contracts for major events—and while there’s a strong business rationale for these agreements as they provide steady year-round demand, they oftentimes create consternation due to their comparatively low rates. To hedge against this, attempt to negotiate separate terms (blackout dates, smaller block commitments, higher rates, earlier release dates…) for any contract/wholesale contracts over these ultra-high demand dates in order to capture the greatest revenue opportunities.
4. Function space is also at a premium—so don’t overlook it
It’s no surprise event space is also in high demand during a major event, but how you approach making the most of this demand shouldn’t take a backseat to maximizing rooms revenue as these opportunities can be a boon to profitability.
“Major events are an opportunity for companies to impress clients so it’s common for hotels and restaurants to get completely bought out by a company. These groups are usually willing to pay top dollar for the right facility to entertain their guests,” says Green.
Green recommends hotels consider setting premium food and beverage minimums for any group business seeking event space. It’s also important for commercial teams to consider the bigger picture and avoid basing decisions solely on STR report metrics.
“You need to consider the total value and profitability of any group opportunities and weigh that against transient and other group demand,” Green says. “Keep in mind that it doesn’t take much F&B spending to exceed the revenue and ultimately profit generated from rooms-only groups or individual travelers.”
5. Plan early, and prepare to pivot if needed
Major events take major planning—and most of the truly top-tier global events provide hoteliers years of advance notice for getting their house in order. To make the most of these events and position your property for success, you’ll need to start your strategic thinking and planning as soon as possible. Don’t wait to start defining what your ideal cancellation, payment, contracting and vetting policies are for an event. It’s also important to start early in determining what is the “correct” amount of group blocks to commit to an event, and weighing how the steps taken to reach that target mix of group and transient business for a short-term event will impact your business in the long term.
Of course, anything that requires long-term planning also requires monitoring. Unexpected changes can quickly shift the calculus of even the most thoroughly thought-through plan, so keep your head on a swivel for signs of disruption—and think through your potential back-up plans.
Ready for the rush?
Preparing for a large-scale international event is undoubtedly a huge undertaking. But with the right strategies, tools and plans in place, hoteliers can take what stands to be a good opportunity and turn it into something spectacular.
Looking for more ways to capitalize on an upcoming major event? Our eBook, “The Major Events Strategy Playbook: A Hotelier’s Guide to Optimizing Big-Event Revenue” can help position you for success.