The ability to increase room rates, rather than improvements in occupancy, has been key in helping the European hospitality industry combat soaring inflation, according to Ronen Nissenbaum of Fattal Hotels, CEO of UK/Ireland, Benelux, Spain, Portugal and US development.
Says Nissenbaum: “If we’d had to get there through occupancy, it would've been a lot more challenging. We actually made it through rate increases and less occupancy.” He adds: “Historically, since 1940 in fact, when inflation grows, your RevPAR and your NOI percentage grow more. And if history is any predictor of the future, that’s exactly what we’re seeing now. Despite the growth in minimum wage in the UK and Holland, and the 10% energy price spike, we were able to counter that by increasing average RevPAR.”
Joe Green, managing director, acquisitions & disposals, Klarent Hospitality, agrees. “We obviously had a lot of inflation on the cost side, but our bacon was saved as an industry by huge growth on the RevPAR side,” he notes. “It wasn't unusual to see RevPAR increases of 30% versus 2019.” He underlines that those expense shocks came from all sides - “big increases on payroll… energy was a big crisis for many industries including ours… and that fed through to many other things, including the procurement of food. So all of us, as an industry, had to take steps to try to manage that as best we could.”
Rate increases
Niels Schroeder, managing director, of Fairmas, a software provider for financial reporting, observes a similar course. “There was a delay between increased rates and inflation, when inflation hit the industry. After Covid, the industry was not used to increasing prices to that extent, as we have had to in the last couple of months.
“Now we see that the occupancy is coming back as well, and in fact has stabilised. We have higher ADR, which covers most of the inflationary impact on the overall profit, but I think many hotel companies realise that they have to prepare themselves for future times and potentially for difficult times.”
Pascal Petit, CEO of hospitality CRM Thynk.cloud, agrees that flexibility is crucial in this environment. “Beyond inflation, what was very new was the speed at which inflation arrived and may fluctuate. What we see on the ground, is that our customers face the challenge of moving from a world where things were moving slowly, to world where speed and adaptability has become critical, especially around inflation.
“Addressing that means addressing how flexible operations can become, how flexible distribution can be, or how quickly market positioning can evolve. That obviously requires the right underlying technology, the right data, the right processes and the right teams to leverage that data and processes.”
Managing higher prices
Schroeder notes that inherent price elasticity has kept the consumers coming, even with higher costs. “The price increases haven’t stopped people travelling, despite the higher costs of air travel and the overall costs of vacationing. People still travel, especially on the leisure side.”
However, hospitality leaders still think it is important to review their own expenses and try to reduce them further. For Green, “it’s worth addressing the costs of food and beverage, given the large price increases on the F&B side. Reviewing menus and reviewing prices much more regularly just makes sense”. Petit suggests that cost savings can be achieved through a more effective use of data. “By leveraging a hotel’s data in different ways you can really see where costs can be cut,” he says.
Another part of the inflationary hangover has been its knock-on effect on the cost of debt. Notes Schroeder: “It's a concern when we look at the impact on interest rates and refinancing projects. For finance in general, there’s more ongoing risk and ongoing pressure.”
Adds Nissenbaum: “On our side, the majority of our loans are fixed, so we’re in a good position.”