By Laura Resco
Online travel agencies are digging their fingers further into the hotel industry. One of the latest disrupting features comes from Booking Holdings-owned Agoda and its Mix and Save option, which it hails as a win for budget-conscious travelers. It could also be a loss for hotel operators.
The premise is simple: Customers can split their reservation into multiple bookings, across multiple room types, in order to secure the best overall deal. In other words, a guest can book, for instance, a weeklong stay at a hotel, but move their room once, twice or more to optimize the best rate available. It’s a novel idea to be sure (although if you are like me, unpacking, then packing again sounds about as comfortable as a root canal), but it’s also a predictable headache for the day-to-day business of running a hotel.
For hotels, the program promises to enhance inventory optimization, but the question is: at what cost? Artificially shortening the average length of stay can have severe consequences on profitability. Typically, hotels want to have longer lengths of stay because it allows them to have economies of scale—one guest staying six nights is cheaper than six guests staying one night each. In this case, for the guest, it might be a six-night stay altogether, but for the hotel it’s three bookings for two nights, or three check-ins and checkouts in different rooms.
Although a program like Mix and Save has the potential to actually bolster occupancy, it could simultaneously have a pernicious impact on rate, which is a hotel’s most profitable avenue of growth and where a hotel would rather draw its RevPAR growth from because higher occupancy means higher operational costs.
Who better to argue the attributes of a feature like Mix and Save than an actual hotel operator? We spoke to Chris Green, Chesapeake Hospitality’s chief commercial officer, to gather insight into this trade-off.
Here are the five issues that every hotelier must take into account when considering hacker-rate programs such as Mix and Save:
- Wear and Tear: Shorter average lengths of stay can damage your property. Think about the consequences of overuse for your lobby, guest rooms and public areas. Increases in maintenance expenses related to repairs and upkeep for walls, furniture, floors and carpets can harm your hotel’s ability to turn revenue into profit. And it’s not just the building that suffers: Linen replacement costs also trend upward when stays become shorter, which negatively impacts GOP.
- Laundry and Dry Cleaning: This expense within the rooms department also experiences an incremental rise in the context of shorter stays. The hotel has more towels, bedsheets, bath mats, pillowcases and comforters (among other things) to wash and get ready. The resulting erosion of rooms revenue weakens the hotel’s flow-through, and, therefore, profitability.
- Guest Supplies: Amenities must also be replenished after every checkout. Items such as hand soap, body lotion, shampoo, hair conditioner and shower caps eat away at rooms revenue and shrink your business’ margins.
- Labor Costs: Heightened check-in and checkout activity also strains a hotel’s overall operation. For housekeepers, getting a stayover room ready takes less time and effort than a checkout/check-in room. Therefore, a program that allows guests to change rooms multiple times during the same stay necessitates more housekeeping staff available. The front desk and guest services areas are also burdened by having to create keys, migrate charges, store luggage, etc. Labor is the greatest portion of a hotel’s expenses, so any scheme that would further accelerate its growth rate needs to be carefully studied before it’s implemented.
- Guest Recovery: From the service point of view, having to check out at 11 a.m. and wait until 3 p.m. for your new room to be ready might be a problem. Even though this disruption is part of the guest’s trade-off—change your room and get a better deal—it might still dampen the whole service experience. In the face of disgruntled guests, hotels attempt guest-recovery actions, which could translate into increased expenses in the form of complimentaries, or a reduction in revenue as allowances.
The above considerations by no means imply that hotels shouldn’t participate in the Mix and Save program, although those who find the program onerous and damaging can elect to not display on or even remove their rates from the Agoda site.
Hotels are a local business. The objective is to measure the impact of such a program on your hotel’s bottom line. Assessing a new program based solely on its ability to enhance occupancy optimization is not enough. Every strategy implies a trade-off, and understanding the costs associated with the promised benefits is fundamental toward making profitable decisions.