_How to streamline costs and create new revenue streams for hotels

Given the increasingly challenging environment in the UAE’s hospitality sector, hotel operators and owners have been looking at how to drive incremental value from their existing portfolio.

May 28, 2019

While the most obvious and easy solution would be to downsize, many industry professionals recognize that this is not sustainable in the long term. This forces concerned stakeholders, hotel operators and owners to turn to new ways of increasing the bottom line of their respective establishments by streamlining costs and creating new revenue streams.

"There is the potential for a 22% uplift in hotel value through a combination of initiatives aimed both at increasing revenues and decreasing expenses."

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Knight Frank’s research team has found four ways establishments have been driving value. Those are:

1 Rooms based initiatives can increase room revenue by over 10%

Understandably, hotel operators and Online Travel Agencies (OTAs) have historically had an uneasy relationship. While operators have not been able to deny the effectiveness of such booking platforms, the fee structure – which often can go to 25 percent of the booking value – has always been a bitter pill to swallow. Managing relationships with OTAs and creating pricing strategies during the low season may is found to increase room revenue by 6.5%.

2 Food and Beverage (F&B) based initiatives can increase outlet revenue by more than 10%.

When dealing with an outlet in an establishment that is not delivering profit or net revenue desired, there is often a tendency to treat them as a burden the wider business needs to cover. This is why outsourcing low profit F&B operations to a third party by a straight-lease agreement, a management agreement or a License/Franchise agreement may increase total outlet revenue by 10%.

3 Spa and recreation based initiatives increase net revenue by over 2%

Creating membership programs at outlet spa and recreation facilities may contribute AED 1,000,000 to revenue, due to the quantity of people this brings in. Moreover, leasing the gym could create revenue of over AED 400,000.

4 Energy based initiatives can create savings up to 20%

In a bid to not only save energy, but also save money, using LED lighting instead of fluorescent bulbs, selecting energy efficient motors to operate the HVAC system, replacing windows to a more energy efficient glazing, and introduce smart thermostats are all ways to increase utility expense savings.

Conclusion

If many small changes are implemented to the way hotels operate, net revenue can be stimulated in a meaningful way. The implications are clear as increasing net revenue leads to increased hotel value and as shown below, this can result in hotel values increasing by up to 22 percent with nominal capital investment.

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