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Hotel brands embrace the concept of TrevPAR

18 November 2013
18 Nov 2013 - , ,

The concept of TrevPAR, or Total Revenue Per Available Room, is a further extension to the industry established metric of RevPAR. Not only is it helpful in reviewing and analysing historical and forecasted total revenue streams, it also signals that hoteliers are warming up to the opportunities presented by ancillary revenue streams that airlines have successfully explored.

pricing_strategyRevPAR allows hotel entities to measure on a like-for-like basis the performance of one hotel relative to its competitive set. With this metric, hotels can assess if they are achieving their fair share and just how successful the hotel has been in optimising the use of available inventory.

When it comes to TrevPAR, however, the issue is the definition of total revenue, explains Puneet Mahindroo, Director, Revenue Management – Asia Pacific, Four Seasons Hotels and Resorts. The question then is: should hould hotels consider only resident guest related spend to calculate it or should they also be considering the overall gross revenue generated by the property? Each approach has implications. For instance a hotel with the same room inventory may have a larger banquet space and, as a consequence, greater potential for revenue generation. So when you divide the total revenue for two hotels, it may not be a fair, like-for-like comparison. “I think the industry is yet to come to a consensus on this,” says Mahindroo, who adds that another complication is that unlike RevPAR, there is general hesitation in disclosing total revenue data in several parts of the world.

According to Kristie Goshow, Vice President, Marketing at Sabre Hospitality Solutions, larger brands have certainly embraced the conceptand this is evident through their marked interest in optimising inventory sets beyond the bedroom such as food and beverage, meeting space and other public spaces. “Small groups and independents will slowly follow over the course of the next 24 months. We expect the level of adoption to vary by region,” she says.

Significant but not perfect

TrevPAR as a statistic can be helpful in reviewing historical and forecasted total aggregate production of all revenue streams. However, since it combines all revenues into one, this makes it difficult to use this metric to strategise and make adjustments where needed.

“While TrevPAR is a good statistic to know in order to evaluate where your property stands in comparison to other years, RevPAR remains the most valuable metric in determining hotel profitability, says Jean Francois Mourier of RevPar Guru. After all, room revenue contributes to about 80% of a hotel’s gross profit. In addition, says Guru, TrevPAR is the sum total of net revenues from all the operated departments plus rentals and other income per available room for the period, divided by the total available rooms during the period.

Another thing to remember is that RevPAR is measured daily and GOPPAR is normally measured monthly. “Where there is need, it can be done daily weekly or bi-monthly. Most property management systems do not generate TrevPAR figures easily so it makes it harder for managers to produce these calculations,” he says. So when considering turning away a group, then TrevPAR becomes very important. However, when it comes to transient sales, it is generally very difficult to predict the overall impact that it will have for each room, argues Mourier.

For Goshow, however, this metric is most certainly a step in the right direction but unfortunately perpetuates the focus on revenue over profitability and continues to place rooms as the qualifying denominator. That said, industry adoption of the concept is being driven by multiple factors that will vary across brands.

Put simply, ADR increases and cost management initiatives alone will not deliver the level of asset return that many owners expect or need. A hotel operator must diversify their revenue base and ensure the optimal return for each square foot in their real estate. Moreover, many hotels and hotel brands are repositioning themselves as a local destination. In doing so, they are potentially driving new revenue streams from an audience (the population in their local catchment) across F&B, meetings, events and wellness that may never consume a bedroom product,” she says.

Inevitable challenges

As for challenges associated with TrevPAR, this metric will require both a paradigm shift and practical realignment on property regarding revenue accountability, management and reporting.

“We have already touched briefly upon the importance of technology as a facilitator across teams but some of the toughest hurdles will be the mindset that surrounds how hoteliers think about ‘inventory’. For example, is a lobby space inventory? I would argue yes. The challenge will be in thinking through how to operationalise an inventory-led approach to this particular space,” says Goshow.

In Mourier’s view, full-service hotels with strong F&B departments will make use of TrevPAR a lot more than limited-service hotels. This is because full-service hotels’ F&B revenues have a bigger impact on the hotel’s bottom line. The room revenue profit margin of limited-service hotels almost entirely comes from room sales and therefore TrevPAR as a metric has less relevance.

Going forward, hoteliers will need a holistic technology offering that can effectively and efficiently ‘join up the dots’ across all revenue streams and operating teams on property and across brands.

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