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Article by David Lund

Hospitality Financial Leadership - Continually upgrade your system

The Hotel Financial Coach - 16 October 2017
The flip side of this is: Don't change or make the people wrong--it is the system that's wrong and the system needs to be changed. Then we will get another result. Keep working the system five percent at a time. Always be re-programming your system, i.e., what version of Windows are we on?We tend to look at the chaos at work and in our own lives and we want to blame someone or something for it. It is the victim crying out that we have been unjustly punished and sentenced to suffer in the mess we are in. We need to rise above this and look at the system we use; see the system that exists and change it.Unlock the systemWhat is the next thing in the system that needs to be re-programmed, what is the next thing that needs upgrading and strengthening? Do not play the fool's game and expect a wholesale complete re-vamp of your system. Constant incremental improvements win the race.In the following situation I will use the example of the monthly commentary:As it stands now, department managers are providing useless information on what happened last month and the upcoming month's information is the same. It seems they write in a different language that I can't understand. I am held hostage by their lack of commitment to this and they do not care. Do you hear the victim? Let him out of his cage.Back to owning it:The system I have is one where the department managers are made wrong on a regular basis because they are not living up to my expectations. Really, this is the case. What have I done to strengthen my monthly commentary system? What new software releases have I made to "our" commentary system? I own this mess and I am going to straighten it out and strengthen it. Make changes every month to make the commentary better.Owning it:My new system release this month entails a 1-1 with three of my biggest commentary customers (department managers) where we review the basics of a good commentary, one that does not regurgitate the numbers. A commentary that explains the variances based on a review of the assumptions for the month and what actually happened. Ah - a little light.... We agree to the format. The managers are actually relieved to have a blueprint to use. Why didn't anyone tell me about this before? Next month I will do three more customers.My system just got 5 percent better. What will my next system upgrade be? Maybe I will co-host a 20-minute workshop on creative writing. I know my public relations manager is a keener and this is something he would love to do. I just need to ask him to help me....Systems are everythingDo not ever stop releasing new versions of your system. Every month we get to upgrade and strengthen our systems. The window opens every month.What upgrade will we release this month?What! A month goes by and no new software release. Come on! Be Microsoft, release an upgrade!If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WEnhanced Flow Thru Cheat SheetVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on howyou can create a financially engaged leadership team in your hotel.Contact David at (415) 696-9593.Email: david@hotelfinancialcoach.comwww.hotelfinancialcoach.com

Unexpectedly Slow Hoteliers Overestimated 2016 Performance

CBRE Hotels - 16 October 2017
Unfortunately, 2016 was a disappointment. Revenue and profits increased, but not at the levels that were budgeted. Occupancy and average daily rate (ADR) growth fell short of expectations, which led to a revenue shortfall. While the lower occupancy levels resulted in less expense growth, it was not enough to offset the limited revenue growth. Therefore, the goals for increases in profits were not met.As general managers, controllers, and directors of sales prepare their budgets and marketing plans for 2018, we present the results of our most recent look at the budgeting accuracy of U.S. hotel operators. From CBRE Hotel's Americas Research's Trends in the Hotel Industry database, we identified 629 operating statements that contained both actual and budgeted data for 2016. Using these statements, we compared the revenues and expenses projected for 2016 with what was actually earned and spent during the year.Budget Accuracy FallsSince 2001, CBRE Hotels' Americas Research has assessed the accuracy of hotel budgets. Over the past 16 years, one trend has become predictable. During times of industry prosperity, hotel budgets are more accurate than during industry downturns.During the historical years of growth, hotels beat their budgeted revenue goals by an average of just 0.5 percent, while profit goals were exceeded by 1.4 percent. For the purpose of this analysis, profits are defined as earnings before income taxes, depreciation and amortization (EBITDA).Given this historical trend, along with forecasts for a continued healthy environment for travel, 2016 budgets had the potential to be very accurate. Unfortunately, accuracy slipped during the year. The hoteliers in our sample forecast a 4.1 percent increase in total operating revenue for 2016. Unfortunately, revenues grew by just 1.9 percent during the year, for a miss of 2.2 percent.On the bottom-line, hoteliers projected a strong 7.9 percent gain in EBITDA. Ultimately, the revenue deficit was too much to make up. EBITDA at the properties in our sample increased by a modest 3.8 percent, or a budget deficiency of 4.1 percent.Expense Gap Less Than Revenue ShortfallThe shortage in revenue was the result of budget gaps in both occupancy and ADR. For 2016, the hotel managers in our sample forecast a 1.2 percent occupancy gain along with a 4.1 percent increase in ADR. At the end of the year, however, occupancy for these properties remained flat, while ADRs grow only 2.2 percent.The net result was a full three-point budget deficit in rooms revenue, which contributed significantly to the 2.2 percent shortfall in revenue. Given the magnitude of the gap in rooms revenue, it can be assumed that the budgeted changes in other hotel revenues were more accurate.By accommodating fewer rooms than budgeted, the hotels in our sample did incur less expense growth than planned. During 2016, expenses at the properties in the study sample increased by 1.1 percent. This is 1.6 percentage points less than the budgeted expense growth rate of 2.7 percent.What To Budget for 2018According to the September 2017 edition of Hotel Horizons, CBRE Hotels' Americas Research is projecting that a 2.4 percent increase in RevPAR will lead to a 2.3 percent gain in total hotel revenues during 2018. Concurrently, operating expenses are forecast to rise by 2.6 percent, leading to an improvement in profits of roughly 1.8 percent.On the one hand, the positive market forecast indicates that the odds are favorable for U.S. hotels to achieve their budgeted targets in 2018. However, given the modest gains expected for both revenues and profits, the softness of the 2018 forecast could contribute to budget deficits during the year. Pressure from owners makes it difficult for hotel managers to prepare conservative budgets. Let's just hope any inflated expectations for revenues and profits that might be contained in the 2018 budgets are not too exaggerated.

How to make the most of your hotel investment

Magnuson - 16 October 2017
The first thing to do, is work out your investment budget. It'll help you understand the limits and possibilities of what can be achieved, as well as ensuring you have a top figure in mind when you approach suppliers and contractors. The second key area that should influence your hotel investment plans is your typical customer. What a hotel geared towards businesspeople would benefit from investing in and one that's aimed at young people road tripping will be vastly different. Understanding what your customers or the market segment you want to attract want is crucial.Fortunately, there are some areas that you can invest in that will appeal to a broad range of groups. Choosing to improve your value proposition with these investments could lead to improved customer satisfaction and more reservations being made.WiFi - There's no denying that WiFi has become a huge necessity for many people. If connectivity throughout your hotel isn't great, it's well worth spending the time to come up with a better approach. It'll appeal to pretty much anyone travelling, from families with young children through to business travellers.Bedding - If your bedding is a little worn and the linen isn't looking as fresh as it used to, it's definitely time to invest. After all, guests book your hotel to spend the night, they want to be as comfortable as possible. Breathable fabrics, plump pillows, and warming colours are the way forward.Look outside - It's easy to think that it's just your rooms that matter but that's not the case. Your outside is what customers see first. Cleaning up and renovating your building is a great way to give it a fresh look. If you have a tidy, attractive outdoor space for guests to relax you'll attract more clients too.Check in with your guests - This might be an ongoing invest but once it's an established practice it'll become a streamlined process. Don't wait for your guests to tell you if there's a problem, instead, check in with them during the stay and see where you can help. It's also the perfect opportunity to get to know your market better. It'll cost you in terms of man power but it's a worthwhile investment.Something special - If customer satisfaction is important to you - and it should be! - adding something special to each room can really help. From a glass of wine as they arrive to some light snacks, it can really make you stand out when hoteliers are continually competing. It's likely to be something that they mention as they chat to family and friends or leave a review too.
Article by Mariano Faz

The impact of the newly added VAT on the UAE hospitality sector

TFG Asset Management - 16 October 2017
"Valued Added Tax" (VAT) is an indirect consumption tax added to the price of goods and services at the time of purchase. Although the VAT is added at every stage of the supply chain, the final consumer of the good or service ultimately bears the burden of the tax. The UAE taxation rate of 5% remains relatively low in comparison to other countries that have implemented the system. According to KMPG's "2016 Global Tax Rate Survey", the average global VAT rate was 15.64%, with Hungary taxing the highest rate of 27%.Given that the hospitality sector is not exempt from VAT, as asset managers at TFGAM, we need to be prepared to adapt and implement new guidelines. With Travel & Tourism being one the most important sectors in the UAE (comprising 12.1% of GDP in 2016 according to the World Travel & Tourism Council), it is important to understand the implications the introduction of VAT will have. The asset manager needs to ensure that performance is not affected and to prioritize the owner's returns, simultaneously ensuring that the transition process for our operating partners and team is carried out in the most efficient way possible.From an owner's perspective we need to make sure we mitigate any negative effects on our bottom line. Some hotels might choose to absorb this cost, which would directly affect their profitability while others may decide to add the VAT to their final price. In any case, the asset manager needs to assess the implications and be able to understand the impact of VAT on revenue projections and how it is influenced by this increase in cost.Asset managers function as the link between hotel operators and hotel owners. The asset management team needs to assist the hotel operator, providing the right support to analyse and understand the implications of VAT on their day-to-day internal operations.The introduction of VAT will impact the hotel's standard operational procedures. It will require asset managers to regulate all procedural changes introduced in response to the implementation of VAT and prepare to react to conditions which are specific to their industry.The primary measures and considerations that we will have to assess include the following:Update all accounting methods/systems to include VATAccounting systems need to be updated and the finance teams need to be properly trained to comply with the new standards. The introduction of a new tax requires documentation to be filed accurately and diligently. Complying with VAT is a time consuming task, as exemplified by a study conducted by PWC which discovered that on average, it takes 125 hours of work per year to comply with VAT standards and this timeframe can vary greatly per region.Confirm with Property Management System (PMS) that VAT is incorporatedThe PMS shall be updated accordingly. Most of them are regulated by international companies that are familiar with VAT, which should ease the process.Analyze all existing contracts (VAT-registered suppliers)In order to recover VAT, the procurement department shall ensure that all suppliers are registered and compliant with the VAT system. Also, we need to monitor the potential increase in the price of their goods.Staff training and awarenessStaff will have to be trained on new Standard Operating Procedures (SOP) in order to offer the right VAT treatment according to the situation. In particular, training the accounting and finance departments should be emphasized.Confirmation of any changes with external stakeholdersAll reporting modifications need to be explained to stakeholders, especially as cash flows will be affected due to the time interval between a purchase and the VAT refund.Identify any internal transactionsCompanies with subsidiaries or affiliates will have to verify new taxation policies as transactions occur between them.Create clear refund procedures for VATAs explained before, the tax burden is always on the final consumer so intermediaries and suppliers need to ensure refund procedures are in place to claim any VAT previously paid. Receiving a VAT refund can take up to a year or more in some markets, as due diligence is put into practice by the government.The hospitality sector is an area where certain specificities could lead to a more complex re-structuring, whereby the support from the asset management team is key. One of these conditions concerns the regulation of the place and time of sale in order to claim the VAT. Early bookings, cancellations, tour packages, online reservations etc. makes this harder than in other industries. This is because the procurement and consumption of a product can occur at different times and in some cases, through a different entity than the actual consumer.Well established management and good planning can help business anticipate these conflicts and regulate activities appropriately. Once VAT has been introduced, businesses can then further analyze any changes in consumer behavior and trends in demand growth. However, at this stage their main focus will be to establish new procedures and regulations in order to be fully prepared for the rate introduction next year. The role of the asset manager is to ensure these changes are smoothly introduced and act as intermediary between the business and all the stakeholders.
Article by Jim Butler

How to avoid litigation on Resort Fees and other mandatory hotel charges

JMBM - 13 October 2017
In evaluating what you should do about the new furor over mandatory hotel charges, it would be helpful to have a clearer understanding of what the FTC seems to be saying on the issue. The chart below is our translation into "street English" of the FTC pronouncements discussed earlier. (See How Resort Fees became an explosive $2.7 billion issue which contains links to the original FTC press release of November 29, 2012 and the most recent FTC Economic Analysis of Hotel Resort Fees of January 2017.)We believe we understand what the FTC is saying. We may not agree with it. We do not know whether the Trump administration will rein in the FTC on its perceived mission regarding resort fees, and we do not know whether the current FTC position will be upheld as a valid interpretation of the law. However, courts normally accord great deference to the interpretation of agencies charged with administering their laws, and it is imprudent to ignore the FTC's recent actions.In weighing options, even if they ultimately win on legal issues, hoteliers should also consider the negative effects of litigation -- including direct costs in terms of legal fees, senior management time, and good will. And there are a number of worrisome plaintiffs who may pursue the issue, including the FTC, State Attorneys General, other governmental and consumer groups, and class action plaintiffs' lawyers. Any victories by the hotel industry may be largely offset by the costs to obtain them.So what are your options on mandatory Resort Fees?The basic thrust of the actions by the FTC, the investigation by the State Attorneys General and most consumer class action suits is that it is a deceptive and misleading business practice for hotels to advertise their room rate online unless the first and most prominent price given includes all mandatory Resort Fees and other charges. They say that it is not sufficient to give the room rate and then have a less prominent disclosure of additional charges.The issue here is really about what disclosure must be made and how it should be made if you charge mandatory fees that are not included in the room rate you quote in advertising and online.For the sake of argument, let's say that the FTC position expressed in the January 2017 analysis was "the law" or that for business reasons you want to develop policies and procedures for Resort Fees that should avoid these Resort Fees issues. The following matrix provides a general guideline as what to options or approaches you might take and the corresponding disclosures.Key terms used in the matrixIn the matrix below, "Fees" is used as a shorthand expression for all mandatory fees and charges, i.e. resort fees, service fees, amenity fees, surcharges or other non-optional charges to the guest which are not included in the quoted room rate."Total Price" means the total of room rate plus any mandatory fees or charges as a single sum. For these purposes, Total Price does not include applicable taxes because we are not aware of any claim that taxes are a necessary part of price disclosure, although one can imagine such a claim being made. Taxes are distinguishable from other Fees or charges for services in that they are a direct pass through of governmental impositions which must be paid over to third parties, they are not at the discretion of the hotel, and they do not benefit the hotel.Resort Fee Litigation Exposure Matrix(mandatory fee options and necessary disclosures) Policy on Fees What is disclosed and how Legal issue? No Fees Total Price (i.e. in this case, it is the room rate) No issue No Fees Charge only for services used (i.e. optional with guest usage) Total Price (i.e. in this case, it is the room rate)No disclosure on optional services required in online ads No issue Charge FeesTotal PriceTotal Price must be the first and most prominent price No issue Charge FeesList Fees separately breaking out Total Price to show room rate and Fees Total PriceTotal Price must be the first and most prominent priceAfter Total Price (or right next to it), disclose portion of cost that is mandatory fee No issue as long as Total Price is first and most prominent price Charge Fees Room rate is first price mentioned and Total Price and/or Fees are disclosed later or in smaller or less prominent font YESThis is drip pricing; the current hot issue with the FTC and 47 State Attorneys GeneralWe also expect this will likely trigger a new wave of class action claims Remember: Resort Fees are not illegal. This is all about disclosure.For the last two decades -- as long as this issue has been rankling consumers and government agencies -- no one has ever suggested that mandatory fees are illegal or improper! The only issue is about the disclosure that must be given on pricing.So even if a hotel decides to take the most conservative approach on disclosure, the hotel can still charge the Resort Fee and display this charge separately. The Uniform Standards of Accounting for the Lodging Industry, 11th edition, provides that these mandatory charges are not accounted for as rooms revenues (but rather as "Miscellaneous Income"). Therefore, the significant mandatory fees should still be exempt from various charges on "rooms revenues" such as transient occupancy taxes, franchise fees, frequent traveler program charges and the like. And hotels can still provide their guests with a big bundle of amenities and value at a discounted price.The biggest problem for a hotelier in moving to position advocated by the FTC and consumer groups is the competitive disadvantage when consumers compare pricing online. The first hotels listing Total Price as the first and most prominent price may lose business to those that list only room rate with mandatory fees in the fine print. But that is part of a different discussion for another day.For more information about Resort Fee issues, including the latest updates, go to www.HotelLawBlog.com, scroll down the right-hand side under LEARN MORE ABOUT and click on "Resort Fee Litigation" where you will find all the articles on the subject.

133 | GDPR Compliance with HFTP COO Lucinda Hart

The Lodging Leaders Podcast: Powerful Business Strategies for Hotel Professionals - 11 October 2017
Lucinda Hart, CAE, MBA, has over 22 years of association management and customer service experience in the areas of human resources, certification, membership, chapter relations, conferences/trade shows, nonprofit legal issues, and governance and administration. As HFTP Chief Operations Officer, Lucinda is responsible for the day-to-day operations of the association, managing 30 staff members, as well as representing HFTP at numerous industry global events. Lucinda received her Bachelor of Arts in Human Resource Management and her Master of Business Administration in Organizational Leadership and Management from Concordia University Texas. She is also a Certified Association Executive (CAE). Lucinda was awarded the Professional Excellence Award from the Texas Society of Association Executives (TSAE). She serves as a mentor for Leadership TSAE and Concordia University Texas.
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Hotel Lawyer: Tips on negotiating your annual hotel budget

Hotel Law Blog | By Jim Butler - 9 October 2017
It is budget season again — that time when operators and owners sit down to agree on the financial blueprint for the next year. My partner Bob Braun has worked on many hundreds of hotel management agreements and issues arising under them. Today, he shares some insights about the how to maximize the budget opportunity for constructive dialog between owners and operators.
Article by David Lund

Hospitality Financial Leadership - Banquet Plate Covers

The Hotel Financial Coach - 9 October 2017
As the Regional Operations Analyst in the mid-90s in the West, my boss and I reviewed the financial performance of all of our hotels pretty much on a quarterly basis. The reviews consisted of a trip to the hotel, a tour of any capital projects, and a sit down with the core executive team to review the financials.We quickly developed a reputation for being somewhat thorough--always digging--and a little confrontational. One such review uncovered a little screw up that caused the GM a ton of embarrassment. It was one of those deals where the victim buried himself with his own BS. The zingers on this one continued for years and people still recall it some 20 years later.One of the hallmarks of our hotel company's brand at the time was the existence of the Pac-ManTM china. The china was used predominantly in banquets and room service. The china was nicknamed Pac-Man because it had little black symbols that resembled the figures in the Pac-Man video game. It was also completely indestructible and ugly as can be.Most hotels were in the process of replacing the ugly pac man china and the hotel we were visiting and doing our latest review on had just switched out the banquet china.Doing a P&L review with the boss is fun. At least fun for him and me. He asks the questions and the team answers. If he likes the answer, we move on. If he does not like the answer, we dig. When we dig, we often find the dirt.One thing that everyone knows in the hotel business is just how expensive china can be. Usually a hotel picks a pattern and it does not change for years. The hotel adds to the quantity annually to replace the breakage. As I mentioned earlier this hotel had just replaced the banquet china. In fact, we reviewed the selected pattern a few months earlier and the hotel was given the approval by the boss for replacement china. Which was a big deal--probably like $35K.The earlier review of the replacement china finished with a verbal approval by the boss, meaning send him the paperwork. He also issued a cautionary comment to the GM, "Make damn sure the dinner plates are the same size." To which the GM replied, "Of course, we know." It was almost to the point of the GM belittling his boss because of his mothering statement.The GM was a relatively young GM, this was only his second hotel. He had the reputation of being a "screamer and shouter" when things got tense with his team. He also had the reputation of being just a little arrogant.In our review, we were making the usual finds: slipping productivity here, a slightly higher cost of sales there, some question on expenses here, and then...BANG! We find it. F&B other expense: $40K for the month. This must be a mistake. How could anyone spend that much on miscellaneous? It is usually $1,000 or so because it contains chef's hats and wooden spoons costs.The boss asks, "So what's the story with this one?" Silence ensued. "I guess no one knows?"The boss glanced across the table at the controller, who looked sheepishly at the food and beverage manager, who in turn looked directly at the GM and said, "I wasn't here then." My boss looked at the GM and said, "Out with it, what's going on?"The GM cleared his throat and said, "It's the new plate covers." There is now a deafening silence and the air is quickly sucked from the room."New plate covers, why the hell would you need new plate covers?"The GM looked around the room for a friend, but there was no one. The GM then said," The new banquet dinner plates are the wrong size."The boss looked at him and smiled, "Why the hell would they be the wrong size? Send them back then."The GM grinned a silly smile and said, "Apparently we forgot to measure the sample and the spec we were sent was somehow wrong." Apparently and somehow are not words you want to use when you are running a hotel.The boss looked at him and said, "You must be kidding me, didn't you check the sample when it came back, to see if your plate covers fit?" Silence.Well, suffice to say the boss had a field day with the situation. As it turns out metal plate covers are more expensive than the new china. Like the carpenter says, measure twice and cut once.The P&L review is like an interview with a panel of inmates. Sooner or later the truth comes out. When it is the GM that is left holding the bag and he or she has not come clean before, it is very telling and damaging. Bravado has an extremely short shelf life and it will blow up in your face.Be the first to tell the bad news and the last one to tout your victories. Let someone else take the credit for those.I learned a lot about leadership from these meetings and a lot about our business.Watching the boss in action was better than two degrees from Cornell.---If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.com
Article by Richard B. Evans

Vacation Rental vs Condo-Hotel vs Hotel Financial Models

The Revenue Report Card - 9 October 2017
That time is upon us. Below please note four pro formas and how they differ.Vacation Rentals financial models, in some cases, aren't so different from traditional hotels. In other cases they break with traditional revenue and expenditure norms by adding different revenue opportunities, hybrid housekeeping options, maintenance departments that earn revenues and "homeowners" who absorb certain substantial costs instead of the vacation rental company.Kindly look at the 4 pro formas below that represent (1) Vacation Rental Companies that deal in condominium space, (2) Vacation Rental Companies that deal in homes, (3) Condo Hotel Programs and (4) Hotels.Exhibit "A" represents 4 diamond properties in which occupancy, average daily rate and length of stay show variations. In essence it shows a more realistic view of how businesses of this size and caliber (75 units and 4 diamond) and typically flow through to the bottom line.Exhibit "B" represents 4 diamond properties in which metrics mentioned are all the same. In essence it tests their flow through to the bottom line with typical metrics and expenditures in each financial model.Exhibit "A" - Occupancy and ADR VaryExhibit "A" shows occupancies of 67.9%, 67.9%, 72% and 76%, average daily rates of $300, $400, $350 and $370 and average lengths of stay of 4.1, 4.8, 3.1 and 2.3 on VR condos, VR homes, Condo Hotels and Hotels, respectively.Average Length of Stay is the "driver" on some revenues and costs that are based on reservations and not room nights occupied.We can see that vacation rental companies can pay a 65% distribution to "unit" owners while condo hotels are distributing 45%. This can vary based on profitability.Condo Hotels in this model earn higher Gross Reservation Revenues than VR Condos. VR Homes in many cases are big ticket "items" earning higher average daily rates.As is typical to hotels the "Rooms Division" has a 24% cost (limited service) when comparing Cost to Sales.Above, VR condos and homeowners are paying for towels & linens and since housekeeping cost is a profit center, it is broken out and shown separately. The Rooms Division cost, therefore is reduced by these amounts and savings from hybrid housekeeping methods.Administrative & General is also reduced by merchant fees (credit card) because many vacation rental companies charge their guests for merchant fees.The bottom line flow through, after distributions and other cost variations, shows vacation rentals bringing 16.5% and 14.1% to the bottom line. Condo hotels are bringing 14.9% and hotels 32.5%, all before Debt Service and Other Fixed Charges.Exhibit "B" - Occupancy and ADR are the sameExhibit "B" shows occupancies of 72%, average daily rates of $300 and average lengths of stay of 4.1, 4.8, 3.1 and 2.3 on vacation rental condos, vacation rental homes, Condo Hotels and Hotels, respectively.We can see that vacation rental companies can pay a 65% distribution to "unit" owners while condo hotels are distributing 45%. This can vary based on profitability.Hotels in this model, despite sharing the same occupancy and ADR, earn higher Gross Reservation Revenues because they have no Owner Occupancy (when an owner in a vacation rental or condo hotel stays in his home or condo).The bottom line flow through, after distributions and other variations, shows vacation rentals bringing 16.0% and 15.8% to the bottom line. Condo hotels are bringing 14.6% and hotels 31.7%, all before Debt Service and Other Fixed Charges.Final ObservationHotels and Condo Hotels typically invest more in revenue management and as a result earn higher Gross Reservation Revenues. If that gap narrows than the 65% distribution by vacation rentals compared to the 45% distribution paid by condo hotels will have even more impact.In both cases, unit owner distributions are calculated on Gross Reservation Revenues.Vacation rental companies do not have the burden that condo hotel programs have of buying space in the condo. Those additional costs mean that the maximum they can pay and also make a reasonable profit (4 diamond) is 45%.Hotels bring more to the bottom line but they also carry substantially higher debt because of the initial cost of the hotel and having the burden of maintenance and refurbishment of the hotel.Which is best? You decide!The Definitive Study of Vacation Rentals is being finalized before being published. It will be available on Amazon shortly. If you would like a copy of some great chapters write me a note and I'll be pleased to get it out to you. Simply email me atRichE1212@gmail.com.
Article by Robert A. Rauch

Competitive Advantage 2018 - The World Has Changed

R. A. Rauch & Associates, Inc. - 6 October 2017
Airbnb has become a powerful force in the hotel industry and as a reaction, municipalities are attempting to legislate its potential. But the truth is, down the road a bit, Airbnb will likely become an online travel agency (OTA). Why? Because they can charge lots more than three percent and will eventually become tired of dealing with "one-off" hosts and myriad cities.As we see it, this sharing economy is a new reality that hoteliers are still grasping to embrace. Is Airbnb a complement to hotels or is it a threat to the traditional hotel model? If I am correct and they become an OTA, that would serve the industry well as they would not really compete and help drive down the cost of commissions. Given the penchant of millennials to chart their own path and their increasing share of the traveling public, expect to see Airbnb, Uber, and other "sharing economy" players continue to dominate the conversation and hoteliers continuing to focus on gaining a competitive advantage.At the end of the day, the key is to watch this trend and others like metasearch sites Trivago and Kayak so that your team can strategize on income opportunities and value optimization. Most importantly, it is time to shift market share from indirect bookings to direct bookings. Technology as a Competitive AdvantageCompetitive advantage consists of two components. The first is the distance between your hotel offerings and your nearest competitors or the competitive advantage gap ("GAP" for short). The second is "CAP" or competitive advantage period. In other words, if a hotel company has superior products and significant barriers to entry it has both a competitive gap (product differentiation) and a competitive cap (time lag for competitor entry).What immediate and practical steps can we utilize to optimize our competitive advantage? Differentiate from the competition. This may include re-evaluating your distribution processes and channels. The large amount of demographic and psychographic information available about the make-up of today's traveler requires analytical skills and creativity to correctly respond to the marketplace.Today, as Kalibri Labs, arguably the authority on this subject says, "owners expect management companies to generate direct booking...this makes sense because management fees are typically computed on the basis of the total revenue and not on the net revenue (revenue minus transaction costs)." When the direct bookings then result in repeat business, costs are reduced rather dramatically and even owners are happy!Many hotels do not have qualified staff to develop these direct bookings--so which is better? Paying an OTA or developing a team? For a quick fix, opt for the OTAs. For the long haul, work on your team to increase your profits and use OTAs to complement your direct bookings to obtain a healthy mix of business. And take advantage of all the tools OTAs offer including booking foreign independent travel (FIT).According to ScreenPilot, the firm we rely on for outside service in this area, these three tasks will help you:Refresh your PPC Strategy by doing more than just bidding on keywords that persuade people to click your ad. Tailor keyword combinations to clearly outline the benefits of booking direct, and include direct links to the specific rates displayed.Polish your phrasing and clarify benefits by experimenting with phrasing and making sure changes are made as needed.Provide social proof by encouraging guests to share reviews via their social accounts and consider featuring the best on the brand's social channels.It is time to draft your 2018 business plans and budgets. Make sure you have a thorough understanding of the market and your competitive advantage in the market--then get those direct bookings to get more dollars to the bottom line. Will you be ready?

Resort Fee Litigation Advisory Group: How Resort Fees became an explosive $2.7 billion issue

Hotel Law Blog | By Jim Butler - 6 October 2017
Resort Fees are a $2.7 billion issue — a juicy target for Federal and State governments as well as plaintiffs’ lawyers. It is very likely that the Resort Fee issue will present challenges in the near future to all stakeholders in the hospitality industry. The prior articles in this series talked about what Resort Fees are, and key developments that warn of an eruption of government and private claims over Resort Fees.
Article by David Lund

Hospitality Financial Leadership - Turning Savings Into Asset Value 400x Their Original Worth

The Hotel Financial Coach - 3 October 2017
That's right, your eyes and the headline are not fooling you. I learned this from a client in a backward kind of way and now I want to share it with you. It is a powerful way to justify and prove a return on investment (ROI) for financial leadership training. I use this story as well to show my clients what they are leaving on table in the way of profits and asset value if they are not using financial leadership in their hotel.I had just finished a half-day hospitality financial leadership workshop for a client, one of a series of six that they had contracted me to do. The General Manager got up and thanked me and asked the audience, about 35 managers and leaders from two different hotels, to give me feedback. I got some great comments and a couple of good suggestions."I want to thank all of you and before we go I want to make an agreement with all of you, would all of you like to make an agreement with me?" she asked.She then put her hand up, like she wanted to ask a question in a classroom. Like a well-oiled machine, all 35 hands went up. This was kind of spooky.Then she said, "Thank you, I want to pay for David's fee today so what I want to ask all of you to do is find at least $250 in savings in your department next month."I want you to be able to absolutely identify the savings," she continued, "and I want you to tell Paul, our Director of Finance, where you found your savings. I am also asking that each of you reflect the savings in your forecast next month."Will all of you agree to do that?" she asked as she once again put up her hand and every hand in the audience went up again!What just happened here? In the matter of a couple of minutes, she got every manager to "agree" to find a minimum of $250 in savings in their department.The first and perhaps the most powerful part of her management style was the request for an agreement. Look closely as she did not tell her managers what she expected; she did not give them a directive. She asked to make an agreement. That is an amazingly powerful distinction. What is the $250 to each of those managers? Where will they find it?The answer: Everywhere we lookYou know just as well as I do that there are literally a million ways to waste money in the hotel business and the opposite is just as true. There are a million ways to save money. What are you helping your team focus on? The $250 dollars is a few hours of labor, a case of supplies that do not get wasted, a smaller chafing dish on the buffet after 9 a.m. for the bacon, the lights turned out after 6 p.m. in the office. We could fill the following 100 pages with ideas on how each one of us could save our $250. It is what you focus on that gets results.The next thing that happened was nothing short of astonishing. Almost like magic. She thanked her team for the agreement and then said, "One last thing before we go, would all of you agree to find the $250 every month this year and reflect it in your next forecast?"She once again put her hand up and in turn every hand in the audience went up as well. I was flabbergasted, dumbfounded and in awe. It took me a little while to see what just happened. To comprehend the results of her $250 in savings, I did a calculation on the flight home.I was thinking about what had gone down and here is what I came up with:35 managers x $250 = $8,750 in savingsThose were savings to GOP in the next month that each manager would find and communicate to the Director of Finance and most importantly, execute. Not too shabby and more than my fee that day.Remember she asked if they could find it every month. It is a fact if you can find it next month and do the same the following month the savings compound.$8,750 x 12 = $105,000That is $105k in GOP in the next year. By the way, that is a lot more than they paid me.At this point I needed my phone, the calculator on my phone to be more precise. I wanted to see what $105k in GOP savings means to the value of the business.Now, do not stop reading after you see the following two words: CAP RATE. I will explain this financing concept if you do not know what it is. It is super straightforward and a very useful gizmo for your toolbox.CAP RATES are established as the result of a commercial real estate transaction. It is the net income for one year divided by the sale price. Right now, cap rates in North America are low. The lower the cap rate the higher the purchase price becomes relative to the net income.Let's use an example to demonstrate this:The hotel across the street just sold for $125,000,000. Its annual net income at the time of the sale was $10,000,000. We divide 125/10 = .08 In this example, we would say the CAP RATE was an 8. We purposely drop the decimals.Now, there is one more step to see how powerful this tool is:We take the answer to our question .08 and we divide it into 1. (1/.08 = 12.5) What this means is the value of the business is 12.5 times the next income.Now that we know the multiplier we can use it to see what impact our savings have on the value of the business. Our $250 in savings times 12 months times 35 managers will give us an increased net income of $105,000. We now multiply those savings by 12.5 and what we see is ASTONISHING!$105,000 x 12.5 = $1,312,500That is the impact on the value of the business from finding $250. It is a fact that an increased profit of $105k drives the business value - the sale price - by more than $1 million.If you did not already know this little secret, it is why your owners are after you every month for every dollar you can find in profit. It is because of the multiplier. The same inverse relationship applies when you spend money and profits go down. The multiplier is used and $105k in decreased profits results in the asset value dropping by $1.3 million.That is enough finance for nowBack to the 35 managers and what they actually found. Most of them found a lot more than $250. Ideas are like fashion. Things catch on. Competition is healthy and managers and leaders are watching each other.Make a big deal out of an idea that improves your bottom line. I have seen single ideas produce $30k in annual savings. I have seen leaders come up with innovative and ground-breaking ideas that mark their careers. Your leaders ride ideas like rocket ships. Remember we get results based on what we focus our attention on.Focus your management team on what they can do and what they can create financially. Give them the tools to understand how the car drives and let them loose.---If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.com

Resort Fee Litigation Advisory Group: National task force of 47 Attorneys General goes after Resort Fees

Hotel Law Blog | By Jim Butler - 3 October 2017
esort Fees: It is not just the FTC. Now there are 47 Attorneys General focused going after perceived abuses of Resort Fees Consumer complaints have been protesting Resort Fees for almost two decades. In 2012, the FTC took its first major action. The hotel industry took some action, but many consumer groups and regulators apparently don’t think it is enough. In May 2016, a national investigation was initiated by the Attorneys General of 46 states and the District of Columbia as to whether DC’s consumer Protection Procedures Act (the “CPPA”) and similar acts of other states have been violated by deceptive price advertising techniques related to drip pricing regarding Resort Fees.

Combatting Unpredictability: How Hotels Can Comply with Fair Scheduling Laws and Drive Employee Engagement in the Process

Hotel Online - 2 October 2017
For hospitality organizations, sporadic demand is inevitable - it's for this reason that many hotels have difficulty transitioning to fair scheduling laws. Last month, Oregon passed Senate Bill 828 (the 'Fair Work Week' law). The law requires hospitality, food service, and retail employers to comply with a number of requirements relating to hourly employee scheduling. Specifically, Oregon employers with 500 or more employees worldwide will now need to inform employees of their schedules one week in advance (and two weeks in advance after 2020). While this law is specific to companies in Oregon, a number of cities including New York City and Washington D.C. have implemented similar scheduling laws (indicating it's likely that this trend will catch on across the United States).
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Net Operating Income Forecasts

Hotel Business Review by hotelexecutive.com - 2 October 2017
The most widely reported hotel performance metrics include occupancy, average daily rate (ADR), and revenue per available room (RevPAR), with RevPAR frequently used as the measure of market financial strength. While RevPAR itself is a good proxy for profitability when the market is in a typical state, it potentially obscures the performance of hotels when the market veers away from the norm. Pass-through performance (i.e., the percent change in bottom-line income given the percent change in top-line revenue), or measures that are net of a market-wide average of expenses, are increasingly of interest as record-breaking occupancies make RevPAR movements an incomplete measure of hotel performance.

3 Hotel KPI Revenue Management Experts Use

Xotels - 29 September 2017
Driving your profitability in the most efficient manner is a challenge that all hotels face. But here at Xotels, we have found that there are certain key performance indicators (KPIs) that are particularly powerful. Some of the commonly used KPIs include Average Room Rate (ARR), Bedroom Occupancy Rate (OCC) and Cost per Occupied Room (CPOR). But, in this article we focus on the three hotel revenue management KPIs that experts use to maximise profitability in particular.These are: Gross Operating Profit Per Available Room (GOPPAR)Net Revenue Per Available Room (NREVPAR)Total Revenue Per Available Room (TREVPAR)Hotel KPIs are essential towards maximising your hotel's profitability. They provide unique insights into the performance of a number of crucial criteria across your hotel. They also help you to understand the results of your revenue management strategy effectively. Furthermore, hotel revenue management KPIs help you to set and measure financial goals. It is these goals that help drive your hotel's growth and profitability.The 3 Hotel Revenue KPIs that will Drive your Profitability Goals:1. Gross Operating Profit Per Available Room (GOPPAR)GOPPAR offers one of the most effective methods of measuring your hotel's performance. It's that simple. We recommend that it be front and centre of your measurement strategy. It gives you a detailed holistic view of your hotel's entire revenue management process. It shows you where you can make adjustments towards improving your top line growth as well as aligning it with your bottom line too.GOPPAR allows you to view the value of your hotel as an asset at any time - together as an operating business and real estate property.The GOPPAR formula: Gross Operating Profit (GOP) / Number of Available Rooms2. Net Revenue Per Available Room (NREVPAR)NREVPAR is similar to another useful KPI: Revenue Per Available Room (REVPAR), but it offers an important difference. NREVPAR includes net revenues in its calculations, so when using, you're getting an insight into distribution costs, transaction fees and travel agency commissions too.This inclusion gives you a more transparent measurement of revenue management performance. It will assist enormously in your strategic planning. The only caveat is that it can be a challenge to gather and calculate the various costs that we mentioned above. But it is worth the extra effort.The NREVPAR formula: (Room Revenue - Distribution Costs) / Number of Available Rooms3. Total Revenue Per Available Room (TREVPAR)TREVPAR offers you an important distinction to REVPAR or NREVPAR. It encompasses all revenue generated by each room across all hotel revenue sources. These include food and drinks, leisure, events and any other guest expenditure.This hotel KPI offers a more immediate view to management of all generated revenues and of where adjustments can be made for further growth. Is guest restaurant expenditure low, for instance? If so why and what improvements can be made? This is the kind of insight that TREVPAR offers.The TREVPAR formula: Total Revenue* / Total Available Rooms*Total Revenue = Accommodation + Breakfast + Spa + Bar + Mini Bar +[Any other extra revenue]At Xotels, we are seeing how these three hotel revenue management KPIs have grown in use. This has led to more hotels making wiser choices and achieving long-lasting profitability growth.Cheers,Patrick Landman @ www.Xotels.com
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Resort Fee Litigation Advisory Group: An eruption of government and private claims over Resort Fees? Part 1 - The FTC 2017 Report

Hotel Law Blog | By Jim Butler - 29 September 2017
Two significant developments may signal an eruption of government and private claims over Resort Fees — (1) publication of the FTC 2017 Report and (2) commencement of proceedings regarding Resort Fees by a national task force of Attorneys General for 46 states plus the District of Columbia. This article focuses on the FTC Report. The next article will discuss the national task force.

All forces that do not respect the law become tyrannical

Hospitality ON - 27 September 2017
Some continued to persist, but arrive too late on a market that is still largely dominated by Booking, Trivago, Expedia, etc. But the secret of change lies in concentrating its energy in order to create new things, and not only fight against what's done, as Dan Millman pointed out. Businesses thought they were protecting themselves by placing an embargo on the development of the supply, but instead they have paved the way for all those internet businesses. This has been detrimental to the profession and accelerated the rise of those predators, who are also innovators, in our business.The positioning of an accommodation listing in the meta-search engines, the real prices in effect, and the comments posted are supposed to be based on transparent and objective criteria. But we can see that the referencing is biased and the client leased thanks to payments in hard cash. The matter worsens when one realizes that customer representation in online comments is far from being on par with elementary statistical rules and nobody verifies their credibility. The reputation of a hotel can thus vacillate, even drop with a single vicious comment, with close to no solution for the hotelier who is up against a wall when trying to remove a lie or imprecise comment. Since the dice have been tossed, it is important to play fair and obey the rules. In the end the consumer is the main victim of disinformation, lack of transparency and partiality of commercialization and online advice platforms.Governments and Europe must face their responsibility and play an important role by ensuring clients are not victims of disinformation and by punishing excesses, because, according to Pascal, justice without force is impotent, force without justice is tyrannical and this is surely the case nowadays. Until now very few condemnations have been issued against comparators and those using fake news to occupy the ground and constitute data, while appropriating the business capital of hotels.The future of hotels will pass through a repositioning of products and services on niches, all the while creating new concepts. This allows the client to book without intermediaries 80% of the time - or else, through a concentration of the supply on the global level in order to benefit from economies of scale and bring back some sort of balance against Internet giants. This is the case of big Chinese groups and Marriott which have chosen this strategy in order to have more weight in all important destinations on a global level.The strong mobilization of hoteliers these days has allowed for increased of awareness from public authority regarding the need to make everyone respect the rules. The legislator and justice have the power and the duty to bring balance back to this fragile and complex ecosystem that has become the world of commercial accommodations. Hoteliers, distributors, comparators, franchisees, franchisors, collaborative platforms... all share the same pie but some are using a shovel and others a spoon. Hoteliers are ready to participate in the mutation of the sector, but they want a strict and veritable application of the rules and legislation by all. In the end the customer goes to and are in direct contact with them. If they must accept having lost control over commercialization, they cannot lower themselves to being back-stabbed when fighting loyally.
Article by Robert Harrow

How Hotel Owners Can Fight Back Against Chargebacks

ValuePenguin - 26 September 2017
Chargebacks can be quite costly. When a customer reverses a charge on their card, not only are you slapped with a $25 fee but you may have also lost revenue for a particular room if no one else books it in time. If your property becomes a hotspot for fraud-related chargebacks, you may even run the risk of losing the privilege of accepting card payments. According to Kirsten Rebello, a chargeback manager for Chase Paymentech, "many properties are finding it increasingly difficult to protect themselves against chargebacks." It's easier than ever before for consumers to dispute credit card charges. Banks are automating the process, allowing them to keep up with more claims. Many mobile banking apps enable consumers to file chargebacks by pressing a few buttons.Hotel owners and managers are therefore incentivized to do everything they can to fight against chargebacks. While you can't eliminate all, there are steps you can take to mitigate them. Follow these six golden rules to aid you in battle with chargebacks.1) Make sure you're using a clear payment descriptor. When your guest looks over their credit card statement they should immediately recognize the purchase they made. Avoid using shorthand or code that only makes sense to you. For example, instead of coding something as "P BB", have the charge show up as "Paradise Bed & Breakfast". That'll reduce the likelihood of a customer filing a chargeback because they fail to recognize the charge, and so assume that their credit card has been stolen and used fraudulently. According to Rick Lynch, Senior Vice President of Business Development at Verifi, a the majority of chargebacks they handle originate with an unclear payment descriptor.2) Respond to a chargeback sooner rather than later. Merchants are typically given just 39 days to respond to a chargeback. The clock starts ticking from the moment the dispute is filed. You need to send in your counterclaim through the proper channels, along with any supporting documentation that proves you were in the right. When you're notified of a chargeback, you should be given information on whom you need to contact in order to dispute it. If that information is missing, contact your credit card processor for assistance.3) Make your payment and refund policies easily accessible to customers. If a customer argues ignorance about your refund policy or anything else for which they may have been charged, your best line of defense is to show not only that they were given all appropriate information, but that they also agreed to it. That means the online page on which your customers check out should include the requirement that guests accept all your terms and conditions, and that those be written so as to be clear and unambiguous.4) Imprint--don't photocopy--your guest's credit card. Some hotel owners who lack an electronic reader try to prepare for unfounded chargebacks by photocopying their guests' payment information. That allows them to show proof that the card was present at the time of the transaction.However, a photocopy isn't enough to file a dispute. Instead, you must use an imprint machine to capture the card. According to Visa, "a chargeback is invalid if a legible imprint is obtained or the card was electronically read." Imprint machines are inexpensive, typically costing between $15 and $40, and would pay for themselves if they helped prevent just one or two chargebacks.5) Adhere to PCI and processor standards. When you sign on with a payment processor they will typically provide you with a handbook for how you should handle payments at your establishment. Don't disregard this information. Rather, study it to ensure you're capturing all the required information from your guests, since verifying that you did will be one of your bank's first steps when investigating chargebacks. In some cases, for example, you may be required to log the IP addresses of customers who book their stay online. Make sure any employee handling payments is also aware of the relevant requirements.6) Look for card processors with fraud detection services. One of the best ways to prevent chargebacks is to combat fraudulent purchases at your property. When choosing a credit card processor, look for those who can provide special services that can turn away or prevent fraudulent transactions. Some can analyze a transaction for risk level even before it goes through. As the business owner, you then can evaluate any transactions found to be risky and take additional security precautions such as contacting the customer to obtain additional information.

The ins and outs of hotel property taxes

hotelnewsnow.com Featured Articles - 26 September 2017
The world of property tax consulting can be a bit confusing, especially when it comes to hotels. Here are a few things to keep in mind when looking at hotel-asset property taxes. In the world of property tax consulting, hotel assets are a preferred property type to work because they present so many opportunities for challenging the locality’s assessed value. Unlike simpler forms of real estate, such as office buildings, which can be valued in about four lines—rent, expenses, cap rate and value—hotels have many lines of input. The Uniform System of Accounts has about 18 line items to get to net operating income. Then beyond that, hotels require a significant investment in tangible personal property as well as investment in numerous intangibles assets.

Hospitality Financial Leadership - The Third Pillar

The Hotel Financial Coach - 26 September 2017
In the hotel business, we have three pillars, the guests, the colleagues and the money. They're not equal. They're not equal because we ignore the third pillar and we do so at our own peril and out of ignorance to what we can do to manage this cagey and slippery bugger. There is a fundamental disconnect in our industry, and it's high time it changed. It's no longer acceptable to throw our hands up in the air and say the numbers are the accounting department's responsibility as if the rest of us are 5-year old's without a clue what to do. If you're one of those it's time to move and get some financial leadership game on. This article will show you what's possible and point to a fantastic model that has your owner happily paying for the whole deal.Pillar 1 - Guest Service We manage guest interaction with an understanding and belief that we're all invested in good guest service. Even the departments that don't have direct guest contact help support the colleagues and departments that do. We are all responsible. Good guest service is a no-brainer for anyone in the hotel business. It's the very moral foundation that our business is built upon. Finding ways to increase guest service is just good business. We invest in guest service at all levels in our hotels and we take the function of providing great service very seriously. In branded managed hotels, the management company typically has guest service programs that they have either created or they provide in alliance with a vendor. In addition, we spend serious dollars asking our guests how we are doing. Guest service scores are critical to the operations of the hotel. In every instance the brand mandates the guest service programs inside their hotels and the owners pay 100% of the tab, for everything related to creating and maintaining guest service. Many owners question the management company's programs, these can be very expensive and the results are hard to nail down. Annually the brand will send their hotels the yearly programs via the budget documents that outline all the programs the hotel needs to add to their upcoming year. Even if the hotel adds labor for training the owner, in the end, pays 100%. When we think about a brand and its service reputation it's interesting to see through this mirage, to look and see that ultimately the owners of the hotels are paying to create the brand's service promise. This is largely a secret to most people. Understanding the relationship between the brand, the owner and what is created via this dance is an interesting segway. In most branded hotel's, the annual guest service score forms part of the executive team's bonus criteria and achieving the targeted number or better is a direct link to their pocket books. The last thing I will say about guest service is we do not tolerate leaders or staff that does not provide excellent service.Pillar 2 - Colleague EngagementWith colleague engagement, it's the same: We're all involved and implicated in managing departments and creating hotel teams that have high-colleague engagement. No leader or department manager is excused from the mission of colleague engagement. We have a myriad of tools to engage the staff, from employee newsletters, town halls, monthly colleague meetings, seasonal parties, special celebrations, sports teams, long service awards, employee of the year, employee opinion surveys, whistleblower lines, employee assistance programs, employee benefits, employee meals etc. etc. I could go on and on, this list is very long. The irony in all of this is the owner pays 100% of the cost of any program or event. Once again having an insight into this dynamic between the brand and the owner is an interesting dance to watch. Owners question many expenses related to "creating" colleague engagement but in the end, they pay. So where is the benefit of good employee engagement? It's obvious, good engagement coupled with great service equals a fantastic opportunity for our guests to have a wonderful experience. It used to be the case that human resources were "responsible" for creating colleague engagement, but not any longer. Each department has its own employee opinion survey score and a bad apple in the bag will not last long. No leader is excused from the necessity of a great colleague engagement.Pillar 3 - The MoneyThe money, the P&L, the owner it all boils down to the same thing, providing a superior return for the stakeholder. How is this pillar different? Well, really it isn't different we just treat it differently. When we talk about the money and we ask ourselves what do we do to create financial leadership inside of our hotels the answer 19 times out of 20 is NOTHING. We do nothing to lead and educate our management teams on the matter of financial skills. I am not talking about the accounting department and the financial function; I am talking about the education and the skills of the non-financial leaders in your hotels. What do we do inside our hotels to create management teams that have a solid financial foundation? The answer, NOTHING. Why may you be asking is this the case? There are three reasons that I will point out. One, we still live in an owner operator mindset that still echoes the idea, "look after the guests and the money will look after itself", but the reality today is that we manage hotels and as a management company we sell expertise to owners. Brands need to slow down long enough to realize they need to evolve. Two, the finances and talking about the money for many people is still "Taboo", the idea that we share the P&L and the managers get to see the financial results is a sacred cow for many people, to this notion I can only say, "get over it". If we want to have mature responsible leaders, we need to trust them and share the financial information. Third, we seemingly don't know how to lead and educate our managers financially. We hide behind the numbers and push it off as the responsibility of the finance department. This is really the opportunity in all of this. We have the ability to train and lead our managers financially and it's not difficult to accomplish. In fact, the owner will pay 100% of the cost to create the financial leadership in your hotel. Just as we have discussed in the other two pillars the brand can mandate the training program and the owner will pay 100% of the cost.Leaders want to be educated finically and they want to have financial responsibility. The idea that leaders don't want to do this work is nonsense. Today's leaders are literally dying to get financial leadership skills, they know without these abilities their career is limited. There are some conditions to this. First, the leaders need to know your there to support them, to provide the education and the training to facilitate the creation of financial leadership as part of your culture. Giving your leadership the responsibility for the numbers is not enough, you need to give them a system and be there when it counts, be there when it's a mess and support their efforts, be there when it's a win and celebrate their success. The brand and the general manager need to get behind this initiative, it's not a finance and accounting function it's one of the three pillars, therefore, it's a front-line management function for every single leader, it is not someone else's responsibility. Hiding out behind the numbers is not a viable strategy. Leaders need to know you have a system for them to follow, a predictable process with defined timelines and accountability for all. Leaders want to produce their own budgets and forecasts, not be given numbers that someone else has cooked up and then their told "good luck here are your numbers". Lastly, leaders need to see that you are investing in them, in their career and in their success. Once they see you're committed to their success it's a game changer. If they sense in any way that it's anything less that you are offering, you will not succeed.The benefits of finical leadership are everywhere. First leaders that know what's happening financially in their departments can plan and execute better. Imagine a leader who knows their expenses and payroll and he or she tracks the sales and volumes in the month and adjusts spend and schedules accordingly. The flip side is flying by the seat of our pants. We have all been there. What will happen the next time we have financial headwinds in your hotel? If you have created a financially engaged team you will have choices and buy-in when it comes to cost reduction. The brand also benefits from financial leadership training, building bench strength as leaders move throughout the organization. A brand with this kind of talent would quickly make a name for itself. The owner benefits big time. Having a financially engaged leadership team means the team is all in when it comes to maximizing resource and profits. We all know that in our industry we have a million ways to waste money, it's literally everywhere, on the flip side with a financially engaged team we have a million ways to save money. It's all about the culture you create, and it's fun! Like building a great service culture or a colleague engagement machine, financial leadership teams are every bit as possible. How do you grow a garden? You plan seeds and you nurture and care for it. The financial leadership piece in your hotel is exactly the same.

The essential question for 2018

Hospitality Copywriting - 26 September 2017
Now that we're in the shoulder season, and most of us are busy trying to create our budgets for 2018, there is one essential question we're all facing.It's a simple question, but it's a hard one to answer...How can I guarantee I'll be more successful in 2018 than I was in 2017?It's tough, because 2017 was such a great year... and because there are so many market forces in play...But the options are pretty straight forward.During your budget decision making process, you can either:1. Keep doing what you've been doing and hope for similar results. Maybe this is 'the endless summer'. Or,2. Step back for a moment and look at where things have been, historically, so you can figure out where they're going - and position yourself for success.I think the choice is pretty clear. That's why I put this article together to share a section from my new book, Hospitality Marketing Synergy.To start, we need to remember that the hospitality industry is kind of like the stock market. In that, there are moments of fear, when people tend to 'hide in their shells'. And moments of greed, when people feel free to make big, bold moves.It's just human nature. And this is the key in understanding where things are going in 2018 and beyond.So let's map out how most people's comfort zone (CZ) reacts during good times and bad:Now let's think back to the double-dip recession of 2008, for an example of what happens during times of stress and uncertainty.During this time, (#3 on our chart) we see that when things get tough, budgets get cut, sales teams have less success, and hotels tend to avoid hiring replacements when team members quit. They're not sure if they can handle the HR expense, after all, so they look for a less risky way to get things done. Their comfort zone (CZ) tells them to change their mentality from that of a 'hunter' to that of a 'gatherer'.Ironically, this leads to stage #4, where hotels become even more reliant on the OTAs to do most of the 'heavy lifting'.During this period, OTAs enjoy the majority of their revenue growth, evidenced by the fact that Priceline went from a financial loss of $19M in 2002 to $1.1B in profit by 2011. That double dip recession created a double spike in OTA dependency!Luckily, as the economy and revenues continued to improve, confidence also returned and we move back to the top of the revenue cycle again, (stage #1), starting around 2014.Everyone is back in their comfort zone, which is probably why 2016 was known as the 'Year of Direct Bookings'. To this end, technology, agency manpower and innovations in distribution strategy have all come together to help hoteliers 'fend for themselves' again. This has helped many hotels take back, or at least maintain their share of direct reservations.Now, however, as a 'soft landing' is predicted in the economy, we're moving into stage #2, where security, via guest loyalty, is the main concern.Even with the stock market at historical highs, political tensions and international showdowns have everyone on edge, and that can easily sap one's confidence... driving us back to stage #3.This brings us back to the big question. How can we make sure we're just as successful in 2018 as we were in 2017?By looking at the historical cycle, I think the answer is clear. If you want to avoid the bottom of the 'CZ cycle', you need to guard your confidence at all costs.That means you should make needless cuts to your own marketing initiatives, even when the OTAs provide an easy way out.History has shown us that every time hoteliers decide to outsource their distribution, the OTAs move in to 'fill the power vacuum', and that puts hotels in a weaker, more dependent position.On this point, I need to issue a warning.Emotions are cyclical. That's why emotions are somewhat predictable according to the changing seasons. But technology is always advancing. It's always getting bigger, better and more pervasive. And, because of that, we need to realize that the OTA competition is always getting stronger, regardless of what economic 'season' we're in at the moment.To illustrate what I mean by that, let me use an analogy:Looking back, when we were in stage #3, back in 2008, dealing with the sudden 'economic winter' of the sub-prime loan crisis, it might have felt like the OTAs were a pack of wolves, trying to pick off your prey...... by the time 2010 rolled around, it probably felt like you were up against a sleuth of bears...... 2014 brought a pride of lions to your area...... and 2016 saw packs of hyenas moving in...... and if this keeps up (just like the pace of technology keeps up... and publicly traded companies keep pushing to grow their revenues), by 2020, it might feel like you're dealing with machine gun toting gorillas... and laser fitted pterodactyls... all while dealing with the next economic downturn. Unfortunately, all this means that the OTAs will be controlling a greater percentage of total reservations and that will ultimately put your hotel at a sharp economic disadvantage. Ouch! No, history will not repeat itself. Progress will continue. And so will the OTAs.But human emotions will predictably shriek away from environmental challenges in favor of safety.When the going gets tough - sorry to say - most just want security.That means that during the next downturn, it's predictable that hotels will stop investing in their own marketing, in favor of 'a sure thing' through the OTAs... even if it's expensive...... and the OTAs, watching their stock price fall in a depressed economy, will predictably do everything they can to secure their future, as well, getting even more aggressive with their marketing."The only thing we have to fear is fear itself", FDR famously said. I think the situation I'm describing here was exactly what he was talking about.When things start looking shaky, don't respond like most people do by pulling back on your marketing budget. Instead - double down.There are more agencies and more technologies on your side, right now, than there have ever been before.There are tons of places you can get free traffic, on-line.There are ways you can partner with local event organizers to contract room blocks, year after year.And there are new advances in revenue management and digital marketing happening every day, which can help guarantee you're not leaving money on the table...My point is, the last thing you should do when you feel like you need help is to give away your direct connection to potential guests... or undercut your own rates by opting into an OTA's discount program. That's just like throwing your competition a big, juicy steak bone and hoping they go away... when you know that will only make them stronger.Remember, fear leads to failure.So make sure your budget shows you know how to fend for yourself! It's time to get out there and hunt!All the best,Jeremiah
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Resort Fee Litigation Advisory Group: Impending eruption of litigation over Resort Fees?

Hotel Law Blog | By Jim Butler - 25 September 2017
Impending eruption of government and private litigation over Resort Fees (mandatory service fees) There were earthquakes and tremblors for at least 17 years before Pompeii was destroyed in the catastrophic eruption of Mount Vesuvius in 79 AD. The past is prelude. What are Resort Fees?
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How to Read Your Hotel's Financial Statements

Hotel Business Review by hotelexecutive.com - 25 September 2017
The first thing you need to know about reading a hotel financial statement is there are basically 2 different statements that you will want to get comfortable with. The two different statements are the income statement, some call it the P&L for profit and loss statement and the second in the balance sheet. Now I know what you're thinking, balance sheets are for the accounting types and they are complicated. Nothing could be further from the truth and I am going to give you a new understanding and share a secret about the balance sheet and the relationship to the P&L.One thing to always keep in mind is the fact that many miss. It's the existence of a the 11th addition of the uniformed system of accounts for the lodging industry.

Owners' views on hotel distribution profitability

hotelnewsnow.com Featured Articles - 22 September 2017
The year 2016 marked a new step in hotel distribution with the active participation in travel of Google, TripAdvisor and others entering the market with instant booking and other transactional models. Here’s our straightforward assessment and actionable guidelines for owners with regards to the management of their room inventory. Asset managers have to be well-versed in the subject to be able to identify potential hidden costs. After all, as owners expect operators to generate direct bookings, management fees are computed on the basis of the “full average daily rate” and not on the “net ADR” (which is ADR minus transaction-related acquisition costs and general acquisition costs, plus ancillary spend).
Article by Robert Mandelbaum

An Analysis Of Franchise Fees

CBRE Hotels - 21 September 2017
In the current market environment of modest growth in revenue, hotel owners and operators are paying extra attention to their operating expenses. Per the June 2017 edition of Hotel Horizons(r), RevPAR growth in the U.S. is forecast to remain under 3.0 percent from 2018 through 2021. Therefore, it will be management's ability to control expenses that will enable profits to grow.One expense that management has less control over are franchise fees. Most of the fees charged by the franchising companies (brands) are assessed as a percent of a source of revenue. Therefore, owners and operators have mixed emotions when franchise-related costs rise. After all, if you are paying more franchise fees, then it is likely that your property's revenue is also on the rise.To assist hotel management and ownership in their assessment of the franchise-related costs they are paying, we have analyzed data from 1,587 U.S. hotels that reported franchise fee payments each year from 2010 through 2016. The data comes from our firm's annual Trends(r) in the Hotel Industry survey of operating statements from thousands of hotels across the nation. Some of these properties are owned and/or operated by a brand. Others license the brand, but are operated independently, or by a third-party management company.In our Trends(r) database we capture four different franchise-related fees on a discrete basis. They are:Royalty PaymentsMarketing AssessmentsReservation FeesGuest Loyalty Program FeesFor this analysis, the sum of these four components comprise "total franchise fees". These are the data that we analyze in this article.The Cost of FranchisingAs noted before, franchise-related fees are typically assessed as a percent of revenue; most frequently rooms revenue. Therefore, it is not surprising that total franchise fees measured as a percent of rooms revenue has remained fairly constant from 2010 through 2016. In 2010, franchise fees averaged 6.8 percent of rooms revenue, or $2,326 dollars per available room (PAR). This metric increased to 7.2 percent in 2016, or $3,381 PAR.Due to the ascending average daily room rates, franchise fee payments on a dollar per available room basis increase as you go up in chain-scale. In 2016, properties in the midscale segment averaged total franchise fees of $1,897 PAR, while luxury hotels paid $3,970 PAR. Conversely, franchise fees measured as a percent of revenue ranged from a high of 9.6 percent for upper-midscale hotels to a low of 5.2 percent at luxury properties.The ComponentsThe increase in franchise fees as a percent of revenue indicates that they have grown at a greater pace than rooms revenue. From 2010 to 2016, total franchise fees increased at a compound annual growth rate (CAGR) of 6.5 percent. Concurrently, rooms revenue for the hotels in the sample experienced a CAGR of just 5.5 percent. By analyzing the four individual components of franchise-related expenses, we can identify those elements that have led the rise in fees, and those that have lagged.In 2016, royalty payments constituted the greatest portion (29.5%) of franchise fees, followed by guest loyalty program fees (27.9%), marketing assessments (25.6%), and reservation fees (17.0%). This differs somewhat from the profile of payments made in 2010 when the largest share went towards guest loyalty program fees (27.3%), and royalty payments were only 26.8%.The increase in franchise fees has clearly been driven by the royalty payment component. From 2010 through 2016, franchise royalty payments have grown at a CAGR of 8.1 percent. This is 260 basis points greater than the growth in rooms revenue during the same period. Guest loyalty program payments (6.8%) also increased at a greater pace than rooms revenue the past seven year. Lagging in growth were marketing assessments (5.9%) and reservation fees (4.2%).Management Structure MattersSixty percent of the properties in the study sample were owned and/or operated by the brand affiliated with the hotel. The remaining forty percent was either managed by the owner (non-brand), or operated by a third-party management company. Between the two management structures, we see differences in both the composition of the franchise fees, and how each component has grown since 2010.In 2016, the components of franchise fee payments were more evenly distributed at the hotels operated by the brand. Since the brand is also earning management fees at these hotels, it can be assumed that they will alter components of the franchise fees as needed to win the management contract. At the brand-operated properties, the greatest share of franchise fees went towards the guest loyalty program (30.7%). However, the greatest growth in franchise fees at these properties since 2010 has occurred in the royalty payment (11.0% CAGR) component. Overall, total franchise fees at brand-operated hotels increased by a CAGR of 6.6 percent from 2010 to 2016, while rooms revenue grew by 5.5 percent CAGR.At the hotels that are self-operated or managed by a third-party company, royalty payments (45.4%) dominate the total dollars paid to the franchisor. Since the brand is not receiving any management fees at these properties, they are less likely to negotiate any reductions in franchise royalty payments. From 2010 to 2016, the component of franchise fees the increased the greatest was the guest loyalty payments (9.2% CAGR). This is significantly greater than the increase in rooms revenue (5.6%) for these properties over the same period. Since the amount paid for guest loyalty program fees is influenced by the benefit received from these programs, it can be assumed that these hotels have received an increasing volume of business from loyalty program guests over the years.Assessing ValueWith the prospects for revenue growth limited for the next few years, hotel owners are paying particular attention to the costs associated with acquiring revenue. They want a better understanding if the investments they are making in distribution channels, management, and their brand are providing a sufficient payback.When assessing the return they are getting for the franchise fees paid to their brands, owners also have the ability to dissect the value of the individual components. This enables them to make more specific comparisons to alternative brands, reservation systems, referral sources, management options, or even soft-brand alternatives offered by the franchisor.

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