Revenue is vanity, profit is sanity, cash is reality. Is it too much for hotels to ask for all three?
Currently, yes. Hoteliers are facing unprecedented challenges: a drop in guest demand, stubborn operating costs and short-term cashflow worries. There are no easy fixes, but we can learn something from the extended stay/ aparthotel sector.
Many aparthotels/serviced apartments kept their doors open throughout lockdown, providing much needed accommodation for long-stay guests, key workers and those unable to return home due to travel restrictions. Not only did they provide a crucial role in providing accommodation but, in many cases, their lean business models meant they were able to mitigate losses at a time of major disruption across the hotel sector.
So what do 2020 half-year operating performance stats tell us? The H1 results for the largest global operators show that extended stay properties have out-performed their hotel counterparts:
- IHG reported a 46 per cent decline in revenue per available room (RevPAR) for its extended stay brand – Staybridge Suites – versus a 59 per cent decline across all brands in EMEA and Asia.
- Hilton reported a 41 per cent decline in RevPAR for its extended stay brands – Homewood Suites and Home2 Suites – versus a 54 per cent decline across all brands globally.
- Marriott reported a 46 per cent RevPAR decline for its Residence Inn brand, versus 59 per cent for all brands (North America only).
At a more local level, we have seen many aparthotels trading relatively well through lockdown. Clearly a large part of the primary guest segment – corporate business – has seen a massive drop since March, but aparthotels offer firstly an attractive accommodation option for Covid-19 times and secondly an efficient business model.
Aparthotel units offer self-contained, apartment-like spaces where guests can choose to prepare their own food, choose to work in the apartment or relax in isolation and choose minimal room servicing. The Association of Serviced Apartment Providers describes extended stay properties as offering guests 'maximum control over their environment and minimal interaction with strangers'.
At an operations level, aparthotels can offer cost savings. Room cleaning can be less frequent, there is less of a reliance on costly third party booking platforms in favour of lower cost corporate bookings, and staff numbers are often fewer given the lack of ancillary facilities like a restaurant.
As a result, from our analysis of mid-market London hotels and aparthotels, we’ve found that on average aparthotels operate at 13 per cent higher at a Gross Operating Profit level. No one size fits all, but this average is illustrative of the efficiency benefits in the extended stay sector.
However, what we really need is a rebound in guest demand – long stay, short stay and everything in between. Cost savings are largely meaningless if no one is checking in. In today’s challenging times, adopting an extended stay operating model is not a silver bullet. But perhaps it could be a silver lining?
Further information
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