Editor's Blog

Why hotels costs are rising
Sun 4 Mar, 2018 at 12:00 am

Studies that encompass the meetings market segment of the hotel industry look at a critical component of the hospitality business mix. They provide key metrics that reveal the increased intermediation of the sector and future trends and contain five key takeaways uncovering the size, process and costs associated with groups and meeting business. The expenditure on meetings business in the Asia-Pacific region is made up of 55 per cent on hotel room revenue while 45 per cent is spent on F&B, ground transportation, AV and other ancillary requirements.

I believe that intermediation will continue to play an active role in the acquisition of hospitality products as the attention to matching detail with client needs is imperative.

The groups and meetings business provides about 25 per cent of total Asian room nights across the full spectrum of market sectors. Full service hotels at the higher end of the rate range – say, those over US$220 published rates – have about 35 per cent of their room nights generated by groups and meetings business. Small meetings, defined as requiring under 100 rooms on the peak night, make up almost 75 per cent of the meetings in the Asia Pacific region. However this represents about 28 per cent of the meetings revenue. The balance of revenue is split between meetings requiring between 100-499 rooms (33 per cent) and those over 500 rooms (39 per cent).

The complexity of the meetings ecosystem reveals that there are many intermediaries involved at various points in the value chain which adds to the process’s fragmentation and ultimately to its costs. The cost of customer acquisition has risen dramatically over the last five years as the proportion of intermediated events has increased and is expected to double by 2022.

Automation of the events sourcing, booking and execution process has been underway for over five years and is accelerating. Cindy Estis Green, ceo of Kalibri Labs who conducted a study of the market, said: “With this renewed attention, the next three years appear to be an inflection point in the way the groups and meetings process will evolve. Operators with hotels of all sizes should pay heed to these business patterns as they are likely to affect all events such as corporate board meetings, product launches, incentive trips and large scale trade shows.”

The cost of intermediation is rising for the hotel industry’s groups business. Based on 2017 group rooms revenue of US$30 billion industry-wide, the cost of intermediary commissions alone was estimated at US$1.3 billion. This is based on 43 per cent of group rooms’ revenue being intermediated at a commission rate of 10 per cent. This does not include all other aspects of the ecosystem that may involve online advertising, group block reservation processing and other technology related costs increasing the total to closer to US$3.6 billion. The total costs can reach upwards of 35 per cent for a single booking in a hotel today.

The events and meetings segment has historically been one that has operated in a considerably manual fashion with significant friction, but with heavy investment in developing web-based consumer booking tools that smooth elements of the process. As group booking intermediation evolves further into a combination of third-party planners and third-party technology, the rate of intermediation will grow. More data, details and insights on this market should be reviewed to understand the new dynamics, its impact, and escalation in costs.

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