Predictability is good for business, yet remains rare in the hospitality industry where volatility is legendary. While hoteliers have enjoyed a decade of transformational growth marked by countless innovations enabling strong returns on capital expenditures (CAPEX), there’s a growing apprehension around a looming downturn.
When this growth cycle ends, hoteliers will still be expected to maintain the high bar they’ve set for customer experience. Indeed, it’s difficult to imagine how a hotel in 2009 could effectively compete today—it would need to find profitable ways to increase, if not simply maintain, asset value. And rising labor costs make improving NOI even more challenging.
Typically, hoteliers might be tempted to invest in a new lobby or restaurant in hopes of raising rates as a result. However, this could be a risky proposition considering where we are in the current cycle, as there is no guarantee there will be commensurate demand. A soft environment leads to soft revenue growth.
Increasing CAPEX to boost NOI may prove too big of a gamble, and hotel owners would do well to look to investments that minimize operational expenditures (OPEX), particularly energy spend. To be successful, hotel owners must look at both the energy business and the business of energy to drive value that gleans a competitive edge no matter where we are on the cycle.
Fortunately, advancements in data analytics and clean energy mean that hotel owners now can turn the energy waste in their asset into a guaranteed financial product.
Turning OPEX Into Guaranteed Revenue
Whether it’s rooftop bars, elaborate lobbies, or upgraded fitness rooms, today’s expected amenities require significantly more energy to operate—and this means higher utility bills.
Indeed, energy is one of the fastest-growing costs hoteliers face today, according to the U.S. Environmental Protection Agency’s ENERGY STAR program. It’s critical for hoteliers to keep their utility bills low while still providing guests with the experience they have grown accustomed to.
In buildings with central HVAC systems, hoteliers can use data analytics to tap Efficiency Reserves—the building’s wasted energy—and save. For a hotel owner, those energy savings can re-value a building and bring in better refinancing terms to fund other investments they need to remain competitive.
All of this is happening in a context of increased climate impacts to the wider economy. Munich Re recently released a report that found climate-related disasters in 2018 inflicted $160 billion of losses worldwide, of which only half was insured. This includes disasters such as the extreme wildfires in California.
Grabbing More Group Business
Another often overlooked financial benefit of maximizing hotel energy efficiency is driving group business revenue. Amid today’s all-time occupancy highs, group business revenue has become central to a hotel’s overall revenue management strategy. Global business travel spend has doubled over the past two decades to over $1 trillion.
Many corporate customers now require hotels to report strong environmental, social, and governance (ESG) performance in their requests for proposal (RFP) processes. Clean energy and efficiency offers the surest route for hotels to meet the ESG requirements of group business RFPs, while creating financial value through reduced OPEX. And with companies likely to scale back on group business travel during an economic downturn, hotels will need to have every edge to capture what’s left.
Efficiency in the Absence of Predictability
The hotel industry’s volatility isn’t going to change — but hoteliers can hedge their bets against this unpredictability by minimizing OPEX liabilities. Data-driven clean energy and efficiency investments that generate guaranteed financial value can help drive asset value no matter where we are in the boom and bust cycle.
Is your asset ready?