Why hoteliers need the tools to think like asset managers

As investment continues to flow into the hotel industry, general managers need to add financial skills analysis to their toolbox, writes Glion Institute's Jonathan Humphries

A hotel is more than just a piece of real estate. It is a large, complex organism, founded on human experience and generating different and, often, fluctuating revenue streams. 

There is plenty of emotion involved in creating great guest experiences in the hospitality industry – but there is also a need for a clear-headed, analytical approach to asset management. This is especially true when it comes to investing capital wisely, so that its value to the business is maximised. All the more reason, then, for hoteliers to view their properties through the analytical eyes of an asset manager. 

By doing so, the more financially knowledgeable hotel general manager (GM) will possess the right language and dialogue to use when dealing with owners and/or investors. This keeps everyone on the same page, which ultimately makes for more constructive relationships. 

Compelling business plan

It is also becoming ever more relevant as the hotel investment market becomes ‘professionalised’, with global institutional capital flowing into the market in record quantities. In this environment, any significant investment – room upgrades or a new food and beverage concept, for example – will require far more comprehensive and meaningful cost/benefit analysis in order to be signed off.

Professional investors will not commit their cash without a compelling business plan, showing guest differentiation, investment costs and supportable revenue/ROI models, all written in a financial language they can relate to. We need the new generation of hotel company executives to have these financial analysis skills in their toolbox, if we want to see the industry continuing to move forward.

Changing the status quo

In future, I hope to see some of the sophistication around revenue management (RM) that is common among the major players percolate through to the smaller, independent operators. Sadly, there are still numerous hoteliers out there who simply do not have the skills or resources to yield manage or maximise RevPAR (revenue per available room), leaving them at the mercy of the online travel agents (OTAs) and their commission structures.

Inevitably, this brings us back to data. Hotel GMs have to understand where data comes from, how to make the numbers talk and how to use data-driven knowledge to their advantage. The good news is that data, for KPIs and benchmarking, has never been more plentiful. There are several specialist data providers, such as STR and HotStats, along with consultants such as Duetto, which can help you to use data to predict the future and price your offer appropriately, but it is critical to use benchmarking correctly if you want to identify best practice behaviours.

Operations vs finance

The challenge in hospitality is that a good proportion of GMs come through the operational side of the hotel business, rather than progressing through the finance route. This can leave them potentially exposed. My recommendation, to the younger generation, would always be to try to spend some years working in a finance area before entering the GM’s office. 

Education, and the need for financial up-skilling in hospitality management, is paramount and is a major focus at Glion. The hoteliers of the future must think like financiers, investment analysts and real estate professionals. Not only will this open up professional opportunities in these fields, but will also equip hoteliers with the tools they need to be effective 21st century hoteliers.

Hoteliers do need to thing about branding, operations and other traditional aspects of the GM role, but too narrow a focus does not create a mindset that sees the hotel in asset terms. When they understand their role in creating value for the asset, it brings a fresh perspective.

The stage is set for a new breed of financially savvy hotel GMs to lead the industry to greater heights. Who is ready to step up and seize the opportunity?

This guest post is penned by Jonathan Humphries, course leader of the MSc in Finance, Real Estate and Hotel Development and Head of International Hotel Development and Asset Management specialisations at Glion Institute of HigherEducation

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