Case Study in Revenue Management for Youth Hostels

youth hostel revenue managementAfter 1 year of hard work, it is time to take stock and see what kind of progress we have mad with the implementation of revenue management in 2 hostels in Orlando. As for the current trend, we are increasing revenues by at least 10% from one year to the next, we can certainly say that it is a successful recovery. How did we do that?

By taking a closer look at the results, with an additional $ 90,000 in web hosting revenue generated in the second half of 2013 and continued growth in 2014 (looking at a 10% to 12% increase in revenue in the first quarter), we can still conclude that we are providing a solid ROI. In addition, there is evidence that revenue management can be applied to different types of accommodation properties and not just apply to hotels. And perhaps most importantly, we found that there is virtually no resistance to the dynamic prices and yield of backpack customers, that is, price variation does not influence customer buying. “backpackers”. It all comes down to a structured approach, and a good set up to succeed.

bastille youth hostelSo, how did we approach this project of recovery of this hostel in Orlando? First, we clearly differentiated 2 main segments; Groups and Transient. The groups, generally large in size, reserve via institutions (schools, universities, sports clubs, associations, etc.). They are the core business of the youth hostel market and tend to book early, months in advance, increasing the time between booking and arrival. The transient activity consists of individuals and small leisure groups, which occupies up to 20 beds, with a booking window of 60 to 120 days.

By digging deeper into the historical data of these hostels and creating internal worksheets, we had a real insight into the seasonality of the youth hostel market in Orlando

Seasonality follows the traditional monthly trends of a “city break” destination, especially for larger cities, with the exception of summer and school holidays, which show a fairly high demand. We also analyzed the seasonal booking curves, revealing a considerably longer booking window compared to hotels, with travelers booking earlier (up to 120 days). However, the big wave of demand is still concentrated in the 2 weeks before his arrival.

With the data collected, we understood that we had to manage the core business well to obtain a good main booking window, in terms of average occupancy rate and sufficient availability during periods of high demand, in order to improve overall yield. For the core segment of the institutional group, we slightly repositioned prices upward.

In addition, ceilings were put in place for demand-based groups to sell to transient customers at higher rates during periods of high demand. After tracking reservation curves, we were able to implement fully dynamic prices based on historical and current seasonal demand patterns. With the ability to forecast more accurate market trends, we have moved away from flat seasonal rates. For that, we rebuilt the pricing structure, starting with the PMS. We built a structure of supplements, which allows us to sell a room to an individual cleint, as multiple beds, in order to sell an entire room. We have also put in place a similar structure in our channel management tools, which we use to manage both the website and all the OTAs we work with. Instead of being stuck in a seasonal pattern, we can now produce day-to-day, top-down, and capture more demand during a period of low demand or times of distress (maximizing occupancy). In addition, we can effectively capitalize on unbridled demand by driving the APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results. that we use to manage both the website and all the OTAs we work with. Instead of being stuck in a seasonal pattern, we can now produce day-to-day, top-down, and capture more demand during a period of low demand or times of distress (maximizing occupancy). In addition, we can effectively capitalize on unbridled demand by driving the APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results. that we use to manage both the website and all the OTAs we work with. Instead of being stuck in a seasonal pattern, we can now produce day-to-day, top-down, and capture more demand during a period of low demand or times of distress (maximizing occupancy). In addition, we can effectively capitalize on unbridled demand by driving the APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results. we can now produce from day to day, from top to bottom, and capture more demand during a period of low demand or periods of distress (maximize occupancy). In addition, we can effectively capitalize on unbridled demand by driving the APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results. we can now produce from day to day, from top to bottom, and capture more demand during a period of low demand or periods of distress (maximize occupancy). In addition, we can effectively capitalize on unbridled demand by driving the APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results. APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results. APB (average price per bed) during periods of high demand. At the same time, differentiation strategies for different product categories (dormitory configurations and room types) were also essential in improving results.

We also quickly recognized the need for a method to control the inventory. The sale of a bed compared to a room can create serious constraints that makes it impossible to achieve 100% occupancy. In the end, we offer the choice to buy beds in girls’ dormitories, beds in dormitories for boys or beds in mixed dormitories. If we sell 1 bed for girls only, forget to sell the other 3 beds to boys. As a result, we have built customized inventory control tools to better understand the timing of each type of room and type of bed. This really allowed us to maximize sales for every room type, and that was the

Thanks to constant tests of price elasticity for the transitional market, we noticed a clear difference in sensitivity in the different seasons of demand. In the low season, the dynamic pricing rate was about 5%, while in the high demand period, the yield risk was 10% to 20%. During peak periods, we could even increase our rates with progressive steps totaling up to a tariff increase of € 10 per person per night in the same week. Sometimes we have been able to generate rates ranging from € 24 to € 40, which significantly increases the last bed value of the hostels.

bastille hostel parisAs with any management strategy, we closely followed the seasonality of the hostel as well as the group base on the books to maximize RevPAB (revenue per available bed).

In addition to working on revenue management from our Xotels offices, we have worked closely with proprietary operations for sophisticated procedures to improve the experience and perception of the service. By studying guest comments, the main areas of improvement were identified. Structurally working on improving property weaknesses, customer satisfaction has increased by 3.2% over the last 4 months.

The biggest challenge could have been to change the mindset of the operational team, working with dynamic rates. It seems that people who work in an organization are sometimes more reluctant or more afraid to change than the current client. Potential consumer concerns, unqualified and unquantified, mainly based on fear are surfacing. These can only be tackled by continuous advice and coaching, which we have worked on in a tedious way during this project.

It is essential to work to change the culture with an organization stuck in its comfort zone, one that is open to constant change and improvement. We need to transform our businesses into organizations that constantly look at their own performance critically in the pursuit of perfection.

It has been an exciting challenge for Xotels to venture into the management of youth hostels, going beyond our own revenue management comfort zone for hotels. We are proud to have achieved incredible results, a 10% revenue growth, as well as operational teams on the property. It is great to see that adopting a professional approach to revenue management in youth hostels will result in a very healthy return on investment.

We hope to have the opportunity to work on other hostels around the world and implement our best practices in revenue management and distribution.

See you,

Mohan Patel @ info@hotelsuppliesusa.com

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