Spending more to become the most cost-efficient hotel operator

"You cannot save your way to success. You must invest," is how Andrew Carey, CEO of Newport Hospitality Group (NHG), started our latest interview.

As a management company with a portfolio of select and full-service hotels across the Eastern Seaboard, we focused our discussion on what leading management companies such as NHG are doing to continually produce above-benchmark results for their owners during these turbulent past few years.

Entering any market interruption, be it a pandemic or a recession, most hotels look to tighten the purse strings and cut costs wherever possible. But as Carey demonstrated, pervasive redlining may not achieve the desired result of maximizing returns.

"It's all about knowing where to save and where to staunchly preserve your budgets. You don't want to dilute services viewed as meaningful to guests, nor do you want to accrue a huge maintenance backlog."

The term we kept returning to was 'operational maximization' — the savviest operators know what combination of costs delivers the greatest bang for the buck.

Five elements that increase revenues

• Bespoke operating strategiesDeployed property by property rather than from a central playbook.
• Empowerment of local leadershipDecisions made closest to the guest.
• Service-based training attuned to each marketStandards travel; context does not.
• An associate-centric cultureThe single biggest lever against turnover.
• Consistent regional sales effortLocal relationships sustained through every cycle.

From summer 2020 onwards, NHG delivered above-market RevPAR growth for 77% of its properties, with a companywide compounding annual growth rate of 63% from 2020 to 2021.

One department, the whole story

Consider the maintenance backlog leftover from 2020 as many hotels redlined the engineering department. Bringing a hotel back online in 2022 required systems checks, fire safety, equipment work and parts replacement — creating OOS rooms and delaying new projects. Short-term savings became larger long-term costs.

A small city example

In early 2021, NHG bought and ramped up a Home2 Suites by Hilton in Brunswick, Georgia. Even in a turbulent travel year, the property achieved annual RevPAR of almost $83 — 18.7% above market, with Q1 2022 RevPAR at $105. Budgeted 2022 rooms revenue was projected to grow by 40% year over year, with ADR up over 18%.

What this means for hotel development in Indonesia

In Indonesia, the temptation during pre-opening and early operations is to value-engineer everything that doesn't immediately show — engineering bench depth, sales infrastructure, training hours. Each cut is rational on its own line. The cumulative effect is a hotel that opens fragile.

The operators who outperform their comp set over a five-year horizon are almost always the ones who spent slightly more on the things that compound — people, preventive maintenance, and local relationships.