De-flagging Demystified Part One: Going Independent The Smart Way

January 31, 2019 Kyle Buehner

The road to de-flagging can be riddled with questions.

Let’s get into the topic of de-flagging. We’ve been hearing a ton about it throughout the industry for the last few years. And, not only are independents thriving they also have the most opportunity in the marketplace right now. And this has many brand hotels considering “pulling the flag,” or moving out from under a hotel brand and going independent.

 

STR’s 2018 industry trends suggest that independent hotels will see more growth than any other segment in ADR (+2.5%) and RevPAR (+2.9%) this year. ADR growth for independents has doubled the pace of branded properties since early 2014 (BoutiqueHotelNews). The market has never been better for it—especially when owners and managers make the decision strategically. If you’re considering going independent, here’s what to consider:

 

Fees—A Big Relief

As you probably already know, a big benefit of de-flagging is getting away from management, franchise, loyalty, and reservations fees, etc. Research shows that franchise fees alone averaged 7.2% of room revenue in 2016, with payouts on a dollar-per-available-room increasing up the chain scale (HotelOnline). According to legal expert Robert Braun, these fees and standards “are designed to benefit the brand, not a specific property.” By de-flagging, some independents have seen their marketing efforts and customer service become personalized, and directed toward their specific guest. This, in turn, has made their marketing more effective in the long term.

 

OTAs—Doing Without Negotiated Commissions

For independently minded hoteliers, the biggest risk in de-flagging is the loss of OTA business. Most big brands have bargaining power with negotiated commissions as low as 15%, but for an independent hotel, the OTA fees can be as high as 25%. An interesting and unexpected result is that third parties have actually helped set the stage for independents to thrive. Expedia’s Mark Morrison has said, “Online marketplaces have helped independent hotels gain access to a global travel audience and insight tools, that in the past, were more exclusively advantages for brands… we're seeing democratization based on visibility, quality, unique selling attributes, and traveler needs."

One way independents are beating the OTA system is by investing in direct-booking technology and/or a CRM platform. Taking a book-direct approach can offset OTA fees--especially when you consider that voice-bookings typically bring in 31% higher ADR than other channels.

 

Pricing Controls—Rates & Campaigns at the Perfect Pace

The hotels that perform the best when moving from brand to independent tend to be located in areas where there is sufficient demand to support a number of different property types. These locations tend to be tourist destinations in the mountains or on the beach and popular urban areas. Properties that have cut loose from the brand guidelines associated with being part of a big brand gain total pricing control, which is a big benefit of “pulling the flag.”

I know all of this may sound obvious but to thrive, these hotels must commit to revenue management principles and technology across the company to continually assesses demand and rates, as well as a full view of their potential guests along the entire booking journey. This way, when pricing decisions are enacted, guest outreach to the appropriate audience can happen immediately. The challenge is that many hotels, branded and independent, are stuck doing hours of manual data-analysis just to execute simple marketing campaigns.

If your business can focus on marketing, revenue and reservations teams leveraging shared data, you will create a performance-focused culture, one that is essential to the long-term health of hotels, especially independents. The key to their success is keeping these priorities front and center.

The core principle of this alignment is that hospitality professionals must work with trustworthy guest and performance data. This can sometimes feel overwhelming or like a black hole for properties. But when your data goals are achieved, your revenue goals will be realized. I'll break it down more in a follow-up blog that will arm you with the strategies and priorities for preparing your own data for a transition. Read post two here.

 

Are you ready to start a conversation about how the NAVIS CRM platform can help you grow your business? Contact us, and find out more! 

 
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