Hotel Parking: A Neglected Profit Center
Hotel owners and managers spend tremendous time and energy looking for strategic ways to make the most of their hotel asset. What they often fail to look at is that the hotel itself usually sits in the middle of or adjacent to a large parking facility.
This facility often takes up as much real estate, if not more, than the hotel itself. But because parking is outside the core focus of the industry, parking facilities are rarely strategically managed. As a result, the extremely profitable dollars of parking revenue are often left on the table.
Most hotels do not view parking as a profit center, but rather as a service amenity. As a result, hotel parking management is usually focused on providing quality service. As long as customers are arriving and departing from the hotel without complaints, most hotel managers are happy, particularly if some revenue is generated along the way.
This thought process often results in parking department managers being promoted from the position of bellman, valet, security officer or front desk agent. If these employees can ensure consistent service, then they are viewed as competent for the job. Unfortunately, they rarely have any business or financial training, and are then put in charge of what can sometimes be a multimillion-dollar operation.
In addition to the lack of training and development, the hotel parking accounting process is inherently complicated, as there are many different hands in the financial “pot.” Hotel guest parking charges are generated by front desk agents adding a code in the front desk management system during the check-in process, but agents often forget to do so.
Event charges are often posted to group master bill accounts by the hotel accounting team, but the amount posted is based on data generated by the parking staff.
Lack or Neglect of Technology
Many smaller hotels or hotels that are first experimenting with charging for parking do so based on the honor system. Only hotel guests are charged, and only those that admit to having a car ever see the fee. The honor system does not work in a hotel environment, and we often see as much as 50% or more customers with a vehicle parking for free.
Controlling access to the facility with parking technology prevents people from leaving the property without paying. Those hotels that do use technology usually purchase a PARCS (parking access and revenue control system) during initial development or when major renovations or ownership changes occur.
These systems are then left in the hands of various department managers who turn over every year or so. Unlike property management systems or physical plant equipment, they are not typically maintained by an IT or engineering department and eventually begin to fail, until they reach the point when those revenue control features they might have offered do not work anymore.
Charging for Parking
Another way that hotels don’t maximize their parking assets is by failing to charge in a market that supports doing so. Many isolated resort, limited service and suburban properties do not charge parking fees for fear of driving their customers away.
They claim that customers faced with a decision between two similar hotels will chose the one without a parking fee. We disagree. While no one wants to pay additional charges if they don’t have to, we see that most guests make their decisions based on brand loyalty, location and/or amenities.
Unless the parking rate is going to be exorbitant, this is not typically part of the decision-making process. We recognize that customers often complain about paying for parking, but they also complain about telephone call rates, high-speed Internet charges, mini-bar fees, room service prices, etc.
The decision to charge should be based on a competitive market survey. By checking the policies and rates of its competitors, the hotel will be able to understand what the market can support. It is important, when conducting this survey, that the hotel review its competitive parking market, rather than its competitive hotel room market.
Once the hotel has decided to charge for parking, just like hotel rooms, parking inventories need to be strategically managed so they generate the optimal revenue yield. Hotel revenue managers look at the value of different groups versus transient business, at how booking varying sizes of contracted corporate rooms affects the availability of transient business during peak and slow periods, what rates guests will pay at various periods of the booking window, etc.
It is rare that a parking garage is managed with this much strategy, but the strategy has the same financial impact on parking revenue as it does for rooms. Failure to manage parking revenue in this fashion is often the most overlooked and easily solved source of parking revenue loss.
The next area of parking revenue management to consider is the use of discounting and complimentary parking as a tool for the sales and catering departments. Most hotels offer discounted parking to all events and many in-house groups. This is often done automatically rather than strategically. Just as a hotel would not waive a meeting room rental fee or provide complimentary upgraded bar liquor without strategic analysis of the value of the group, parking should not be given away without consideration either.
The last aspect of parking revenue management that often goes unaddressed is utilizing parking inventory to its maximum potential. Hotels that pay for overflow parking when they can fit more vehicles on-site fail to maximize their inventory. This is also true of hotels that pay for overflow parking appropriately but do not track usage and confirm filling from their overflow garages. We often find hotels getting over-billed because they are unaware of their actual usage.
Many hotels outsource their parking operations to parking services vendors because they feel they do not have either the resources or expertise to manage the operation themselves. A parking vendor can offer skilled revenue control, claims management, flexible staffing and professional service, so outsourcing is often an excellent decision. However, the lack of expertise that directs the hotel toward outsourcing can sometimes lead them to negotiating unfavorable contract terms.
Without knowing what is going on in an operation, it is possible to make deal terms that seem competitive but are later discovered to be not as great as originally planned. Consider the example of an internally managed operation about to be outsourced into a percentage rent agreement.
A hotel might make a great deal with their new operator, only to find out later that there was so much extra revenue on the table from the revenue control problems mentioned above, that they end up paying the operator much more than they had planned. Without expertise, parking operators will always have the negotiating advantage when making deal terms, especially in revenue sharing scenarios.
Management agreements in which an operator makes some sort of management fee and passes the expenses on to the hotel are usually less risky if the hotel expects to make a big improvement. However, the set fee can also fail to offer proper incentive to the parking operator.
In addition, market conditions can change such that the original terms no longer make sense. Changes such as increases in rates or operational flow that requires more or less staffing can significantly affect the bottom lines of the hotel or the operator. These changes must be considered in advance and as they occur to determine if the deal structure still makes sense.
Contract compliance can also be a major issue for hotels. As with many contracts in a hotel environment, once the deal is executed and the hotel is satisfied with the operator, the contract goes in a file in the accounting or corporate office, never to be looked at again until renewal. Hotels can be easily taken advantage of in these circumstances.
Operators sometimes “sneak” through costs that were not agreed upon, fail to follow service plans like secret shopping, fail to pay additional rent if certain thresholds are met, etc. A controller or general manager should review their parking agreement on at least an annual basis to ensure that the terms are still fair and that all parties are living by them.
Even though parking is considered an ancillary department that generates only a smaller portion of overall revenue, if effectively managed, it can be one of the most profitable minor operating departments in a hotel. The bottom line of a large hotel parking operation can sometimes contribute more EBIDTA than the hotel’s restaurant. All it takes is the same strategic planning, analysis and oversight that hotels put into the rest of their activities.
Contact Joshua Miller, Principal and
Managing Director of Niche Advisors’ San Diego office,
Article Abstract from October, 2012