The Iberian Peninsula enjoyed a buoyant year in 2017, thanks in part to tourism transference from other Mediterranean destinations affected by terrorist attacks and instability. This resulted in strong RevPAR for both Spain and Portugal. The ECM-MKG Destinations Observatory report for January to September 2017 showed that Spain enjoyed a 10.6% increase in RevPAR, while Portugal saw even higher gains with RevPAR up 18.3%.
However, market instability due to the Catalan vote for independence, the ongoing Brexit negotiations, and the fact that markets such as Turkey and Egypt are starting to come back could present challenges for the Iberian market.
Juan Ruano, Duetto’s Senior Customer Success Manager, EMEA, has extensive hospitality experience in Spain. His on-property experience, including working on the opening of the Mandarin Oriental Barcelona, enables him to truly understand the requirements of Duetto’s hotel customers.The evolution of revenue management at hotels in the Iberian Peninsula Click To Tweet
Here, we talk to Juan about the challenges facing the Spanish and Portuguese hotel industries, how investment in technology and data analysis is vital to Revenue Strategy in Iberia, and the impact Brexit could have on these two destinations traditionally popular with the British tourist.
Cities in Spain and Portugal saw strong increases in RevPAR in 2017. What is behind this growth and will this continue in 2018 and beyond?
Markets such as Spain and Portugal benefit from long average lengths of stay but perform below par over other destinations in terms of average spend by visitor. Historically, low-rated segments feeding these markets have been the reason for their success. However, continuous investment in the quality of the hotels product has resulted in RevPAR growth.
Additionally, over the past 10 years, Portugal has seen slow growth in bed supply in comparison to Spain. Therefore, the higher demand has outpaced supply growth resulting in great rate growth across the country. We expect this trend to continue in Portugal moving forward.
The UK is one of the largest feeder markets for both Spain and Portugal. How do you think Brexit is going to impact this in both the short term, due to the devalued pound, and in the long term?
Uncertainty over the UK as of one of the main feeder markets into Spain and the devaluation of the pound have been thoroughly discussed in Spain and Portugal since the Brexit referendum back in 2016. The influx of UK visitors, surprisingly for some, increased in 2017. However, despite the positive trends, the high end of the market has started to see the consequences of the devaluation of the pound.
Spanish and Portuguese operators are generally worried about the potential impact of a hard Brexit. Unfortunately, negotiations so far have added no clarity on the future relationship of the UK with the rest of Europe, adding uncertainty and pessimism, which is always detrimental to business.
What are the challenges of managing seasonal demand in destinations such as Spain and Portugal?
Summer months are obviously the most popular months to visit Spain and Portugal. Operators and authorities have been working hard for years to limit truly low seasons. Extreme seasonality, which we see in other countries across Southern Europe and North Africa, are now a thing of the past for Spain and Portugal.
Both countries have a very healthy mix between resort and city break destinations, paired with balanced business and leisure demand, which is less affected by seasonality. Urban and historical destinations are a great alternative to the traditional Sun & Sand options. Madrid, Barcelona and Lisbon are leading European cities accommodating the MICE market.
Spain also offers ski resorts, which appeal to guests pursuing winter activities as well as offering rural tourism options during the summer months.
Local tourism boards are collaborating extensively with airlines across Spain and Portugal, supporting the launch to increase connections during shoulder seasons. The result is that we are seeing seasons being extended year after year in traditionally seasonal destinations, such as the Balearic Islands.
Historically, resort/hotel operators in Spain and Portugal have depended on tour operators, particularly fixed rate contracts, to bring volume to their properties. How is this changing? How is the market working to break this dependence?
Industry statistics reflect changing habits in these markets. Tourists are increasingly staying away from organized packages and making their own travel arrangements with hotels and service apartments benefitting from this.
Additionally, Spain has again seen a record in the number of visitors in 2017 (+9%), whereas Portugal grew year on year by +5.9%. This gives hotels great confidence to abandon the traditional fixed contracts model, embracing direct and/or yieldable sources of business.
What new inbound markets show potential for both Spain and Portugal for 2018 and beyond?
There has been an increase in interest from visitor markets outside of Europe, mostly from the US. Emerging markets such as Brazil and Mexico have somehow become stagnant due to recession and political situations. The Russian market had slowed down in 2016 but statistics show this market now recovering very quickly.
With the fear of the consequences of a hard Brexit and the potential reduction of visitors from the UK, Spain and Portugal continue to target China and India. Both of these markets are predicted to experience healthy GDP growth over the next five years, so they could be great markets to continue growing visitors and/or compensate for the reduction in visitors from traditional markets.
What changes have you seen to how clients approach Revenue Strategy in Spain and Portugal?
Things are rapidly changing. Traditionally seen as price analysts, revenue management professionals are being empowered to drive the change within their organizations, turning the hotel’s commercial and pricing strategy into a much more dynamic and multidepartment discipline. Leaving behind legacy systems, which have historically made pricing strategy hard to implement and distribute, seems to be the main priority amongst hoteliers.
To complement the above, a big focus is also on data points available to revenue managers. We never had so much data to analyse, however, there is a risk of analysis paralysis. Therefore, technology that makes different data sources available, comparable and actionable is the key to helping revenue managers make better-informed and more profitable decisions. Those organizations able to deliver exactly this are gaining a great competitive advantage against their competitors.
What are the biggest distribution challenges facing hotels in Spain and Portugal at present?
Price parity issues and control over the prices distributed to different channels are the main challenges for most operators. Digital marketing efforts to encourage business through direct booking channels is ineffective if some partners undercut your pricing publicly.
Some hotels are very dependent on certain partners, which allow those to dictate the terms and conditions of their relationship.
All disparities hurt hotels and they must be identified and corrected so they do not reappear in the future.
Finally, how do you see revenue strategy in Spain and Portugal developing in the next five years?
That’s a big question! There are four key factors revenue managers need to be aware of and consider in 2018 if they want to succeed:
- Hoteliers need to increase their efforts to improve guest experience – Today, it’s about the evolution from loyalty programs to personalization.
- Embrace total revenue optimization and take efforts to optimise channels and reduce the cost of acquisition.
- Be aware of the evolution of lodging alternatives such as Airbnb. Residents are lobbying local governments to pass new regulations to stop the growth of this type of accommodation in key markets.
- Invest in new technology and additional data sources to drive and validate hotel’s strategy.
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