If easyJet sold hotel rooms/ SA, this is how they would set their rates...read on
Updated: Sep 28, 2019
I have had great success recently working with clients using what I call the easyJet model. It's really simple if you think about it, easyJet encourages us to book our seats as far into the future as possible (typically up to 12months in advance) and they reward us with the opportunity to buy a seat at a really low price, now as your travel date becomes closer, the price of those seats increase, this is their dynamic pricing model and it works right, we know we want to buy the seat at the best price, we also know the price will go up it never really comes down from that future price, why would you not commit and book now?
What a great model, easyJet, secure the sale of X No of seats in the future, they know their breakeven (the cost to fly the plane), so they know by selling a certain number of seats as an example at £20, they can cover their costs to fly that plane, so when the price goes up this is all profit to them. My point is all cost's of flying that plane are covered well in advance plus they have the cash in the bank from us, so they are cashflow positive and covered their costs, sounds good?
How can this work for us selling our hotel rooms/ serviced apartments, simple if we follow the same model the airlines have, agreed?
The first focus has to be on your breakeven, what does your hotel room/ apartment cost you the moment you wake up in the morning, I'm talking about the costs of rent/ mortgage, your property costs, these are direct costs and you must understand these are costs you have to pay whether you have a guest staying or not, then you have variable direct costs like the OTA (Booking.com/ Airbnb fee), cleaning and linen these are all direct costs associated to the sale but are dependant on having a guest stay.
So my first tip is really to understand your breakeven or what your property costs to run with a guest and without a guest staying. I have a profit matrix you can download here. You work out exactly what your break-even point is by using the matrix that has been formatted for you. Once you understand what your break-even point is you can now go to all the platforms including your website and adjust your prices.
Set your prices, say 3 months in advance for future guest stays, like easyJet, I would encourage you to set the prices at say break even plus 10% profit, then slowly increase the nightly rate as you get closer to the actual date of stay.
The main aim is to focus on the future months and make sure you are at breakeven well in advance of entering that month, then by slowly increasing your prices, you will see the profit increase, knowing all your costs are covered in advance.
I encourage you to use the platforms, there are some great tools in Booking.com, they have what they call a non-refundable rate where you can set the price for future dates and offer a discount to the guest if they book and pay for their stay, but obviously they do not get the money refunded, so offering a really good discount to encourage guests to book and pay is a great way to achieve your breakeven. Also, the Booking.com Genius program, these are Booking.com directs guests, again a great way to offer these guests a discounted stay if they book and pay in advance and it works.
The whole aim is to be able to enter the month covering your costs and then increase the nightly rate at the same time of keeping an eye on your competitors, rather than going into the month with nights to sell and having to reduce the nightly rate to get bookings because you are panicking to cover your costs.
Tip number two is to download or watch Your competitor Analysis Masterclass I have recorded. It is important that you understand the competition, what the competition is charging. If you watch my video it will explain exactly how to do that.
So you understand what your competitors are charging and you can now set your prices in theory on par or even higher than them, as their will still be a demand but fewer rooms available as your competition will be selling out at discounted rates.
The typical model is that your competition will sell high in the future and as the date becomes closer they reduce the price down, as they will start to panic, but guests are intelligent they know this...You don’t want to be doing that as a hotel/ SA owner, you want to be able to go into the month knowing you secured good rates, that you are at break-even and now every night you sell is profit, you will feel confident and in control and can now focus on adding value to the guest stay.
In summary, I recommend that you focus on selling your future dates, focus on your breakeven, understand what your break-even is. You take control of your pricing, understand your competitor's rates, then slowly start to increase your prices as you get closer to that date. easyJet has built a successful model, based around smart pricing. Please share your thoughts and let us know how you get on? Lee Pemberton