Replacing business travelers impact profitability negatively

28 October 2021
Hotels worldwide are so happy to see a return of travelers that they do not even think about the profit impact of a changing business mix. Leisure travelers, primarily domestic, returned over the summer and for weekends, while business travelers will probably not return to pre-pandemic levels for many years.

A changing business mix can significantly impact the profitability of the hotel. Here are some of the characteristics of business travelers and leisure travelers.

Business travelers are easy to manage

The cost of managing a business traveler is low. For example, a corporate negotiated reservation to a negotiated rate will probably come through a GDS as a non-commissionable reservation. In addition, the hotel might need to pay for giving the business traveler loyalty points. Overall, the customer acquisition cost is still relatively low. In addition, the check-in process is quick and easy. Most business travelers are already familiar with the destination, so few questions to the front desk. After a full day of work, tired business travelers tend to have a meal in the hotel restaurant or a drink in the bar. Cleaning the room is easy. Finally, they pay a great rate, and they come again and again. Sometimes the business traveler knows more about the hotel than the employees due to the high turnover rate in many hotels. Thus, business travelers are very profitable for a hotel.

Leisure travelers not so easy to manage

The cost of managing a leisure traveler is high. The customer acquisition cost is sky high and primarily consists of B2C marketing activities and distribution channel costs. During the pandemic, leisure guests have been calling hotels and call centers to verify if the hotel is open, which facilities are available, cleaning and hygiene standards, cancellation policies, and many other questions. Unfortunately, the guests did not trust the information on the hotel websites, probably because of previous bad experiences. Therefore, calls become a high additional cost. In addition, the check-in process is slow. Leisure guests have a lot of questions, and this is their first time at the destination. They want to explore restaurants outside the hotel and need help to make reservations. The bed occupancy rate is higher, and there are more guests in each room. More people in each room, including x-beds and baby cots, means it takes much longer to clean the hotel room. Time is a direct cost for the hotel. Finally, leisure travelers search for the lowest available rate, and they rarely, if ever, return to the hotel and the destination. Sometimes a leisure traveler also uses loyalty points to pay for the stay. Thus, leisure travelers are less profitable for a hotel.

Profitability impact

Based on the above differences in managing business and leisure travelers, business travelers are more profitable than leisure travelers. It also seems like the difference is much more significant than hotels might think. Therefore, hotels need to analyze the profit impact of fewer business travelers and more leisure travelers.