Keeping a hotel or hotel chain competitive in a global economy is much more than having nice rooms, outstanding services, great restaurants and expensive marketing. Although all of these are important to a hotel’s success, they are all short-term influences without a well-thought out and executed asset management program.Hotel asset management is the short, medium and long-term plan that covers every physical asset of a hotel from the asset’s initial planning/purchase through retirement (including how maintenance is planned and performed). It is critical because how well a hotel manages their assets directly impacts cash flow, the ability to market the property and guest satisfaction.
The intent of this article is to demonstrate the impact that hotel asset management has with regard to energy costs and then in Part II how your hotel can implement a competitive solution.
Hotel Asset Management and Energy Impact
Most hotels are unique when you consider their age, design, condition and maintenance history altogether. However, for some hotels, asset management is carefully planned and for other hotels it is not very high on the priority list. Regardless of the individual situation, all hotels require operating cash to pay bills.
The quality of asset management helps to determine operating cash needs. This is because, good asset management will help to adequately predict or control operating expenses such for:
- Energy Costs
- Maintenance and Repairs
- Labor Costs
- Capital Expenditures
One way to look at this is to consider that every penny saved from better asset management is equivalent of a corresponding increase in ADR. In fact, energystar.gov suggests that reducing costs for energy alone by 10% is equivalent to a $0.62 ADR increase for limited service hotels and a $1.35 ADR increase for full service hotels.
The key words here are predict and control for this is crucial in order to get the upper hand on operating expenses. Let us take a closer look at the top expenses.
Hotel and Lodge Energy Costs
According to the U.S. Department of Energy, buildings account for 40% of all energy used domestically. In fact, the U.S. hotel industry spends upward of $4 billion per year on energy. This figure includes costs for all utilities such as electric, gas, solar, wind, geothermal and water/sewage. This makes the opportunity for improving a hotel’s bottom line huge.
“On average, America’s 47,000 hotels spend $2,196 per available room each year on energy. This represents about 6 percent of all operating costs.”
For a 50, 100 and 500 room hotel this adds up to be $109,800, $219,600 and $1,098,000 respectively. Using an average room rate of $125 per night, each hotel (50, 100 and 500 room hotel) would need approximately 878, 1,757 and 8,874 overnight guest to cover the cost of energy for one year. This essentially means each hotel must be 100% booked for at least 18 nights of the year.
Although a hotel or lodge may have tens of thousands of assets, the bulk of energy costs are usually concentrated in energy intensive areas such as:
Highest Energy Using Assets
“In the U.S., large hotels (those larger than 8,000 square feet) spend an annual average per square foot (ft2) of $1.05 on electricity and $0.25 on natural gas. In a typical lodging facility, lighting, space heating, and water heating represent close to 60 percent of total use, making those systems the best targets for energy savings. For a full service hotel, energy costs are usually between 4 and 6 percent of revenue, but historic and luxury properties may see energy costs hitting 10 percent or more.”
Making sure the assets listed above are in optimal working condition is not as easy as it seems. Asset performance is influenced by many factors including but not limited to:
5 Crucial Energy Management Factors
- Age of assets: Newer assets by and large have more energy efficient technology built in. For example, a new chiller can be 25-50% more efficient than a unit 10 years older.
- Condition of assets: The condition of assets is impacted by wear and tear, weather, their maintenance history, corrosion and so on. All of these can cause assets to draw more energy to achieve desired production levels.
- Quality of proactive maintenance: The frequency of preventive maintenance, inspections and use of various proactive maintenance methodologies decreases the probability of unplanned or emergency repairs as well as identifying when assets need or will need work to maintain energy efficiency levels.
- How well usage is planned: Usage is two-fold;
- The first part is how the actual asset is used. For example: is the chiller oversized or the rooftop unit undersized?
- The second part is at what times are they being used? For example: are kitchen and laundry start-up times staggered and which asset use can be minimized during peak cost periods?
- Use of Technology: The use of occupancy sensors, heat recovery systems, high G force washers, program logic controllers, energy meters/monitors, IFR and an EAM CMMS system are just a few technology improvements hotels can employ.
As we will see later, each of the above factors can be handled with a combination of technology and a good asset management system.
Maintenance, Repairs and Labor for Non-Energy Consuming Assets.
Although energy costs are the number one pain for many hotels it is not the only expense related to asset management. Proper care of assets cannot happen without planned maintenance, repairs and the associated labor costs. Maintenance is an integral part of every asset management program.
We already know that as part of the 5 crucial energy management factors, proactive maintenance can help keep energy costs to a minimum. However, hotel maintenance goes far beyond caring for energy assets. Every facility requires both interior and exterior maintenance.
Exterior maintenance such as a fresh coat of paint or roof top cleaning not only help the hotel look better but they also have a practical purpose such as reflecting light (heat) away from the building or fixing a structural issue that is causing a leak of cooled air.
Interior maintenance can include work such as ensuring proper insulation, venting and of course all piping and valves. Other areas may include weather stripping windows, fixing stuck windows and doors or even covering the heated pool during non-pool hours.
Without proactive exterior and interior maintenance, hotels can easily spend more money than they need to trying to heat/cool a hotel and negate savings obtained from keeping energy consuming assets in optimal working condition.
Not every hotel or lodge can afford to purchase a new, more energy efficient chiller, boiler or air handler. Sometimes a hotel needs to make do with the assets they have for as long as they can. For these types of situations it is imperative that proactive maintenance is performed.
An asset management system helps with this because it can look at the maintenance history of an asset and help determine when the cost of repairing an asset is no longer cost effective. This may be the result of constant repair or just that the cost to operate the asset is no longer (energy and maintenance) justified. New and old assets can then be planned with EAM tools.
Last but not least of the hotel asset management and energy impact list is liability. Liability makes the list because poor asset management particularly maintenance can result in accidents, disasters and lawsuits.
For example, a clogged air filter can cause an HVAC unit to overheat or affect air quality. Should a fire start and someone or group of people be killed any profit the hotel might have is going to be gone.
Another example is the maintenance of the hotel water system. Proposed rules by ASHRAE to prevent legionnaires’ disease require water temperatures to be heated to a certain level. Equipment not maintained to ensure compliance can open the door to a multitude of lawsuits and devastating public relations.
To conclude this part of the article, it is clear that hotel energy management goes hand-in-hand with asset and maintenance management. Investing in an energy management program will never bring you the return you are looking for if your hotel’s asset management is in shambles. The second part of this article will focus on hotel energy management solutions starting with the basics of how to set up an energy management program and then how to implement a system of controls for asset and maintenance management.
We hope that you have found this article informative and would love to receive any feedback that you may have. If you liked this article you may also enjoy reading:
- The Battle: Hotel Guest Retention Versus Maintenance Costs
- An EAM Improves a Lack of Communication
- How a Lodging EAM Impacts MRO Costs