Key takeaways
- Rising RevPAR does not mean the operator is performing well. What matters is whether it is growing faster than the market.
- Break RGI down into MPI and ARI to see whether the problem lies in room nights or in price.
- The comp set and the thresholds in the HMA can change the conclusion, so they must be defined in a verifiable way before testing.
The operator reports that RevPAR grew 6% this year. The hotel owner is pleased, until they see that competing hotels in the same location grew by an average of 12%. The hotel has not got worse relative to itself, but it is losing share to the market every day, and a report containing only the hotel's own figures will not show this.
The basic RGI formula is already covered in the RevPAR guide. This article focuses on using the indices as evidence when auditing the operator.
Three indices to read together
MPI = our occupancy ÷ comp set occupancy × 100
ARI = our ADR ÷ comp set ADR × 100
RGI = our RevPAR ÷ comp set RevPAR × 100 = MPI × ARI ÷ 100
A value of 100 means the hotel is getting its fair share in proportion to its number of rooms. A high MPI with a low ARI usually points to pricing, positioning, or buying occupancy with discounts. Where ARI is normal but MPI is low, check distribution, sales and visibility in the sales channels.
Example: 6% growth but losing share
Hypothetical example A 160-room hotel compared with a comp set of 5 hotels, excluding its own. All names and figures are not based on any real hotel.
| Hotel | Rooms | Occupancy | ADR (THB) | RevPAR (THB) |
|---|---|---|---|---|
| A | 120 | 62% | 7,600 | 4,712 |
| B | 200 | 70% | 6,400 | 4,480 |
| C | 90 | 66% | 5,900 | 3,894 |
| D | 250 | 72% | 5,200 | 3,744 |
| E | 140 | 64% | 6,800 | 4,352 |
| Weighted comp set | 800 | 67.92% | 6,178 | 4,196 |
| Our hotel | 160 | 74.00% | 5,200 | 3,848 |
MPI 108.9, ARI 84.2 and RGI 91.7. The hotel sells more room nights than the market, but at much lower prices. If RevPAR matched the comp set exactly, room revenue would increase by about THB 20 million a year, from a gap of about THB 348 per room per day.
Last year our RevPAR was THB 3,630 and the comp set's was THB 3,747, giving an RGI of 96.9. This year RevPAR grew 6.0% but the comp set grew 12.0%, so RGI fell by 5.2 points.
In terms of share, the hotel has 160 of 960 rooms, a fair share of 16.67%, but its actual share of room revenue is 15.50%.
Read the pattern, then ask for the cause
| Format | Possible meaning | What to ask the operator |
|---|---|---|
| High MPI, low ARI | Selling room nights well but with weak pricing; may rely on discounts or low-rate segments | If the share of low-rate segments is reduced, how much will the average rate rise and how much will occupancy fall? |
| Low MPI, high ARI | Prices set too high or insufficient channel distribution | Which nights were closed to sale, or where were customers lost because of price? |
| Low MPI and ARI together | A broad problem, such as the product, reputation or sales team | What are the corrective plan and the budget it needs? |
| Good RGI but poor GOP | May be beating the market at the cost of high channel costs or marketing spend | What are Net RevPAR and flow-through? |
| RGI falling continuously | Losing share, even though the hotel's RevPAR may still be growing | Which competitors gained the share, and why? |
A ramp-up period, a renovation closure or a new hotel opening in the market can move the indices without it being possible to conclude that this reflects the operator's performance. Look at trends over at least several months, and record these events alongside the chart to separate market factors from management performance.
The comp set is where the numbers are easiest to change
A good comp set consists of hotels that compete for the same customers on the same nights, judged by hotel class, size, price positioning and location. In the example above, removing Hotel A raises RGI from 91.7 to 93.7, and removing both A and E raises it to 95.2, even though actual performance has not changed.
| Comp Set | Set RevPAR | RGI |
|---|---|---|
| A–E weighted | 4,196 | 91.7 |
| A–E simple average | 4,236 | 90.8 |
| Excluding A | 4,106 | 93.7 |
| Excluding A and E | 4,042 | 95.2 |
The HMA should specify the initial comp set, the grounds on which it can change, who approves changes, the weighting method and the data sources used. When the set changes, the figures should be recalculated retrospectively on both bases so that the effect of the change can be seen directly.
Using an aggregated benchmark report allows performance to be compared without exchanging pricing plans or sensitive information directly with competitors. If you plan to collect the data yourself, consult a competition law adviser.
How much the test threshold changes the result
Hypothetical example The hypothetical HMA provides that the operator fails when RGI and GOP against budget are both below their thresholds at the same time for 2 consecutive years, with the GOP threshold set at 90% of budget.
| Year | RGI | GOP ÷ Budget | RGI threshold 90 | RGI threshold 95 |
|---|---|---|---|---|
| 1 | 96.9 | 92% | Pass | Pass |
| 2 | 91.7 | 87% | Pass, because RGI is not below the threshold | Fails both tests |
| 3 | 89.0 | 86% | Fails both tests, first year | Fails both tests, second consecutive year |
With the same data, the threshold of 90 gives rise to no rights, but the threshold of 95 gives rise to rights in year 3. And if the comp set were changed so that year 2 showed an RGI of 95.2, the hotel would no longer fail the 95 threshold.
Industry references indicate that a Performance Test often combines two conditions, but the threshold levels and cure rights depend on negotiation in each contract. Read the actual contract rather than relying on market ranges.
Document pack for auditing the operator
- Monthly benchmark report: MPI, ARI and RGI for both the month and year-to-date, split between weekdays and weekends
- Segment: Transient, Group, Wholesale and OTA, with volume, rate and commission
- Rooms available: rooms out of order, complimentary rooms and house use, as defined in the contract
- Displacement: whether low-rate segments are displacing higher-paying customers
- Net RevPAR: after deducting commission, to see what it costs to win on RGI
- Corrective plan: owner, deadline and target indices for the next quarter
Next steps
- Request the actual benchmark report and the data provider's methodology page
- Check that the current comp set matches the HMA and is calculated on the weighted basis required by the contract
- Chart MPI, ARI and RGI for at least 24 months against key events
- Convert the RGI gap into baht and compare it with Net RevPAR and GOP
- Set a monthly operator meeting agenda that requires answers on both causes and corrective plans
- Calculate the Performance Test in advance every quarter, rather than waiting until the year ends
- Consult a lawyer before sending a notice of failure or exercising rights under the contract