How To Understand Capturing Lost Hotel Profits Due To The Gulf Oil Spill

By Bob Glasser – June 16, 2010

Knowing how to capture lost profits is critical when seeking reimbursement from the responsible party

With uncertainty and concern surrounding the impact of the Gulf oil spill to the coastline from Florida to Texas, many companies are asking what needs to be done to quantify and document lost income for future claims.  Many businesses are considering filing insurance claims.  Others may be looking at the potentially responsible parties for direct reimbursement.  Regardless of the source of indemnification, proper documentation of claimed losses is critical.

Whether submitting a claim, or receiving one, understanding what is needed will help expedite and manage a fair process.

Quantifying the lost demand can be tricky

Quantifying and documenting lost revenue has been a complicated undertaking for the hospitality industry.  On one hand, documenting cancellations in connection with booked rooms is relatively straightforward. On the other hand, identifying lost demand prior to a booking can be quite subjective.

Capturing cancellations with appropriate and supportable documentation to withstand future audit can happen only if specific protocols and procedures are put in place now. The process needs to be properly documented and communicated to the relevant employees.  Documentation objectives include memorializing discussions and correspondence among hotel sales personnel or reservation agents with guests, potential guests, corporate booking agents and wholesalers, for the purpose of identifying the reason for a cancellation. Loss documentation prepared today should be reviewed by a seasoned financial professional to increase the likelihood it will withstand challenge by an adverse party.

Stick to a protocol to help get to the bottom of the loss

The protocol for associating lost income from canceled bookings to the oil spill may include refinements to existing sales software or the use of a database/spreadsheet to include the group name, group contact, intended date of stay, number of rooms, F&B revenue, room revenue, ancillary revenue, date of cancellation and reason for cancellation as well re-booking date if any and where the group moved, if known.

Additional recommended procedures to be implemented include but are not limited to the following:

1. Reservation call centers should be provided specific instructions on how to document lost demand when guests ask about oil spill conditions.
2. Properties should identify any group discounts they offer to either appease a group with complaints due to the oil spill or to maintain a group reservation that was considering canceling due to the oil spill. These discounts would be considered a mitigation strategy to curtail future lost revenues.
3. Any extra expenses incurred for marketing promotion or additional advertising over the normal operations to negate a loss of occupancy due to the oil spill should be documented.
4. Subsequent drops in occupancy rates from historical levels attributable to the oil spill should be recorded. Therefore, pre-oil spill occupancy, ADR and RevPar reports must be archived and maintained for future documentary support of decline in revenue.

The ability to submit and ultimately settle a claim for lost revenue with either an insurance carrier, BP, or another entity will be predicated on the culmination of many hours of dedicated recordkeeping and consistent application of data accumulation protocol.  The critical lesson learned is that when an organization is able to execute the above steps, the likelihood of proving a loss and recovery is substantially increased.