This should come as no surprise in light of the fact that energy costs are the second largest hospitality operations expense next to staff. Electricity use accounts for 60-70% of the utility costs of a typical hotel, which amounts to around 6% of total operating costs.
Last year the Las Vegas gaming giant MGM Resorts International paid an $86 million penalty to break its contract with the local utility Nevada Power so that it could buy greener energy on the wholesale market. In a letter to the state public utilities commission, the firm explained:
“It is our objective to reduce MGM’s environmental impact by decreasing the use of energy and aggressively pursuing renewable energy sources. Our imperative is heightened by increasing customer demand for environmentally sustainable destinations.”
The fact is that until recently, hotels, resorts and casinos didn’t have the data or technology they needed to make major improvements to their energy use. That’s no longer the case today, as a new frontier for energy and operational efficiencies has opened up within the hospitality business.
Last year we discussed this issue in our article, “Advanced Energy Monitoring in Hospitality & Recreation.” In short, operational inefficiencies are inherent to the horizontal service integration structure that is so common in the hospitality industry.
In addition to lodging, hotels commonly offer on-premise restaurants and bars, spas and fitness centers, sports facilities, laundering services, casinos, gift stores and other individual services. These distinct business units all share common energy resources that no one business unit is directly responsible for. This makes it much more difficult and less likely that energy will conserved, let alone intelligently and conscientiously managed.
Because each of these smaller business units have a built-in customer base through the hotel’s guests, there is little competition and little drive to achieve the competitive advantages that make or break standalone operations of the same sort. As a result, hotels and resorts can’t reasonably expect their restaurants, bars, fitness centers, etc., to fully take responsibility for operational spend, while looking to innovate and adopt emerging best practices.
The need for better energy management within hotels and resorts goes beyond the desire to synergise disparate business units and prevent a tragedy of the commons scenario. At the upper crust of the hospitality industry, they're not just selling rooms, they're selling the "get-away" experience; and for many resorts, getting away means going far away from your norm. This is the root of the vacation destination as somewhere exotic (like the Caribbean, or a remote Far Eastern locale, or a trip to the savannah, etc.) or with a devoted hospitality ecosystem (Las Vegas, Orlando, Macau, etc.), existing somehow apart from the regular world.
For these types of hospitality establishments, the importance of intelligent energy oversight and practice is compounded by their often out-of-the-way and (environmentally challenging) locations. In these destinations, energy supply and infrastructure tend to be somewhat more tenuous and the weather typically requires a heavy dose of artificial conditioning to keep guests comfortable. On top of that, such locations are more susceptible to the occasional outburst of extreme and violent weather events.
Put those pieces together and a picture begins to emerge: for remote hotels and resorts, the performance, reliability, and efficiency of energy-intensive equipment and infrastructure is critical to their core service offering.
Energy efficiency in the hospitality industry is nothing new. Hotels are increasingly aware of these problems and have been taking action for decades. However, most of this action is not targeted at their individual business units or attempting to systemically identify and root out operational energy waste.
The most common initiative is LED lightning, with 90% of hotels surveyed having made the switch, according to the American Hotel & Lodging Association. Still, many hotels, resorts and casinos are making much larger moves:
These types of broad initiatives can have a major impact on operating costs. According to EnergyStar, just a 10% reduction in energy consumption would have the same financial effect as increasing the average daily room rate (ADR) by $0.62 in limited-service hotels and by $1.35 in full-service hotels. However, that’s not the only reason smart hospitality operations are adopting large-scale, hotel-wide energy initiatives.
Reputation is particularly important in the hospitality industry. As a whole, the industry is attracting added attention and scrutiny for its outsized contributions to global emissions and resource depletion. In an industry that charges a premium for the promise of a pleasant, even luxurious experience, brand management is hugely important. The potential ripple effect from bad press coverage on a hotel's environmental bad practices can be catastrophic.
But it's not just that hotels and resorts are looking to improve their public image through green initiatives, they're looking to gain a share of the booming ecotourism market – worth more than $600 billion anually.
The larger hotel chains working to build up their green bonefides are also contending with the new eco-resorts. Leonardo DiCaprio’s Restorative Island scheme at Blackadore Caye aims to be the greenest luxury development ever built, while the Oasis Eco Resort plans to target eco-minded entrepreneurs.
While hotels and resorts have engaged in energy efficiency initiatives for the cost savings and PR opportunities, most have yet to see the true competitive advantage of energy management. Hotels and resorts have favored splashy but mostly shallow energy initiatives because they didn’t have the data necessary to identify where specific changes need to be made. Only about 20% to 30% of the market has chosen to leverage energy management to reduce energy consumption levels on the heating, ventilation, and air conditioning side of the house.
According to Gary Isenberg, president of LWHA Asset Management Services, “From a technology standpoint, the hotel industry tends to be far behind the curve. Moving from traditional lighting to LED bulbs is minimal compared with what’s happening with wireless sensor technology that allows hotels to track power usage and adjust it accordingly.”
Once the hospitality industry has exhausted initiatives like LED lighting and alternative power, they will need to become much more granular in their analysis of energy use. Monitoring and optimizing energy use for each business unit and for each device within those business units is where hospitality operations can start to see real change.
As many people are feeling the pinch of slowing economic growth, the demand-side impact on hospitality preferences is hard to predict. (It can behave as a normal luxury good, suffering declining demand in declining economies, or as a Veblen good, with its demand positively correlated to it relative expense.) Keeping a tighter hold on the levers of cost management, will allow owners and operators crucial control over and flexibility in their own pricing. Helping them to maximize profit irrespective of economy, season, and circumstance.
The larger an operation, the more complex, the more that can go wrong and the harder it is to identify and stem what goes wrong when it goes wrong. For hotels and resorts with many business units and dispersed locations, this makes it even more important to have a deep understanding of the energy use of every device and every site.
While transitioning to LED lighting is the most popular energy efficiency initiative for hotels, it doesn’t cut very deep. Lights account for less than 4% of total energy consumption.
A recent report, “Sustainable Operations in Hotel Industry,” broke down where energy is allocated in a typical hotel:
Advanced energy management technology can provide the data and monitoring necessary to identify where in a hotel’s business there is the most energy waste and the best opportunities for improvements. Adding greater insight to an energy audit is a major advantage of advanced energy management technology, but it isn’t the only one.
Increased visibility into device level energy usage can improve energy efficiency on a daily basis. Identifying anomalies in device level energy use can help find equipment failures and allow the scheduling of predictive maintenance on equipment to limit repair and replacement costs, as well as downtime. Energy management technology can also provide data on peak and off-peak energy consumption, setting the foundation for hospitality operations to shift load and cut costs.
With so many concurrent business units and diverse operational requirements, the hospitality industry has a very complex and waste-inclined energy profile. Until now, that profile has lent itself to a mostly laissez-faire approach, rife with inefficiencies and generally lacking inter-operational accountability.
Aware of this failure but ill-equipped to combat it, due to the absence of a granular data trail surrounding device and infrastructure efficiency, hotels and resorts have been limited to implementing mostly superficial ship-tightening initiatives, such as LED installations.
Using advanced energy management technology, hotels, resorts and casinos can now collect energy-derived operational data to provide the context and traceability necessary for business units to untangle their dependencies and reintroduce total operational accountability.
With this type of deep and wide X-ray vision scanning your establishment, you’ll quickly zero in on sources of waste and foregone opportunity. As a result, cost reduction and operational excellence initiatives will be easy to plan, execute, and track as you build real, sustainable competitive advantages.
