Making sense of spas

Against the backdrop of the dearth of standardised metrics in the spa industry, Paul Arnold and Nikita Sarkar of Ernst & Young Middle East’s Hospitality, Leisure and Real Estate Advisory Services team unveil the results of the first Spa Benchmarking Survey for Dubai hotel spas exclusively in Hotelier Middle East

From hotel operators’ and investor perspectives, spas have for too long been viewed as a costly necessity with minimal or no impact on the bottom-line. Not much was done to understand the operations of the spa per se and revenues from the spa and health club have historically been lumped together in the hotel’s P&L as recreation revenues or such.

In light of the growing importance of spa operations, as well as to provide an additional service to the hospitality industry, Ernst & Young has created the first ever Spa Benchmark Survey.

The first phase of the Ernst & Young Spa Benchmark Survey is focused on a sample of Dubai hotel spas. Given the strong industry demand and co-operation of contributing data partners, the survey will be expanded in scope to cover Middle East and North Africa hotel spas in the near future.

It is our experience that there is a dearth of standardised metrics for profitability and performance measurement within the spa industry. In addition, there is great variation in defining metrics and a lack of transparency with regards to sharing information.

The fact is that you cannot manage what you cannot measure. This has never been truer than now. The Ernst & Young Spa Benchmark Survey is positioned to fill this void by promoting a better appreciation of spa business operations vis-à-vis general market performance indicators, and possibly substantiate the positive impact that spas have on the overall performance of a hotel/resort property. Furthermore, the survey provides an effective communication vehicle for operators and owners by addressing the need for improving spa performance and facilitating investment decisions.

How the survey works

Due to the complexity of spa business, as well as the nuances that differentiate each spa, it is challenging to limit the metrics for spas to three as is the case for hotel key performance indicators.

In consultations with the many spa operators in Dubai, the following 10 metrics were shortlisted as the most relevant and generally applicable for spa operations. These are tracked in the Spa Benchmark Report on a monthly basis.

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Most of the metrics in the Ernst & Young Spa Benchmark Survey are fairly straightforward and commonly looked at by spa operators internally for their own spas.

Of special note is metric number four; RevPATH, which stands for Revenue per Available Treatment (room) Hour.

Conceptually this metric is similar to RevPAR for hotels and is calculated in either of the following ways:
1.revPATH = Treatment room utilization x Average Treatment Revenue per Occupied Hour

2. revPATH = Total Treatment Revenue / Available Treatment Room Hours

RevPATH indicates the rate at which revenue is generated and captures the trade-off between average guest expenditure and facility use.

RevPATH can be used for accurate analysis of a spa’s utilisation as it allows for fair comparison of spa services/products/treatments of different types of spas by comparing revenue over a universal metric — one-hour of time.

Revenue management

Utilising RevPATH as a standard spa industry metric also allows for the application of revenue management, which has been successfully applied to airlines, car rentals, hotels and restaurants.

A recent study, Spa Revenue Management, published by Cornell University’s School of Hotel Administration in the US (Sheryl E. Kimes and Sonee Singh, February 2009) very aptly highlights the application and the importance of revenue management in spa operations.

Revenue management is a principle that is used to enhance a firm’s revenues by selling the right product to the right customer at the right time at the right price. It is important to note that revenue management is not meant to trick the customer into paying more than he or she is willing to pay. Instead, it is a way of acknowledging customers’ different needs and perceptions of value and catering to those needs.