As vacancy rates increase and average daily room rates decrease, maximizing net operating income becomes more critical than ever. One of the most overlooked means to enhance profitability is a hotel's parking facility. Hotel personnel understand the value meeting, convention, restaurant and retail operations create. Similarly, if managed properly, a parking facility can provide significant revenue and profitability opportunities.

Typically, parking facilities within a hotel property are managed by an internal staff or by third-party parking management firm. Self-management provides a level of control that some prefer. Yet because of issues, challenges and liabilities, most hotel owners/operators go the third-party route.

When scrutinizing the operations of hotel parking facilities, the three primary areas to examine are: the agreement between the hotel operator and the third-party manager, revenues and expenses.

The Agreement
A strong contract between the owner/operator and the manager is critical. A good contract: protects the owner/operator and the management firm, identifies policies and procedures, spells out performance standards and measurements, safeguards revenues; and identifies remedies for problem situations.

Contracts are often lengthy and complicated documents; they shouldn’t be undertaken without appropriate legal counsel. While there are many operational guidelines established in the agreement, some of the important areas to address are: convenience termination clauses, standards of service and ticket loss standards/remedies.

Convenience termination clauses protect either party and allow the contract to be cancelled for no-cause. It is common to have 30-day cancellation clauses. However, managers typically avoid these clauses, instead arguing for liquidated damage clauses for early termination. Hotel operators should negotiate a 30-day no-cause, no-fault cancellation in every contract.

Standards of service outline expected levels of service and performance provided by the management firm as well as specific responsibilities of the owner/operator. These standards should include objective benchmarks for parking management firm performance.

Ticket loss standards are extremely important. Tickets are to the parking industry what inventory is to the retail and manufacturing industries: the commodities parking garages sell. Lost tickets represent shrinkage or slippage. If a management firm isn’t carefully scrutinizing lost tickets, they can’t be accurately reporting revenues.

In a typical 24/7 parking operation, the ticket loss ideally approaches zero percent. Anything above that is a problem. The management agreement should clearly spell out compensation for lost tickets. In many agreements, ticket loss beyond a negotiated threshold is reimbursed to the owner at the maximum daily rate. For this reason, hotel management should audit ticket accounting by the operator to ensure "lost" tickets are not re-classed to other categories to avoid contractual lost ticket tariffs.

Raising Revenues
In the parking industry, it’s important to ensure parking rates are competitive with nearby locations, comparing hotels in the same product category and neighboring facilities and lots. If a competing lot doesn't serve the hotel population, it’s less important, but only to the extent there isn't a significant rate discrepancy. Additionally, depending on a hotel's location and proximity to other attractions and business centers, an owner/operator will want to keep rates competitive to attract theatergoers, sightseers and business people.

Any discussion of rate should go deeper and also include an evaluation of rate bands (incremental pricing increases). Many facilities create too many rate bands, charging at 30-minute increments for the first several hours and then increasing every hour or two. That kind of schedule is too cumbersome to manage, confusing to customers and perhaps costly in terms of maintaining equipment and short changing parking operations from income potential.

The typical hotel parking customer falls into one of three parking duration categories:

• Short stay—visiting the hotel restaurant/bar for happy hour, a meal or a short meeting of two hours or less;

• Long stay—attending a hotel based function (meeting, training session, dinner banquet or reception) for less than 10 hours; and

• Overnight stay—parking for the duration of their stay.

Realistically, a hotel parking facility can operate effectively, and profitably, with a minimal number of price bands: 0-2, hours, 2-10 hours and overnight. Using this structure, it is possible to enhance revenue because everyone falls into a few categories as opposed to having their own little and potentially less-expensive niche.

Another key area for revenue is the use of spaces. Most hotels want to hold on to parking and meeting room spaces for a potential large event requiring lots of meeting space, sleeping rooms and parking. Realistically, there needs to be a balance between holding on to some parking spaces for unexpected and/or late booking events and a proactive marketing program to attract parkers to the facility.

Normally, hotels have advance warning of the quantity of spaces needed (from bookings, etc.). With that knowledge, hotels can sell around them with discounted day and special event rates.

One of the biggest questions to ask should be "How does the Parking Access Revenue Control System (PARCS) interface with the hotel point-of-sale system?" How does a folio-billed overnight guests parking charge get properly audited and allocated? In many hotels the parking access and hotel POS systems are separate and don’t communicate. The guest is simply asked if he or she parked at the hotel garage while checking-in at registration and the front desk clerk notes this in the folio while validating or encoding the ticket for in/out privileges. No overnight audits are performed to match the hotel folio for guest parking charges to cars on premises.

Human error, computer error and theft can all contribute to situations in which the guest isn’t properly charged for parking. It’s crucial that the process for charging and auditing overnight guest parking charges is well established, documented and completed regularly to ensure the integrity of this valuable revenue stream.

The last area to enhance or safeguard revenue streams is negation of complimentary parking. Hotel employees—management and staff—often distribute complimentary parking to unhappy guests. But it’s possible that a meal credit or other tangible (but less costly) item can overcome the problem.

Going a step further, banquet and meeting personnel should be prevented from providing complimentary or deeply discounted rates. Parking for meetings and events is a revenue source for the hotel. Other alternatives could have less of an impact on the bottom line, e.g., an upgraded coffee break service, etc. Hotels measure and scrutinize food and beverage very closely.
    
Scrutinizing The Cost of Doing Business
The same level of creativity and scrutiny that can help increase revenues can also help reduce operating expenses.

Typically, a management firm provides its clients with a detailed income and expense report approximately three weeks after the month has ended. Those statements should be scrutinized to ensure expenses are legitimate, prudent and economical. Are the expenses part of the contract? Do they conform to the specifics outlined in the contract? Is the back-up for each expense documented and correct?

The allocation of expenses is a human process, and coding errors happen. Hotel owners/operators need to ensure they aren't paying for something that shouldn’t rightfully be charged to them.

Owners/operators also have the right and responsibility to evaluate each expense item according to whether it is prudent, asking whether the expense was necessary and whether the appropriate procedures were followed to approve the expense in advance.

Finally, all charges should be reviewed to determine if the most economical price was received. It’s not uncommon for management firms doing a significant volume of business to have certain businesses and services in house. These specialty divisions, from sign vendors to product suppliers, are meant to generate revenues for the management firm by charging "convenience fees" for the goods and services. At the same time, the owner/operator may find that competitively shopping these goods and services creates an opportunity to reduce expenses. It’s all a matter of how much tolerance an owner/operator has for convenience fees and whether they have the ability to secure those goods or services independently.

One of the greatest costs in operating a parking facility is staffing, typically a pass-through expense. There is a tendency by the parking operator to staff a parking facility for maximum convenience to the parking operator and employees rather than the hotel.

Oftentimes, this results in overstaffing at a particular time or the employment of full-time employees in positions that could be equally or better served by part-time employees. The inevitable consequence is too many payroll hours, payroll dependent taxes and company-provided fringe benefits, all of which negatively impact the bottom line of the parking operation.

It may be appropriate to create a new employee profile, perhaps looking to colleges and universities with hospitality programs. Another idea is to use whatever a typical retail employee profile would be—it's another field full of part-timers. In addition to hours worked (and paid) they may be able to get some type of credit. Also, working shorter shifts may be easier for students in order to coincide with classes and studies.

The calculation is simple: revenues less expenses equal profits. Enhancing the profitability of any operation—a hotel, an office building, a shopping center or a parking facility—requires focused attention on at least one element of the equation. Owners/operators that are able to focus attention on revenues, expenses and their relationship with the third-party management firm will have a greater impact on how profitability adds up.

Michael J. Nichols is vice president of Next Parking, a Northbrook, IL-based owner and operator of parking assets. He is also president of the Middle Atlantic Parking Association and holds a Certified Parking Facility Manager designation as awarded by the National Parking Association.