Displacement analysis
Why is Displacement analysis important?
Accepting a group reservation without thorough evaluation can compromise overall revenue, especially during periods of high demand. Displacement analysis allows data-driven decisions rather than focusing solely on occupancy.
It is particularly useful when:
- The group requests a large number of rooms.
- The stay coincides with high-demand periods or special events.
- The hotel applies an active and flexible revenue management strategy.
By correctly analyzing the value of the group and comparing it with individual sales, hotels can protect RevPAR and maximize profits. It also helps define the minimum acceptable rate for the group, avoiding impulsive or underpriced decisions.
How is Displacement analysis performed?
To carry out a displacement analysis, compare the total value generated by the group (rooms + extras – variable costs) with the potential revenue from the individual bookings that would be displaced.
Simplified formula:
Net Group Value = (Room Revenue + Ancillary Revenue – Variable Costs)
Alternative Value = Estimated Revenue from “displaced” individual bookings
Displacement = Group Value – Alternative Value
Example: A group requests 10 rooms for 2 nights at 80€ per night, including breakfast. The variable cost per room is €15.
For those dates, the hotel expects very high occupancy, but 4 rooms would remain unsold regardless. Therefore, only 6 of the group’s rooms would replace potential individual sales.
The estimated average public rate is 120€ per night.
Group Value: (80 – 15) × 10 rooms × 2 nights = 1.300€ net profit
Value of displaced individual sales (6 rooms): (120 – 15) × 6 rooms × 2 nights = 1.260€ net profit potential
Displacement: 1.300€ - 1.260€ = +40€
In this case, accepting the group generates a slight economic advantage compared to selling the displaced rooms individually.
The hotel can confidently accept the group booking, also ensuring occupancy of the 4 rooms that would otherwise remain empty.