| Panelists at the 2012 Hotel Data Conference discuss best practices for business mix, pricing and dealing with third-party distributors. |
NASHVILLE, Tennessee—Even though hotel demand in the United States has surpassed peak levels, revenue managers can point to several reasons why average-daily-rate growth is lagging behind.
Occupancy is still a few points shy of pre-recession levels, consumers are still value-oriented and revenue managers don’t have the right tools to make educated pricing decisions, a group of revenue managers said earlier this month during a panel at the Hotel Data Conference.
On top of those reasons, online travel agencies continue to chip away at direct bookings, often driving demand at lower rates, the panel said.
“We’re slightly disappointed in the average rate growth in the U.S., but not altogether surprised,” said Brian Berry, VP of revenue management for Host Hotels & Resorts. “When we say demand is at or above previous peak levels, I personally think that is a little skewed of how the marketplace really is. When we look at ’07 to ’12, we see there is 7.8% supply growth in the U.S. It’s certainly not record levels—it’s not (the) 2% annual growth we’ve historically run—but nonetheless, 7.8% supply growth over that time frame means even if demand levels get back to historic peaks, U.S. occupancy is still running 3 points off its peak levels.”
“It’s occupancy percentage and not total demand that drives the compression in some of the pricing responses we’re able to get.”
Berry said most of Host’s hotels have sophisticated yield-management systems that help revenue managers yield when demand conditions dictate momentum. However, Berry said, there isn’t much help when it comes to pure pricing.
“Where do you set your (best available rate) on a given day? How do you price that corporate account for next year? How do you price that group?” he said. “There are some tools out there with varying degrees of success, but I think that’s the area we’re the most focused on.”
Raising rack rates is the No. 1 goal for a revenue manager, and it can be much more difficult than owners make it appear, especially when consumers remain cost conscious, said Greg Cross, senior VP of revenue management at Hyatt Hotels & Resorts.
“When you walk into a hotel and give them advice on how to push rate, I think you’re starting the discussion incorrectly,” he said.
Cross said, when shopping, most customers look at the brand and immediately get a sense of whether they can afford to stay there. For example, if value-oriented customers are shopping for a hotel room in New York, they will stay away from hotels that cost more than $500 per night. If the rate is in the $200s, they will feel more comfortable.
A revenue manager’s job, Cross said, is convince that guest to pay $300.
“To me, the real achievement in pushing rate is not just trying to drive up the retail price points that sit at the top of everyone’s mix of sales charts, but to look at all of the other business that you sell and trying to decide which customers you’re going to fire,” he said. “Because you’re selling business to other people you’ve sucked up out of the Red Roof Inn or wherever else into this full-service hotel and you have to methodically make business decisions when you can turn those faucets off.”
Shifting business mix
Even if occupancy returns to pre-recession levels, customers are booking hotel rooms differently today, and those differences are providing challenges to revenue managers.
For one, bookings are coming in closer to the arrival date.
“When you’re doing it that way, you just don’t have the consumer confidence—pricing confidence—because you are literally not committed far in advance,” Cross said.
The composition of demand also is very different today. Group business, particularly for upper-upscale hotels, has not fully recovered, Berry said.
“If you have that shift in business mix, it obviously changes your lead-time dynamics; you don’t have as much business on the books as early as you once did, and therefore, maybe some pricing confidence to go along with it,” he said.
Many of the hotels in HP Hotels’ portfolio are experiencing later booking patterns, too, according to Tim Waz, VP of revenue management and social media.
“If XYZ company wants to come back and stay in our hotel, do we allow them to stay at this rate? Or does it make sense to start shifting some of that share?” Waz asked. “We’ve got to be smarter moving forward.”
He suggested revenue managers start going back to basics and pay closer attention to how changes within each segment are going to impact total revenue per available room for the following year.
“Make those smart decisions as our hotel sales departments are renegotiating rates going into next year,” he said. “If we’re making changes to each segment, understand the impact it’s going to have.”
While booking windows are gradually extending, it’s happening at a very slow rate. Customers have been trained to think there will always be availability and the best rates can be found at the last minute, said John Burkard, VP of distribution and technology at Vantage Hospitality Group.
Customers “can be comfortable knowing they can get into the hotel they want to get in at a reasonable price, if they book this three days ahead or five days ahead as opposed to the three weeks they used to book,” he said.