Industry Fundamentals

The right way to drive rate and revenue

3 Oct, 2013 By: Stephanie Ricca

Driving rate and revenue can happen, but only if you’re able to adapt to changing consumer behavior around travel. Some factors to consider: Where demand is coming from, how to price it accordingly and how to factor online travel company influence into the final equation.

Jeff Good, president of Good Hospitality Services, said that since online travel companies continue to put “millions of dollars into their marketing campaigns,” the result is a consumer mentality that is even more discount-oriented than ever before. He said the only way to combat that mindset is to sharpen rate-management skills. Good spoke on a panel at the recent Southern Lodging Summit in Memphis, Tenn. 

“You have to be on your toes, ready to move and shift when the signals are there,” he said. “It’s almost like being a day trader.” Jim Abrahamson, CEO of Interstate Hotels & Resorts, concurred, sharing an anecdote that consumers often cite brands like Hotwire and TripAdvisor as their favorite travel brands, rather than specific hotel companies like Marriott or Hilton. “We as an industry have to figure out how to embrace that change because the customer is moving faster than ever,” he said.

John Belden, president and CEO of Davidson Hotels & Resorts, offered a solution that requires hoteliers to change their thinking about pricing OTC.

“We have to realize that the OTCs are closer to our customers than any of the consolidators ever before. We used to use them as filler business and incremental profit but now they’re a true, real source,” he said. “It’s really not a bad thing, but we’re paying them the highest commission. Is that what we should be doing?”

Richard Kelleher, principal and CEO of Pyramid Hotel Group, said his way of approaching the rate discussion is to cast a wider net. “I think about revenue per available room per day,” he said. “If you own a hotel, average daily rate is only one of the things you should look at. You need to look at how much revenue you’re producing out of your square footage. Rate is not the only revenue you can get. Revenue is king.”

Gerry Chase, president of New Castle Hotels & Resorts, circled back to being proactive to economic issues, which will help with profitability in the long run.

“We know that group business is not an attractive thing right now, we’re getting to a demand point where occupancy is at its highest, yet we haven’t taken advantage of raising rates,” he said. “We’re in our prime right now and we don’t have a lot of time. Occupancy will pay the bills but we get ROI by improving rate.”

Jan Freitag, SVP of global development for STR, backed up that statement with data showing what he called “a very favorable supply and demand environment.”

“We will look back and say we had a unique opportunity when demand grew at 8 percent and supply grew at less than one percent to increase room rates,” Freitag said. “This is the best supply-demand imbalance in our generation, we had a really good shot at increasing room rates and we didn’t.”

So is the window to recapture rate closed for now? Not really, the speakers said, even though the greater margins and longer stays associated with group business aren’t happening right now. Instead, the opportunity still lies with the less profitable transient side of the business.

According to STR, transient demand is driving the recovery (July 2013 transient demand was up 23.7 percent and had grown significantly since 2008), though transient rates don’t reflect that.

The Southern Lodging Summit is presented by Pinkowski & Company and the Metropolitan Memphis Hotel Association.

Topic : Driving Revenue
External Source : Hotel Management

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