Why rate should be king in 2015

It looks like we are heading into the best year we have had for a long time. All projections from the major accounting firms reflected some great information for us in the hotel business. Reports tell us that travelers’ demand should be up around 4 percent with an increase of room supply of something under 2 percent.

Basic economics alone would tell us that should reflect an improvement in rate in the area of 4 to 7 percent, accompanied with an occupancy increase of something over 64 percent, which would put us back to around what it was in 2007 when occupancy was about 63 percent—the highest it has been since the 1970s.

Of course, we all know that we took a big hit in 2008, and never really got back to the high rate of 2007 until just this past couple of years. However, with everything looking great for this coming year, no doubt hotels, of all sizes and types, should do well. 

Virtual Event

Hotel Optimization Part 3 | January 27, 2021

With 2020 behind us and widespread vaccine distribution on the horizon, the second half of the new year is looking up, but for Q1 (and most likely well into Q2) we’re very much still in the thick of what has undeniably been the lowest point of the pandemic. What can you be doing now to power through and set yourself up for a prosperous 2021 and beyond? Join us at Part 3 of Hotel Optimization – A Virtual Event on January 27 from 10am – 1:05pm ET for expert panels focused on getting you back to profitability.

So, what is the message? Shall we just sit back and let the business ride in for us? 

What is the message for our GMs and sales departments? Increase in occupancy is good, but rate increases and revenue is even better. This year we have the best opportunity to show improved profit results from rate improvement. We just have to do better in sales to make those projections come through. Sales people need to get to work for profit improvement by putting more time into proactive sales activities. That means more time to be spent with qualified prospects. GMs may want to spend more time in seeing that sales staffers are spending more time on being productive rather than doing other things.

The group market is where sales teams need to beef up. Recent reports say that the ADR for transients is well above what it is for group ADR. While the former has been running at around 4- to 5-percent growth, group ADR is only in the area of about 1- to 2-percent growth. therefore, rates quoted for groups need some attention, which, translated, means raise them! 

Hotel sales staffs need to do more in the area of advance bookings, especially for the next one to two years. We have to pay attention to what will happen within the next couple of years with regard to competing hotels. The pipeline has been growing and investors, developers, owners and operators will, for sure, be seeking to develop new properties. This always seems to happen in our industry as soon as we have an excellent year in building occupancy and higher rates. So, we need to be on the lookout for more competition coming in within the next couple of years.

GMs should be continually talking to sales folks about getting the rate up. Rate should be king this coming year because that is what generates profit for a property.