Revenue management, not supply increases, wins the DNC

(Hotels in Philadelphia are reaping the rewards of the Democratic National Convention because they played the rate game.)

The Democratic National Convention is drawing to a close today, but its impact on the Philadelphia hotel market is just now being understood. John Hach, senior industry analyst at TravelClick, said the city saw a 45-percent increase in occupancy Saturday, July 23 year-over-year, but that number would rise to a 159-percent increase over last year’s figures on Sunday and 194 percent on Monday.

Are these numbers surprising? Hach said the extent of the occupancy increase was unexpected, but it can be traced to growing sophistication in revenue management. According to Hach, a common mistake made during large events, not limited to the political sphere, is the tendency for hotels to raise rates astronomically in anticipation of overwhelming demand, only to price out a large contingent of discretionary travelers.

“We are seeing an equilibrium between supply and demand,” Hach said. “Hotels are not pushing guests into alternative accommodations.”

This point was addressed earlier this week when it was reported that hotels in neighboring New Jersey and Delaware, while seeing some traffic from travelers, did not experience as much of a boost from the DNC as expected. According to Hach, this has less to do with greater supply in Philadelphia than it does with stronger revenue-management techniques. The point was substantiated by David O’Donohoe, SVP, hospitality sales for revenue management developer Rainmaker Group, who said hotels may want to remain aggressive on rate early on to maximize profit but are losing out in the long run without filling their hotels.

Everyone at the DNCC needs to remember to tip all of the great hotel staff in Philadelphia!

— Steve McCarter (@McCarterForRep)

“Right now, virtually all of Philadelphia’s major hotels are pushing 95- to 100-percent occupancy from Monday to Thursday this week,” O’Donohoe said. “Hotels that are posting rates are generally asking for above $500 for Wednesday and Thursday, which is a result of the high compression happening in the city.”

According to Hach, ADR can comfortably sit around $400 during these events and still attract guests, but once it exceeds $500 per night guests begin to seek alternative lodging. When did hotels catch on to that fact, though?

“Last year was the tipping point,” Hach said. “At that time, more hotels began purchasing advanced intelligence tools, and began to gain more realistic expectations of what sort of rates they could ask for during large-scale events. During Super Bowls, NBA Finals and other events like those during 2011 and 2012, many hotels made the mistake of over-charging on rates, and it had adverse consequences for hotels that should have benefitted the most.”

"Philadelphia is fully open for business" during #DemConvention. Yes we are! #DemsInPhilly

— City of Philadelphia (@PhiladelphiaGov) July 27, 2016

While the 2016 presidential election season may feel like it has been going on for a decade, the two parties’ conventions in Cleveland and Philadelphia are just the beginning of a series of large events that mean big wins for hotels. In order to get the most from these events, O’Donohoe said to maintain a city event calendar and look for campaign events that pop up on an ad hoc basis.

“Normal conventions in Philadelphia draw 4,000 to 5,000 attendees, but the DNC drew roughly 60,000,” O’Donohoe said. “In those cases with high compression, a hotel’s revenue manager should tighten up cancellation policies and begin offering non-refundable rates. Last-minute changes have a major effect on revenue. What we saw at the DNC and we will see throughout the year are hotels applying a minimum length of stay in order to maximize profit during key periods.”

O’Donohoe said the net gain for pulling off an event of this size is bigger than the hotel: It serves as a push-pin on the road map for future events of this size.

“It’s similar to Pope Francis’ visit to Philadelphia in 2015,” O’Donohoe said. “The city looks attractive on the global stage, and that will draw more interest and visitors.”