What if You Reduced Your Hotel Room Rates and Nobody Noticed?

Nov 27, 09 | 1:56 am

By Rick Garlick, Ph.D., November 25, 2009

It's no secret that the hospitality industry has faced unprecedented challenges in recent months.  A just-released year-to-year comparative report by Smith Travel Research (STR) cited the following statistics:  Hotel occupancy was down six percent to end the week at 52.6 percent. Average daily rate (ADR) dropped 9.9 percent to finish the week at $95.86. Revenue per available room (RevPAR) decreased 15.7 percent to finish at $50.47.  Furthermore, a recent Maritz telephone survey of 1,000 Americans indicated holiday travel is projected to experience its first significant decline in a decade, accounting for a reduction of $4.05 billion of travel revenue.  The decline was attributed to a combination of financial concerns and fears surrounding the H1N1 virus. 

While some see an upturn in travel in 2010, there are still nagging issues that remain.  For example, unemployment continues to rise.  The Maritz study indicated that 14% had someone in their immediate household lose a job within the past year.  Furthermore, there is some lingering impact of the so-called ‘AIG Effect' where businesses were castigated for sending their employees on ‘unnecessary' trips.  While the travel industry has done a nice job of defending the value of business travel, some companies have learned to adjust and live without travel at their previous levels. 

Given the economic climate, it makes sense that hotels would slash rates in a desperate attempt to keep their properties full.  After all, an empty room is of no value, right?  The problem, of course, is the aforementioned statistics indicate occupancy continues to decline despite these price cutting efforts.  Furthermore, a 2006 study conducted by the Cornell Hotel School titled, ‘Why Discounting Doesn't Work: The Dynamics of Rising Occupancy and Falling Revenue among Competitors' previously made a strong case against discounting as a successful hotel business strategy.

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Source: hotel-online.com