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Leaders lament muted rate growth pace
August 22 2013

It’s true ADR growth has been positive, but leaders speaking at Wednesday’s Southern Lodging Summit at Memphis said they think the industry is leaving money on the table.

  • Year-over-year average daily rate for the overall hotel industry has grown 4% through July, according to STR’s Jan Freitag.
  • Discounting—whether it’s through OTAs, corporate contracts or other outlets—remains the scourge of the industry, according to speakers at the Southern Lodging Summit at Memphis.
  • The availability of more data has been a blessing for hotel company executives when it comes to making decisions, but the fact that consumers have more data available is an issue.

MEMPHIS—STR’s Jan Freitag teed it up, and four hotel company leaders took turns hammering the message home during Wednesday’s Southern Lodging Summit at Memphis.

Freitag, STR’s senior VP of global development, told the event’s 200 attendees that the hotel industry’s year-through-July average daily rate is up 4%—approximately the same it’s been for the past year and a half or so. He said other industry fundamentals—including July’s record 108 million room nights sold—have been so strong that he thought ADR growth would have been more aggressive. STR is the parent company of Hotel News Now.

“What happened last year was the best supply/demand equation in our generation. We had a great chance to increase ADR and we didn’t,” Freitag said. “I think we’re going to look back at this time in history and say we really, really missed the boat. I would have thought there was more ADR ‘oomph’ in this engine.”

The presidents on the first panel of the day, while warning it’s dangerous to get caught up in the generalization of data, pounced when asked by moderator Isaac Collazo, VP of performance strategy and planning for InterContinental Hotels Group, what was holding ADR back.

“It’s a market of haves and have nots,” said Jim Abrahamson, CEO of Interstate Hotels & Resorts, who added there are many markets and individual hotels that are up more than 10% in rate.

In general, Abrahamson said a lack of reinvestment in many hotels has led to a stifled rate. “There’s still a lag on reinvestment in the product and customers pay attention,” he said. “If you’ve got the ingredients correct, there’s 10% out there.”

Gerry Chase, president and COO of New Castle Hotels, said with all of the data and information available it’s surprising that rates haven’t been managed better.

“We’re going to have to have someone who stands up,” he said. “Once you have the courageous leaders, we have the tools to start moving the bar.”

John Belden, president and CEO of Davidson Hotels & Resorts, agreed the information available from STR and other sources makes decision-making easier for hotel operators—but there’s another layer to consider.

“It’s not just that we have more perfect information but our customers have a lot more information at their fingertips,” Belden said. “As smart as we’ve made our customers, we’ve got to stay one step ahead.”

Rick Kelleher, principal and CEO of Pyramid Hotel Group, said while ADR is an important measurement, it’s not the only essential data point that needs to be closely monitored.

“I like to think about revenue per available room per day,” Kelleher said. “You need to look at how much revenue you are producing out of that real estate. Rate is not the only thing that can pay bills.”

Kelleher said the lack of substantial ADR growth can be attributed to a number of things, including a soft group market fueled by curtailed incentive-driven business that ultimately hurts upscale hotels.

“You have so many channels of buyers coming at you looking for discounts,” he said. “They’re more rational about achieving their goal, which is getting the best value at the lower price.”

Jeff Good, president of Good Hospitality Services, said the discounting phenomenon is a big issue hotel operators must corral.

“One of my biggest concerns is you continue to see millions and millions of dollars thrust into the marketing campaigns of these (online travel agencies). It’s creating an environment of discounting,” Good said. “From a revenue management standpoint, a management standpoint, you have to be on your toes, ready to move when you see the signs. It’s almost like being a day trader to a certain extent.”

When asked what advice they would give hotel owners and operators when it comes to pricing, the panelists had a clear message:

  • “Raise rates,” Abrahamson said. “First, go to your owner and say, ‘I need a quality product and make sure I have the budget to hire quality employees.’”
  • “We either have to move corporate (rates) up or move them out,” Chase said. “We have to start moving the discounts and negotiated rates. Two-thirds of our business is negotiated and discounted.”
  • “The (request for proposal) process is getting to the point where you have to be much more aggressive and be much more willing to take risks,” Good said. “Take a look at sales managers who are relationship oriented, who are afraid of conflict and afraid to address those kinds of contracts. Take the personality side out it. You still have to be hospitable, but concentrate on the value-add. Try to take the emotional part of the relationship out of it.”
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