I’m getting worried that hotel companies are not following their own good advice about maintaining rates.
HotelNewsNow.com has covered studies, columns and panels about the importance of avoiding rate cuts. And every day I see another story about “fire sales” on hotel rooms. There are three particular examples that have me worried. Some of the biggest names in hospitality—IHG, Accor and Sol Meliá--recently have each offered large-scale discount programs to customers.
The first was IHG’s The Great Asia 3-Day Sale, 25-27 February. Accor followed suit with a 3-day Super Sale program for 24-26 February (which, though its title suggests it was a limited-time offer, appears to be active until July). And Sol Meliá announced its 50,000 rooms discount program Friday in which room rates start as low as €21.
According to STR Global, average daily rates in London, Sydney, Toronto, Paris and Madrid dropped by more than 20 percent (in U.S. dollars) in January 2009 compared with January 2008. And that is just the worst of the worst—only three of the 15 top global markets reported year-over-year rate increases in January (Buenos Aires, Cairo and Tokyo).
Today, we’re running another article that examines the damage of rate cutting. Kathy Enz and Linda Canina from Cornell University and Mark Lomanno from STR find that discounting can benefit occupancy in the short term, but has a negative impact on RevPAR. The best way to enhance revenue is to maintain a rate premium over the competition.
The most recent stats from STR indicate that as of last week, ADR in the U.S. is hovering around US$100 (for the week ending 28 February, ADR was US$100.54). The monthly ADR actually dropped below US$100 in December 2008, but we were all enjoying time with our families and might not have noticed.
It seems like a lifetime ago that Lomanno was celebrating this landmark number during his presentation at ALIS in 2007, when ADR was headed in the opposite direction. The U.S. industry achieved an ADR of US$100.12 in January 2007 and kept going up.
And yet, think back to business just one year ago—that’s when ADR peaked at US$109.55 (March 2008).
Hotel operators need to manage this rate free fall and retain some value for the guest.