How hoteliers are pricing rooms amid demand lows
How hoteliers are pricing rooms amid demand lows
22 JULY 2020 7:03 AM

The coronavirus pandemic has made it difficult for U.S. hoteliers looking to drive rates because demand has dropped overall, but they have found some opportunities for growth.

REPORT FROM THE U.S.—The overall loss of demand in the U.S. hotel industry threw an almost impossibly sized hurdle in front of hoteliers already trying to figure out how to drive rate in the face of so much new supply coming online.

As hoteliers navigate the pandemic and its recent spikes in cases across several states and the eventual recovery, they are figuring out how to best price their rooms for those willing to travel.

Driving prices
Though there are a few exceptions, prices are down drastically compared to the same time in 2019, said Cory Chambers, VP and chief revenue officer at Hospitality Ventures Management Group. The decline in demand from business travel and group business has eroded prices. That is offset somewhat by some leisure travel and COVID-19-related group business, but there’s not enough of that to go around, he said.

Hotels that can secure this base business have been able to better hold their price positioning and stem rate losses, he said.

“The hotels that will be able to drive premium (rates) are the ones that are going to be able to instill the trust and confidence that we're providing a clean and safe environment,” he said. “The market in general has adjusted to similar levels of service. So, it's going to come down to where … guests feel the most comfortable.”

There is much less demand for hotels, which combined with supply staying mostly the same means downward pressure on rates, said Tony Sherman, founder and principal at Terrapin Investments.

“We are doing our best to maintain a premium to our comp sets, but when they have lower prices, and the demand is less than last year, we need to be realistic and charge the right price to fill the room and maintain the highest RevPAR possible,” he said.

Individual market conditions are driving pricing at the properties in The Hotel Group’s portfolio, said Sam Johnson, SVP of operations at The Hotel Group. Many of its properties are seeing rates down about 25% to 50% compared to a year ago, he said. In response, they’ve been nimble and quick to adjust rates to try to capture fair share.

One of the challenges they see are hotel owners with complex financial structures pushing down rates in an attempt to secure business, especially in urban core markets, he said. There is some volume of business coming from channels, but many guests are booking through online travel agencies, further eroding revenue retention to the bottom line.

“The consumers are in the driver’s seat right now,” he said. “They have a ton of shopping options and, in most cases, can stay in a higher-quality property than they could have a year ago for the same amount.”

Management companies and owners learned from the last downturn that significant rate discounting did little to stimulate demand, said Larry Trabulsi, EVP at CHMWarnick. In the long run, that discounting made the recovery that much more difficult. In the current environment, he said their focus has been on maintaining some level of retail pricing while monitoring and resetting discounts off retail for the different channels as is appropriate.

“Even at current low occupancy levels, we have seen some increased demand on weekends in many markets, which has resulted in adjustments to pricing strategies on these days of the week,” he said.

Where rate can grow
While generally demand is down, there are some exceptions. Drive-to leisure destinations and resorts have been doing well during the summer vacation season, allowing hotels to maintain or even grow rate in some cases, Chambers said.

“People are driving and taking vacation,” he said. “Beach destinations in the Southeast are faring well and, in some rare cases, are able to maintain prices even as their market decline.”

By taking advantage of the demand for these destinations while delivering a safe, clean and trusting environment combined with high-quality amenities has allowed HVMG to drive premiums when possible, he said.

There is a lot of pent-up demand for travel, and transient leisure guests are willing to pay a premium to get out of their homes, said Hotel Equities EVP Bryan DeCort. At the time of the interview, he said his company has half a dozen beach properties in the panhandle area of Florida and Alabama that were sold out for several weekends.

“People want to get out and, we are certainly experiencing that in that portion of the portfolio,” he said. “We're able to yield now, and so people are paying a premium.”

Services and amenities
Hoteliers across the U.S., either operating throughout the pandemic or reopening after closing, have had to make cuts and changes to the services and amenities they offer. The big brands relaxed several of their standards, providing some relief to owners and managers looking for ways to cut expenses as well as make their properties safer.

Food-and-beverage venues have either shut down or been changed from dine-in to grab-and-go. Housekeepers are forgoing daily cleanings and in many cases are cleaning rooms only in between guests’ stays.

While these are significant changes in what hotels offer, guests have generally been understanding. For those willing and able to travel, the pandemic has changed their expectations of their stays, causing them to set new priorities that focused more on health and safety rather than fresh linens daily and sit-down dining.

“Everyone knows what’s going on,” Sherman said. “They know why. They see the plexiglass. Everything’s changed. And, they know they’re paying less than a year ago. I think overall they’re happy with what they’re paying and what they’re getting now.”

Having reduced services hasn’t changed how rooms are priced, said Vickie Callahan, SVP of revenue generation at Peachtree Hotel Group. The brands have helped by reducing their overall services for franchisees, she said. Guests’ expectations have also changed, focusing more on safety, she said.

“I don’t think they’re as passionate anymore about the previous options that were available in hotels,” she said. “They’re more concerned about the cleanliness and safety markings.”

Because guests’ expectations have changed, Peachtree hasn’t had to significantly change prices, she said. The hotels are still offering various services, but they’re just in a different design than they were before the pandemic, she said.

1 Comment

  • Robert Rauch August 27, 2020 10:29 AM Reply

    As a hotelier and experienced revenue manager, I can say that this recession is far different and hence more difficult to stick to the concept of "do not discount" - we have found that while we lead the comp set on rate, it is not our normal ADR penetration, rather it is what we are able to get in this highly abnormal market. Paying attention to last year's rates? Unless you are an iconic, unique hotel, as they say in New Yawk, fagetta about it!

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