By Jean Francois Mourier, CEO of REVPAR GURU

 

Discussions about whether hotels should or shouldn’t raise rates have dominated RevPAR pricing strategy in 2011, as evidenced by this recent article The fundamentals of sustainable hotel demand growth.

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Only one thing has been determined: hoteliers should proceed with caution, especially when given generalized predictions based on one or two “key” variables. Instead of creating a strategy focused on incrementally raising rates, hotels should be prepared to respond to market variables by both raising and lowering rates. Which action you choose should always be determined by utilizing the most up-to-date information and variables based on your market, and should always be done with flexibility. Let’s take a look at the main topics regarding the latest prognostications:

 

ADR and Occupancy

ADR is far from being established as a variable that, by itself, represents the road to recovery. While 2010 provided a boon to the hotel industry, not all hotels experienced an upswing, and ADR grew primarily through occupancy-driven strategies such as heavy discounting and the “return” of business travel. What happens when the strategy shifts from occupancy-driven discount rates to a strategy that focuses on pre-recession rates based on a single year’s ADR growth? Maybe demand accommodates the increased rate. Or maybe such an increase in rates kills tourism growth and lowers ADR. Both scenarios are possible—the fact is, nobody can know for sure, even when given every variable known to man, much less one or two.

 

Not to throw cold water on what is otherwise great news—2010’s ADR growth is a very positive statistic for the industry—but it is only one element of recovery. ADR and occupancy are just that, statistics. While they provide a representation of the past, they should only be taken as two of many variables to forecast the future. ADR and occupancy should only help in formulating your RevPar strategy, not determine it.

 

Economic Forecasts

While we all like to believe that economic recovery is imminent, it’s not a foregone conclusion. Most people didn’t see it coming in the first place, so placing an abundance of faith on forecasts that predict exactly when hotels will be “out” of the recession is foolhardy. Furthermore, there is almost as much speculation on a “Double Dip Recession,” suggesting the importance of pricing based on both “favorable” and “unfavorable” forecasting data—humans tend to favor the former, not the latter.

 

Interest rates, unemployment, real estate recovery (both nationally and locally) and GDP growth all need to improve. Using only a selective few indicators such as “pricing” and “local economic activity” to generate a RevPAR strategy is much like buying stock based on only two earnings ratios: you’re taking a gamble by not completing all of the research necessary. Hoteliers must hedge their rate-pricing strategy by carefully monitoring all variables.

 

Bottom Line: Micromanage Your “Sphere”

Micromanaging room rates based on multiple variables within your own sphere will always yield the best results for pricing strategy. While there is always some prediction involved, the most effective solution lies in forecasting based on all meaningful variables and marketing channels. A successful RevPAR strategy is then achieved by adjusting rates (either lower or higher) to correspond with your existing inventory. It’s a monumental task, but it’s the closest “take it to the bank” strategy in the hotel industry—regardless of the prevailing prognostications.

 

About REVPAR GURU

REVPAR GURU provides hotels around the world with an alternative revenue management software solution, designed to deliver maximum bookings and profits. As REVPAR GURU's custom-designed Yield Dynamic Price Engine is the only real-time revenue management software available on the market, it meets the rapidly changing needs of hotels in a very demanding business environment. REVPAR GURU’s solution offers dynamic rate optimization, real-time pricing, integrated internet and extranet yield channel management and GDS sales distribution, to increase a hotel's RevPAR intelligently and effectively, while maintaining rate integrity and automated rate parity. Since 2004, REVPAR GURU’s software solution has been used by hotels worldwide to increase occupancy and RevPAR.

 

Headquartered in Miami, Florida, additional information can be found at www.revparguru.com or by calling +1.786.478.3500.