Nobody knows the exact date the hotel industry’s cycle in the United States will peak, but unfortunately, most hoteliers’ responses to a downturn are predictable. Many turn quickly to aggressive discounts and to relying more on online travel agencies to fill rooms. It does not have to be this way.
STR’s numbers in the U.S. for this past July showed a mixed picture in which supply continued to grow and demand continued to decelerate, all while occupancy decreased slightly compared with July 2015. However, the fact that average daily rate still rose in July by nearly 4% shows that hotels have more pricing power than they might think.
More importantly, hoteliers should still be confident in their ability to hold rate, even if economic indicators continue to get worse in the coming year. Dropping rates too far too fast doesn’t necessarily increase demand; it just leaves money on the table.
It’s within the control of each individual hotelier to decide to hold rate and strive for a steady level of direct bookings. OTAs and other distribution partners can help you out of a jam, but your hotel does not automatically have to join a market-wide movement to lower prices or to be over-reliant on OTAs.
The best example of that might be the travel-related recession after September 11, 2001, when Four Seasons and Ritz-Carlton chose two different approaches. Four Seasons mostly held rate, and Ritz-Carlton discounted massively and got more aggressive in its distribution. Four Seasons suffered a loss in market share for a few months, but it didn’t collapse. Today, 15 years later, it’s commanding a much better ADR than Ritz-Carlton.
The script might not play out the exact same way for every hotel segment or market, but it’s still important to remember that a slowdown in demand or an outright travel recession doesn’t necessarily spell a fire sale for your hotel.
Contributed by Patrick Bosworth, Duetto, San Francisco