Hotel & Motel Management - October 15, 2007 - (Page 10)

10 Sales Clinic IN THE details Competition is on rise Rate cuts not advised Expect occupancy drop Ride out market swings H&MM October 15, 2007 | HotelMotel.com www.HotelMotel.com/digital_edition Preserve rates, even at occupancy’s expense M By Howard Feiertag H&MM Columnist ost property sales & marketing staffers may be preparing for the 2008 marketing plan, and are checking out the local marketing environment. In many areas of the country, we are seeing some growth in new rooms, and even some new brands. All this means more competition in someone’s back yard. Sometimes, once a new competitor joins the market and opens the property with some very competitive rates, many owners and operators start getting nervous. Maybe they will consider cutting rates to keep up with the competitor and not lose business to the new property or some other property in the area that may have already cut rates. Reading projections in some of the hospitality trade journals, we are being told that because of new construction picking up we should expect a slight drop in occupancy around the country. This may even happen with this last quarter, and then follow into 2008. It will likely be due to a switch in supply and demand. For the last few years, the indus- “If anybody can tell you how to control energy bills, it’s me.” “My guests are always opening the windows to look at the ocean, so I need to do everything I can to keep my energy bills low,” says Marcus Lewis, Vice President of Development, Tidewater Hotels & Resorts. “That’s one reason I use only GE Zoneline® units in all nine of our oceanfront properties. They help keep rooms comfortable, are very quiet and help me control energy costs…even if I can’t control my guests’ behavior.” GE Zoneline®, the most efﬁcient line of package terminal air conditioners and heat pumps in the industry try has done exceptionally well in proﬁtability. With a considerable increase in demand of business over growth of supply of new rooms, hoteliers have been able to continually raise rates over the past few years. History tells us when this happens, watch out! Following a period of great increases in occupancy, and high proﬁtability, we see a growth in new rooms. It seems that right after a couple great years, we see the franchise brand sales people, investors, land owners, lenders, developers, management companies and various entrepreneurs coming out of the woodwork, and new properties start coming on line. We are seeing that now. It means brand new competition for most everyone in the business. One approach taken in earlier years by many owners and managers was to cut rates to try to keep the business they had, and not lose good customers to competitors who are charging less. They have all regretted that move. History tells us that it doesn’t work. Back in the mid ’80s, a chart was published in Hotel & Motel Management reﬂecting that a drop in rate of 10 percent requires that a property increase its occupancy by about 7 percent to break even in proﬁtability, and that still applies. Managers should think about this while planning for next year. It does not make sense to cut rates to keep or to build business. It is better to take the drop in occupancy. Consider how difﬁcult it has been in earlier years to come back up in rate once the rate has been cut. We saw this right after 9/11, when people stopped traveling for while, and many properties got nervous and started to cut rates. Within a rather short period of time, people were traveling again, and companies and associations were continuing with their meetings. It sure wasn’t easy to get rates back up. hmm@questex.com Howard Feiertag is on the faculty of the Department of Hospitality and Tourism Management at Virginia Polytechnic Institute, Blacksburg, Va. He can be reached at howardf@vt.edu. CIRCLE NO. 110 http://HotelMotel.com http://www.HotelMotel.com/digital_edition

Table of Contents Feed for the Digital Edition of Hotel & Motel Management - October 15, 2007

Hotel & Motel Management - October 15, 2007 Contents Concord Sets Goal to Double Portfolio Leaders: Budgetel Brand Off and Running Pension Funds Put More Capital Into Hotels Perspective Letter to the Editor At Your Risk Consultant's Corner Sales Clinic On Finance Guest Column Trends & Stats Industry Leaders Say Healthy Times Will Continue Eco-Concious Hotels Looks for Certification Events Removing Chemicals, Suds from Housekeeping Products Handhelds Help Track Safe Activity People on The Move Awards Transactions Supplier News Ad/Editorial Index Bath Trends Marketplace Classifieds Checking Out

Hotel & Motel Management - October 15, 2007

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.