Hotel & Motel Management - December 8, 2008 - (Page 22) 22 Trends & Stats H&MM December 8, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Discounting rates leads to decreased product value IN THE details Maintain your pricing integrity ADR decline less than in 2001 Lower rates unlikely to entice travelers Follow best performer’s lead Total U.S. hotel rooms sold vs. ADR change: quarterly change from 1988 to Q3 2008 10 8 6 4 2 0 -2 -4 -6 -8 1998 Q1 1991 Q1 1994 Q1 1997 Q1 2000 Q1 2003 Q1 2006 Q1 Demand % change ADR % change By Mark Lomanno H&MM Columnist hile it’s true demand is slowing—we anticipate 2008 closing with demand down 0.5 percent from 2007—most of our research indicates that advance bookings for 2009 aren’t so far off from where they were for 2008 at this same time last year. Transient last-minute bookings, however, have been slower; but if the base of business on the books is in line with historical trends, it will make the next 18 months much smoother. My mantra, of course, remains “Hold rates, keep value.” The most important thing to consider in the entire demand equation is that pricing is not so much affected by occupancy as it is by overall demand growth. Historical data suggests the U.S. lodging industry can continue to maintain pricing integrity in the face of declining occupancies as long as demand growth remains positive (see trends in occupancy, demand and room rates in the 19962000 time period). Because of that, it appears the industry has been much more disciplined in maintaining room rate integrity during the past few months. If there is any positive to take from the recent data, it is that during the last down- Percentage of hotels W turn, the decline in average daily rate was much deeper in 2001—even ahead of 9/11—than what the industry has experienced in this downturn. Hotel owners and operators should consider that we believe most lodging demand to be inelastic, especially during tough economic times. If that is true, lower room rates are unlikely to entice people to travel. A discounting strategy’s only chance of success is to “steal” business from a competitor. However, in the transparent world of pricing today, you gain no competitive advantage by lowering your prices because your competitors know almost immediately about your strategy and can instantly match it. All that is accomplished is lowering the customer spend for everyone. Once you embrace this strategy, you re-educate your guests about the value of your product offering. It is much easier to lower rates aggressively than it is to grow them at the same rate. It can take years to get back to your original room rate. (As a guide, see the attached chart that shows it took seven years for the industry to recover. It took hotels in New York City more than six years to get back to 2000 room rates after 9/11.) Yes, there will be hotel operators who discount, but, in general, it’s the lower-performing properties that lead that charge. Hoteliers would be wise to forgo following the lead of the worst performer, as tends to happen in a downturn, and rather keep following the lead of the best performer, who is more likely to maintain their pricing integrity for a longer period of time. hmm@questex.com Mark V. Lomanno is president of Hendersonville, Tenn.-based Smith Travel Research. Comparing occupancy and ADR levels for hotels: year-end 2007–quarterly 2008 50 40 30 20 10 0 Occ. and ADR increase Occ. increases, ADR decreases Occ. decreases, ADR increases Occ. and ADR decrease 10.0 7.2 39.6 2007 YE Q1 2008 Q2 2008 Q3 2008 46.0 43.2 42.9 40.8 xx 26.3 24.8 21.0 14.4 15.2 15.2 17.1 13.3 23.0 Percent reporting increasing occupancy and ADR by chain scale: YE 2007–Q3 2008 60 51.7 50 Percentage of hotels 48.6 42.1 40.5 38.4 2007 YE Q3 2008 35.5 40 30 22.7 23.7 20 10 0 18.6 20.6 21.7 19.1 Luxury Upperupscale Upscale Midscale w/F&B Midscale w/o F&B Economy Total U.S. room rates: actual vs. adjusted for inflation from 2000-2007 $110 If year 2000 ADR had increased by the consumer price index each year $100 96.65 93.48 91.06 90.90 97.31 Percent reporting declining occupancy and ADR by chain scale: YE 2007–Q3 2008 40 103.91 102.76 Nominal ADR CPI adjusted growth 99.77 2007 YE Q3 2008 28.5 23.3 24.9 20.6 16.4 17.2 10.8 Percentage of hotels 30 20 10 4.1 $90 85.22 85.22 83.99 89.03 87.64 86.24 82.75 82.86 6.2 2.2 8.1 5.5 $80 2000 2001 2002 2003 2004 2005 2006 2007 It took six years to recover from rate reductions in 2001 0 Luxury Upperupscale Upscale Midscale w/F&B Midscale w/o F&B Economy © 2008 Smith Travel Research http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition
Table of Contents Feed for the Digital Edition of Hotel & Motel Management - December 8, 2008 Hotel & Motel Management - December 8, 2008 Contents Best Western Sets Spending Strategy Courtyard Turns 25, Unveils New Lobby New Division of MGM Goes Beyond Gaming Perspective Legal FAQ Marketing Matters Family Business On Finance AAHOA Update Satisfaction Trends HotelWorld Update Consultant’s Corner Trends & Stats IH/M&RS Editors’ Choice Award Winners Insurance Ad/Editorial Index Marketplace Classifieds Checking Out Hotel & Motel Management - December 8, 2008 Hotel & Motel Management - December 8, 2008 - Hotel & Motel Management - December 8, 2008 (Page 1) Hotel & Motel Management - December 8, 2008 - Hotel & Motel Management - December 8, 2008 (Page 2) Hotel & Motel Management - December 8, 2008 - Contents (Page 3) Hotel & Motel Management - December 8, 2008 - New Division of MGM Goes Beyond Gaming (Page 4) Hotel & Motel Management - December 8, 2008 - New Division of MGM Goes Beyond Gaming (Page 5) Hotel & Motel Management - December 8, 2008 - Perspective (Page 6) Hotel & Motel Management - December 8, 2008 - Perspective (Page 7) Hotel & Motel Management - December 8, 2008 - Marketing Matters (Page 8) Hotel & Motel Management - December 8, 2008 - Marketing Matters (Page 9) Hotel & Motel Management - December 8, 2008 - Family Business (Page 10) Hotel & Motel Management - December 8, 2008 - Family Business (Page 11) Hotel & Motel Management - December 8, 2008 - On Finance (Page 12) Hotel & Motel Management - December 8, 2008 - On Finance (Page 13) Hotel & Motel Management - December 8, 2008 - AAHOA Update (Page 14) Hotel & Motel Management - December 8, 2008 - AAHOA Update (Page 15) Hotel & Motel Management - December 8, 2008 - Satisfaction Trends (Page 16) Hotel & Motel Management - December 8, 2008 - HotelWorld Update (Page 17) Hotel & Motel Management - December 8, 2008 - Consultant’s Corner (Page 18) Hotel & Motel Management - December 8, 2008 - Consultant’s Corner (Page 19) Hotel & Motel Management - December 8, 2008 - Consultant’s Corner (Page 20) Hotel & Motel Management - December 8, 2008 - Consultant’s Corner (Page 21) Hotel & Motel Management - December 8, 2008 - Trends & Stats (Page 22) Hotel & Motel Management - December 8, 2008 - Trends & Stats (Page 23) Hotel & Motel Management - December 8, 2008 - Trends & Stats (Page 24) Hotel & Motel Management - December 8, 2008 - Trends & Stats (Page 25) Hotel & Motel Management - December 8, 2008 - IH/M&RS Editors’ Choice Award Winners (Page 26) Hotel & Motel Management - December 8, 2008 - IH/M&RS Editors’ Choice Award Winners (Page 27) Hotel & Motel Management - December 8, 2008 - Insurance (Page 28) Hotel & Motel Management - December 8, 2008 - Insurance (Page 29) Hotel & Motel Management - December 8, 2008 - Insurance (Page 30) Hotel & Motel Management - December 8, 2008 - Insurance (Page 31) Hotel & Motel Management - December 8, 2008 - Insurance (Page 32) Hotel & Motel Management - December 8, 2008 - Insurance (Page 33) Hotel & Motel Management - December 8, 2008 - Ad/Editorial Index (Page 34) Hotel & Motel Management - December 8, 2008 - Marketplace (Page 35) Hotel & Motel Management - December 8, 2008 - Classifieds (Page 36) Hotel & Motel Management - December 8, 2008 - Classifieds (Page 37) Hotel & Motel Management - December 8, 2008 - Classifieds (Page 38) Hotel & Motel Management - December 8, 2008 - Classifieds (Page 39) Hotel & Motel Management - December 8, 2008 - Classifieds (Page 40) Hotel & Motel Management - December 8, 2008 - Classifieds (Page 41) Hotel & Motel Management - December 8, 2008 - Checking Out (Page 42) Hotel & Motel Management - December 8, 2008 - Checking Out (Page 43) Hotel & Motel Management - December 8, 2008 - Checking Out (Page 44)
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