U.S. hoteliers have not concentrated on pushing rate during the recent years of booming occupancy and RevPAR, but this can still be rectified, according to industry sources.
NASHVILLE, Tennessee—Occupancy does not by its nature grow average daily rate, and industry experts said revenue managers and GMs must fully rely on rate increases independent of occupancy.
Panelists at the closing session of last week’s Hotel Data Conference said incentives for hoteliers and franchisees often are linked to occupancy, which means pricing power might continue to elude the U.S. hotel industry despite record demand and occupancy levels.
Other issues affecting profitability include loyalty program redemption rules, rate transparency and pressure from online travel agencies and other alternative-accommodations providers.
“It is about the overall objective, not just total revenue,” said Leticia Proctor, SVP of sales, revenue management and digital strategies at PM Hotel Group. “In order to improve profitability, I need to do due diligence as to how to drive occupancy, and I need to fully inform the team as to how that flows to the bottom line. If I do not do that, I am doing a disservice.”
Limiting risk might be at the heart of the current ADR malaise, panelists said.
“To drive (revenue per available room), it’s a lot safer to drive occupancy,” said Esther Gayfield, VP of hotel asset management at Colony Capital. “No one wants to get burned again.”
Michael Heaton, president of Waterford Hotel Group, agreed.
“Move to grow base business,” he said. “When group is off, it changes the whole food chain.”
Proctor added an onus on top-line revenue via occupancy moves revenue to the margins, not to the profit lines.
There are hurdles to overcome to get revenue teams incentivized on both top and bottom lines and different business models focused on different parts of the profit-and-loss document, she said.
“It does not behoove us to drive occupancy if you have fixed expenses that do not cover that strategy,” she said.
Brands pursuing asset-light strategies also has changed the landscape, said Ash Kapur, SVP and chief revenue officer of hospitality at Starwood Capital Group.
“Brands take their fees from (the) top line, and it’s very clear that’s their incentive,” he said. “Expenses continue to rise, and owners have to focus on profitability. Some hotels’ systems do not allow for ADR to be maximized.”
The data you have
Kapur said data needs to be analyzed differently.
“It’s difficult for hotels to raise rates because of a lot of systemic issues in terms of what channels and technology we go after and use,” he said.
If group business is targeted some or all of the time instead of leisure, that changes things, Heaton said.
“Displacement analysis does lead to the discussion as to sellouts, and it changes the conversation completely,” he said.
Proctor said profitability is all well and good, but balance is required for the full health of an asset.
“It’s not one size fits all, not just one plan. Also, let’s agree on the metrics of displacement strategies,” she said.
Kapur said information can help reset rate.
“Push it through all channels, as long as the data is intelligent and you understand demand patterns, but it is possible to get higher rates via OTAs if you understand your markets, booking habits and customers,” he said.
Panelists said loyalty-redemption thresholds must be looked at with ADR, not occupancy, in mind.
“I do not want (my teams) casting a too-wide net,” Gayfield said. “If I do not make the redemption threshold, that can be better than getting 100% occupancy at unacceptable ADR.”
Proctor said there should be a scale in place for loyalty redemption, especially in higher-tier cities.
Chasing occupancy after the threshold is reached via redemption leads to low rates for any final rooms not booked, Heaton said.
“If I put on my owner’s hat, I want all protocols in place to make sure this does not happen,” he said.
He added independent hotels probably are better-placed in regards to rate transparency not adversely affecting ADR.
Panelists said there are new threats to ADR.
Hopper-style OTAs that book, track, cancel and re-book rates are becoming a thorn in the side, panelists said.
“We educated ourselves just to look at our new tools and feel good in our comfort zones,” Kapur said. “First look at how many unsold rooms there are and then understand what you are doing. This is lost at so many meetings.”
Kapur emphasized the importance of catering to a core guest. If you can secure that core customer base and provide unique experiences, guests will more likely book direct, he said.
“We should all have more base business that allows us to raise rate,” he said.
He added transparency, along with social media and in-house service, should result in higher ADR.
Brands also need to think like the Googles and Ubers of the world and be more like marketplaces, he said.
“Look at the highest number of repeat guests and check their pricing power,” Kapur said. “If they are 30%, 40% higher than my competitors, we can charge relevant rates.”
Heaton said to take share from OTAs, hotel GMs and COOs have to be engaged as much as revenue managers.
“OTA gross booking revenue has exceeded that of hotels in the previous two years,” he said. “If you’re branded, rate parity is just what we do now, but it does really compel you to look at your paid placement in OTAs.”
Proctor added wholesalers have a fiduciary responsibility because they can become a way through which customers lose confidence in hotels.
Home-rental platforms also can teach the industry something about building loyalty, Kapur said.
“We have to learn. The issue is not pricing, not when 250 corporations have signed up with Airbnb,” he said. “We need more experiences for guests, but the battle will not be won in discussing who owns the guest, (rather) on service.”
Proctor said it’s easy to make assumptions about setting rate when competitors open.
“When supply comes in, we drop rates to get the fill, when it is better not to concentrate on filling hotels but to do a better job pre-opening to build bases,” she said. “So when we ourselves enter a market we do not drag rates down.”
Heaton said he becomes more nervous about supply when it comes from within the same chain.
“The impact is more immediate,” he said.
Gayfield said hoteliers needed to question their customer relationship management systems to better judge demand and booking patterns.
“Some markets are slow to react to that,” she said. “CRM systems sometimes look at too much history and information that’s no longer relevant. Question the system.”
Cycling towards ADR
Gayfield said evidence points at only 25% of U.S. markets experiencing some form of decline, “but that means 75% are doing well, so encourage your managers to better know their markets and competitive sets when planning for growth opportunities.”
“Growth is growth. There is a difference between deceleration and decline, and if there is not a black swan event, we’ll surpass our long-term stretch,” she said.
Kapur said previous declines have been instigated by incidents such as the collapse of financial markets and the dotcom boom.
“There are things being done now to trigger the economy. We’re preparing,” he said.
Heaton also is optimistic but said he is concerned as to how any decline would be measured as RevPAR moves to the lower single digits. He added the industry has not seen as much compression of labor historically as it is seeing now.