Revenue managers must tackle myths to forecast ADR
 
Revenue managers must tackle myths to forecast ADR
16 SEPTEMBER 2016 8:18 AM

At the Hotel Data Conference, STR sought to battle the myths and assumptions that make revenue management more difficult.

NASHVILLE, Tennessee—The common understanding of rate growth seems to be governed by some assumptions that ring true along with others that might not be as trustworthy, sources said at the recent Hotel Data Conference.

Speaking at the “Are you bullish or bearish on ADR?” panel, Chris Crenshaw, VP of strategic development for Hotel News Now’s parent company STR, said the U.S. hotel industry is trying to understand where it stands. While industry metrics still point northwards, lingering concern remains that the cycle has reached its peak.

Crenshaw said hoteliers shouldn’t be satisfied with the heights they’ve reached thus far.

“Sixty-five percent occupancy is an all-time high. In what other industry would that be considered a success?” Crenshaw asked.

Crenshaw said the human element often weighs on average-daily-rate performance, especially when one hotel undercutting its competition can erode rate for an entire area.

“There is the element of human condition,” he said. “We are only strong as the weakest link.”

He said humans often make decisions based on incomplete information or fear and panic and have to have an awareness and knowledge of outliers.

Myth or magic
Crenshaw said the factors that dictate the success of ADR are not always grounded in reality, so he and Jessica Conant, VP of revenue management for Canada at Marriott International, discussed whether some of these rules are actually as true as they’re believed to be, designating each as “confirmed” or “busted.”

1. Is ADR-driven revenue-per-available-room growth better than occupancy-driven RevPAR growth?

Confirmed: Crenshaw and the audience said this is a truth to be held onto.

2. ADR growth is stronger in markets with higher occupancy.

Busted: Conant said this is one area in which data could be a risk for the industry.

“It’s better to analyze your individual asset specifically,” Conant said. “Canada does occupancy in the 80s (percentile), but some people were talking themselves down when occupancy dropped from, say, 84% to 82%.”

3. ADR performance is tied to demand.

Busted: Crenshaw noted this is a truism often tied to anecdotal evidence.

“Some markets do coincide with this myth, but not all,” Crenshaw said.

He said the connection between ADR and demand is more clearly seen over a longer year outlook with supply taken out of the equation.

4. Supply is inversely related to ADR growth.

Confirmed: Conant said she “expected no other outcome” than this being confirmed.

Crenshaw agreed.

“In local currency, Atlantic City and Orlando largely confirmed this, as did Vancouver and Toronto. … Miami was a city I thought would bust the myth, but no, and I ran probably 40 other markets, and busting the myth did not happen,” he said.

But he said there was one market that seemed to be an exception.

“But I have really no idea what is going on in New York City,” he said.

The difficult of predicting
Crenshaw said there are several questions to ask when pondering where rate is headed, including:

  • Does each cycle get deeper, or are they all different?
  • Is it an unsafe assumption to regard your best ADR year as normal and then adjust years before and after in terms of inflation?
  • Is revenue management both people and systems, or do people use systems to implement decisions in higher scales?
  • Do people manage the decisions made by systems in middle scales?
  • Do people manage the systems that make the decisions in lower scales?
  • Is pricing still the most important core competency for revenue management?

Crenshaw said there has never been a point in the history of the U.S. hotel industry that revenue management was needed more than in the present.

“The role has huge opportunity,” he said.

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