Hotels: Stop Using '09 Room Pricing in Post-Recession Economy

By Paul Margetson, General Manager, Hotel Santa Fe, Las Palomas & Inn on the Paseo | February 02, 2010

Looking back at 2009, the recession seemed to simplify pricing strategies for hotels, though not perhaps in the way most revenue managers would have liked. With so much emphasis on occupancy throughout 2009's depressed market, discounting became the be-all for most of the industry. But now that the economy seems to have turned a corner, and continuing to use last year's revenue management tactics will leave many hotels falling short in terms of RevPAR and, ultimately, profitability.

So, as we head into 2010, we know that hotels will need to adapt their revenue management tactics to obtain success; the question remains as to how?

Walking the revenue management line
To be profitable in 2010, a hotel must properly optimize the rates that it charges its guests. But in doing so, hoteliers walk a fine line. Overcharging creates slack occupancy rates while undercharging decreases RevPAR. What's the solution?

Thanks to recent advances in revenue management solutions, hoteliers are increasingly turning to technology to optimize their revenue management processes, as management has done at the Hotel Santa Fe. Automated revenue management systems allow hotels to achieve this rate optimization, help to managing the multiple online and traditional sales channels available to them, and decrease the potential for costly human errors.

Does that mean that hotels using the right revenue management system can return to pre-recession pricing strategies now that the calendar has turned over into the new decade? The answer to that question is definitely not. The slow recovery means demand for rooms, particularly among business travelers, will only rebound incrementally over the next 12 months, which presupposes a condition of stagnant or slow-growing occupancy levels. PKF Hospitality Research forecasts confirm this, with the projected growth in occupancy for 2010 of only 0.4%. So this is no time to rest on laurels or a false sense of confidence.

Technology, however, and specifically revenue management technology, can give a hotel the competitive advantage it needs to ensure it receives the most possible bookings as well as every cent possible from every booking made.

Hotel Santa Fe case study
Let me give you an example from the Hotel Santa Fe, a boutique 163-room property in Santa Fe, New Mexico. Despite an underwhelming demand forecast and the huge impact the recession made on this part of the country, Hotel Santa Fe has managed to maintain relatively high occupancy levels and strong RevPAR numbers. How did hotel management achieve this? Management sought out and implemented in all of its hotels a third-party revenue management system that would allow them to control their pricing automatically, in real-time, to increase online bookings and optimize RevPAR -- REVPAR GURU's Yield Dynamic Price Engine.

REVPAR GURU's solution leveraged all of the information available to the property including competitors' rates, the moment-by-moment level of demand, and historical occupancy rates, to present the best possible rate across multiple online sales channels. This in turn allowed the hotel to maintain a better-than-average occupancy rate and healthy RevPAR.

By harnessing the consistently available, yet constantly shifting information about competitors' rates, demand levels, and the pace of sales in particular channels, automated revenue management systems (like the REVPAR GURU solution in place at the Hotel Santa Fe) are providing hotels with the tools to optimize every rate for every individual room.

Today, this process is presenting a competitive advantage to those properties implementing these solutions, but as hoteliers in every corner of the globe recognize the value of maximizing each individual rate in a real-time, automated way, results like these will become much more commonplace through the hotel industry.

To be sure, 2010 will not be an easy year for Hotel Santa Fe, or any hotel for that matter. Faced with a whole new set of challenges, this decade's hotelier must be willing to embrace the "adapt or die" mentality.

In this particularly lean time, and a lean mindset that is here to stay for some time, automated revenue management systems will continue to be precisely the adaptation the hotel industry is searching for in this post-recession landscape -- all the way from Santa Fe to Saratoga, Seattle to San Juan -- and back again.

Paul Margetson, as general manager and managing general partner of Hotel Santa Fe, brings to the industry 40+ years of experience and expertise in national and international hotel management at properties including the Eldorado Hotel, the Roswell Inn, Plaza of the Americas Hotel (now Le Meridien) the Amberley Suites and Comfort Inn in the US and Forte Village, and Hotel Castello Complex and Trusthouse Forte/British Airways Pegasus Reef Resort.

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