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Why Experts are Begging You to Raise Rates

Stop being your own worst enemy in regards to your bottom line and get the confidence to boost those rates now.

Monday, November 15, 2010
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Raise rates now. It’s the mantra being spouted by leading industry prognosticators here at the AHLA’s Fall Conference, and for those looking to compete as we are headed into this up cycle it’s critical for hoteliers to get the confidence they need to boost the asking price for a hotel room.

They’re saying what we here at Hotel Interactive® have been saying for months: Adding a few bucks to your room rate and continuing to raise it slowly and incrementally is not just a good idea, it’s imperative.

Douglas K. Shifflet, chairman & CEO, D.K. Shifflet & Associates, says there is a predominant myth that RevPAR is low because the industry simply can’t raise rates. That is simply not true, he believes; he also says the reality is that consumers see the value they are getting for the price they are paying for a typical hotel room is “in fact very good.”

“Raise rates incrementally now. We are at the highest value to cost for the consumer and they believe they are getting a deal right now and indeed they are,” says Shifflet. “Bring rates up in small increments because you are behind the curve already.”

Shifflet says when bad times come everyone tries to hold rates, but when things turn around hoteliers fail to raise rates as much as they could without market resistance.

“Consumers realize the cost of business is going to up,” says Mark Woodworth, president, PKF Hospitality Research. “And once a consumer sees they can’t get what they want when and where they want it, they conclude they have to pay more.”

“It’s time to push rates. Think about it: In general there is not a lot you can do to increase demand coming into your market, but you can impact what they pay,” says Warren Marr, CRE, director, hospitality & leisure consulting services, PricewaterhouseCoopers LLP.

Marr cites strong occupancy and ADR gains coming in 2011, even more so than in their previous outlook. He says demand is so strong, it is very similar to demand in September and October 2007, the height of the previous up cycle.

Need more proof? According to Mark V. Lomanno, president, STR, lodging demand has come back almost all the way to where it was before the downturn.

“In July 2010, more rooms were sold than any month ever in the lodging industry. Transient leisure and transient business are back to where they were or higher,” says Lomanno, who also acknowledges ADR has not returned. “Demand is at 6.6 percent, the highest demand number in more than 20 years.”

In fact, demand has been so strong recently, both August and September set a record for selling the second most rooms in a month, ever.

STR’s numbers predict that, as 2010 winds down, the industry as a whole will see supply increase by 2.2 percent while occupancy will rise 4.4 percent. ADR will slip a negligible -0.1 percent while RevPAR jumps 4.3 percent. In 2011, supply will increase 1.1 while demand is predicted to increase 2.5 percent. Other 2011 predictions include occupancy rising 1.5 percent, ADR increasing 3.9 percent and RevPAR moving up 5.3 percent.

One CEO is seeing the demand phenomenon affecting his business. Hubert Joly, president & CEO, Carlson Hotels Worldwide, says corporate travel in particular has returned to levels not seen since the downturn began.

“Corporate travel is back; we took a beating in 2009. It is back, vibrant and growing in the teens. Corporations have decided that, to grow their business, they need to travel,” says Joly.

Finally, PKF’s Woodworth sees the lodging industry is heading in the right direction. “We think the industry has come off the bottom and we are moving through the trough. As we move forward, rates are beginning to get some traction,” he says. “But [fortunately] it won’t lead to meaningful levels of new development until 2013 or 2014.”
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