NASHVILLE, Tennessee — Hospitality revenue management experts are dealing with rising prices for goods and labor by adjusting their strategies to balance cost, demand and profitability.
Many US hotel owners and operators are raising average daily rates as a way to relieve the pressure. US hospitality industry data from STR, CoStar’s hospitality analytics company, shows record monthly room rates on a nominal basis for July.
Speaking on a panel at the recent Hotel Data Conference titled “Occupancy swap for ADR? Understanding the cost and profitability,” said Jihad Lotfi, vice president of revenue management at McKibbon Hospitality, at the end of the day operators must let the customer decide what that he is willing to pay.
“None of us can decide what the customer will pay. It’s kind of like the auto industry right now. You see cars marked up $10,000 to $15,000 and people keep buying them,” did he declare. “You don’t know what the ceiling is. I tell my team, ‘If it ain’t broke, don’t fix it.’ Don’t be afraid to take risks.”
Lotfi said if a hotel doesn’t see enough price on the room rate, then the price is too high. If customers are willing to pay the tariff, it is possible to charge more.
Lotfi gave the example of a 10-year-old TownePlace Suites in a market that had never sold a room for more than $600. A new revenue manager came in and priced the rooms at $1,500 before a college football game, and the hotel ended up selling a handful of rooms at that price.
“Again, you never know until you try,” he said.
Alex Cisneros, senior vice president of revenue generation at Red Roof, said franchisees have become more open to new strategies today, compared to previous recessions.
“We’ve been very focused on hotels that are having operational issues, hotels that aren’t recovering as quickly in the economy segment of the industry, and where we can address COVID-specific issues,” did he declare. “Some of them are labor related, others can improve the distribution mix. We have tailored the strategies to the needs of the franchisee.”
Cisneros added that Red Roof franchisees mostly make more money with less occupancy. Red Roof is now providing more data to franchisees to educate them and make them comfortable with higher rates.
The panelists were asked: would you rather sell five bedrooms for $100 or four bedrooms for $120? All agreed that they would prefer the higher ADR for fewer rooms.
“For now, I would go for the higher ADR. But not all costs are equal. So the cost of customer acquisition is something we pay more attention to [to]. How much money did it cost you to get this client? Sometimes that third-party booking can be more efficient,” Cisneros said.
“For me, it’s four for $120,” Lotfi said. “I think one of the positives of COVID and what we’ve seen is selling higher ADR…there’s a lot of upside.”
Cisneros added that it was a process to get all stakeholders — revenue managers, operations, franchisees — to focus revenue on profit.
“Not everyone has the financial knowledge to educate the franchisee,” he said. “At a high level, our franchisees are sophisticated enough to understand what the sweet spot is [and] at what point [do they] need to bring someone to clean extra rooms.”
Tess McGoldrick, vice president of travel and hospitality at software company Revenue Analytics, said as the data changes, plans need to be revisited. She said she helps her hotel guests think about the most important data points for each individual property.
“If you’re near the airport and there are cancellations or you’re in a strong market where there are good products for compensation set forecast data, what are the important factors in your forecast? Put challenge yourself to figure out how to integrate this into your systems,” she said.
Lotfi said “none of us have a Magic 8 Ball; we really don’t know what next year will be like.”
His approach at McKibbon is to refine the segmentation mix and dive into the available data.
Lowering rates at the last minute to increase occupancy isn’t always the best strategy, he said.
“It comes down to math. If you’re sitting at 60% occupancy and you have to lower your rate by $30, $40, $50, does that loss [worth it?]said Lotfi. “Now if you’re sitting at 80% and just need to sell a few more rooms, that absolutely makes sense.”
Cisneros said Red Roof aims to avoid last-minute rate cuts.
“We have learned from past mistakes and we are not as aggressive on rate cuts as we have been in the past,” he added. “We have better tools, we have systems in place where we don’t make mistakes anymore.
“I think we’re still willing to see what the competition and the market are doing…but now we’re spending a lot of time making it easier for franchisees and revenue managers in the organization to have all the data in one place and they can make decisions. It’s not going to happen that often that we have to lower rates like that,” he said.
Lotfi asked a rhetorical question: “Does it matter whether ADR is sustainable or not?”
“The reason I say that is because we’re so focused on something we can’t control. If we just focus on something we can’t control, we’re going to bang our heads against the table. Let the customer tell you what they’re willing to pay. They’re the ones with the buying power,” he said.
Lotfi said he helps his team reduce noise by eliminating what they can’t control. He advised, “If you’re picking up rooms and you’re early,” try raising the rate.
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