Wyatt concurs that smart revenue management in a downturn entails introducing markdowns for certain segments and
individuals. “We have a discount, for instance, for people who
are willing to book a certain amount of time ahead, on a non-refundable basis. But the minute you go in with that blanket
statement that everything is 40% off this weekend, you’ve basically eroded the value of your hotel.”
And that, in a nutshell, sums up what operators are doing
today. Rather than drastically reducing the retail ADR, hoteliers are much more discriminating about how they dole out
discounts, which can also take the form of special promotions.
The question is, will it work this time around?
“You maintain the posted price, but you manage to discount
in various other ways, such as two nights at a regular rate, one
night half off or one night free, spa treatments for free or half
price; there are an endless number of promotions,” suggests
Phil Gordon, a partner in the hotel and leisure practice group
at law firm Perkins Coie LLP in Chicago. Yet Gordon, who represents owners of high-end properties, admits by doing so,
hotels “will be getting less money for their rooms.”
Filling rooms via third-party booking sites, once the bane of
the industry, is also acceptable—if done properly. “If you have
a big-box hotel with some holes to fill, it’s okay to go to
Priceline,” Wyatt says. “The thing you don’t want to do is run a
big ad in the paper,” the SVP continues. “You don’t want a
future guest to be cranky because he or she saw the ad after
booking a room three weeks earlier at a higher price. You want
to make sure those offers are targeted to specific people.”
Yet according to the FBR analysis, discounts and special
promotions may not compensate for the drop in corporate
business as it did during the 2001-03 downturn due to the
current low consumer confidence level. Therefore, the firm
anticipates “significant softness in occupancies in the coming
months, along with continued deterioration in rates.”
TRADING DOWN
In addition to an increasing amount of discounts, the industry
could witness the phenomenon of “trading down,” whereby
“We know from past
cycles that dropping
room rates is a stupid
thing to do because in
and of itself it will not
necessarily increase
revenues.”
THOMAS J.
CORCORAN JR.
FELCOR LODGING TRUST
“We are certainly
budgeting for next
year with flat to slightly
down RevPAR in mind
because we would be
naïve not to.”
REBECCA WYATT
HOMEWOOD SUITES BY HILTON
travelers move lower in the price spectrum to less expensive
lodgings as household and corporate travel budgets are cut. A
recent survey compiled by the Travel Industry Association and
Ypartnership found that business trip volume is projected to
decline some 3.7% by the end of this year, followed by a 2.7%
drop in 2009. In 2010, business, meeting and convention travel
is set to climb upward by 2%.
Conversely, leisure travel is also expected to taper off, albeit
a bit more modestly. This year, the TIA projection is for a 0.2%
reduction, while 2009 will see a 1.3% decrease. A clear majority
of respondents (71%) reveal they anticipate taking an overnight trip 50 miles or more away from home during the next six
months. Interestingly, 48% of those polled say recent financial
market troubles has not impacted future travel plans.
However, leisure trekkers are looking to spend their dollars
wisely, with 76% saying they “expect to book a packaged vacation to save money” and 58% planning “to comparison shop
for prices and rates, specifically on the Internet.” Meanwhile,
67% intend to stay fewer nights and a similar percentage aim
to reduce money spent on food, beverage and entertainment
during their travels. In addition, 81% said they will likely
book into less expensive hotels and resorts over the next six
months.
Those results come as no surprise to those in the industry.
“As the economy continues to tread water or gets worse, you will
see a guest shift downward,” says Johnson Capital’s Wise. “If a
traveler stayed at a four-star, full-service hotel a year ago, this
year they will look to a three- or three-and-a-half star property.
It’s still full service from the standpoint of room service and
amenities, but just a bit lower in terms of pricing.”
If traveler patterns follow those in previous recessions, Gordon of Perkins Coie also expects to see more of this trend.
“There tends to be a movement down toward limited-service
properties as people cut back,” he says. “That is historically
true and I would expect to be so this time around.”
If that does occur, hotels at the upper end could get thumped.
“Traditionally, upscale feels it first,” says Wyatt. “Group business,
especially large conventions, fall off. So the big houses really
