Keep Cautious When ‘Pushing Rate’

You know you’re in the sweet spot of the cycle when it can be considered both a buyer’s market and a seller’s market. That’s precisely what I heard repeatedly at the recent HELP (Hotel Equity & Lender Perspectives) Conference in Boston from a number of executives representing everything from REITs to brokers and lenders.

Another clear indicator of where we are in the cycle—and a common refrain during the event, as well as several prior conferences—has been “now is the time to drive rate.” We all know how the industry had struggled with rates following the economic downturn, turning large portions of its inventory over to the OTAs. It has been a slow climb back, to be sure.

And, while I understand and appreciate the importance of not giving away the store, so to speak, while increasing profitability, I do wonder if “pushing rate” is really the way to go in 2015. After all, you have very knowledgeable and savvy consumers. They have a pretty good idea of what they want to pay, and they have more resources at their fingertips than ever before to find a place where they will pay just that, and not a penny more.

When we held our most recent management roundtable in March, I had a couple of executives privately tell me their strategy was to simply get as many heads in beds as possible. With demand on the rise, if your hotel is in a solid market, achieving steady 80% to 90% occupancy is not at all out of the realm of possibility. As long as rates are in the competitive range, that should be a formula for success for any property. (A focus on increasing the incremental spend of guests at your property couldn’t hurt either.) 

In addition, if you’re doing your job as a hotelier, there is an opportunity to turn many of those guests into repeat visitors and build a loyal following; the foundation of any business. There’s no denying this is very much a cyclical industry, but perhaps more consistent, long-term pricing strategies would also lead to less volatility. 

There is more data and technology available than ever before to take advantage of opportunities when it comes to expected shifts in demand. As a hotelier, you should absolutely take these into account and adjust your strategy accordingly. I’m just suggesting you proceed with caution. It’s been said many times that it’s a street-corner business, and that’s certainly true, but pushing too hard on rate may end up being a dead end.