Ratcheting Up Rate Is Going To Be Tough

During the scores of conferences I’ve attended over the last several months, there’s been a familiar refrain from any number of executives and that is “the time is right to move rates.” After all, occupancy is up and consumer confidence is on the rise. Well, I hate to be the bearer of bad news, but there may no longer be a good time to raise rates, period.

After all, occupancy has been rising steadily since 2010 and each year we’ve heard the previously mentioned refrain, yet it hasn’t taken place, at least not on a widespread national level. The harsh reality is this business has been commoditized and consumers are far more discerning with their dollars, even those with plenty of disposable income.

The impact of the OTAs and other bargain hunting websites seems to be getting greater not smaller, contrary to what most in the industry had hoped and have contended. Consider the meteoric rise of Airbnb, a company now valued at some $10 billion, and the impact that is having on the lower-tier segments. For those not familiar with it, it’s a website for people to rent out lodging including private rooms and apartments and numbering some 500,000 listings.

At the HELP (Hotel Equity and Lender Perspectives) Conference earlier this month, Lee Pillsbury of Thayer Lodging Group talked about what he referred to as “The Value Snatchers.” He discussed new companies like Hipmunk, which organizes hotels by location and also has intuitive, color-coded rating system. The site also will continually monitor rates at a requested property and can be programmed to automatically rebook for guests who have already reserved a room at a higher rate.

Perhaps cancellation fees could combat this to some degree but lets face it that doesn’t do anything to build long-term loyalty either. There’s no way to “quietly” give away part of your hotel’s inventory for a lower rate and not pay the price anymore. And even if you can resist the temptation to do so, there’s no way to control your competitors in the market from doing so.

Pillsbury chided the industry, including owners, brands and management companies, for not working together, he said, “We’re very poor collaboraters. What other explanation is there for Expedia and TripAdvisor?” he said.

Maybe it’s just that simple and maybe it isn’t. The Internet, in general, has certainly cut into a lot of other businesses from traditional retailing to music sales. Either way, hoteliers have to figure out a way to be profitable in this new age when costs are increasing and the ability to raise rates is very much in question.

So where do we go from here? These companies aren’t going away and even if they do in time, as this column points out clearly new models will emerge. Maybe we need to find more profit centers within the hotel itself. Perhaps we need to rethink giving away breakfast and Internet at the select-service level. In the case of the latter, which is critical to guests, a tiered approach may be the way to go. Guests don’t want to be nickel and dimed, but then again if you’re paying $99 for a room that typically goes for over $200 shouldn’t you expect some out of pocket expenses?

As many before him, Pillsbury has emplored hoteliers to hold the line on rates. “What are we doing? There’s empirical research that proves that beyond any doubt cutting pricing reduces profits,” he said. In retrospect, that was advice that the industry could have probably used a few years ago.