Industry Stats May Bely The Truth But So What! 

Editor-In-Chief Glenn Haussman examines why industry stats and your hotel's bottom line don't add up. And then what you can do about it.  

Tuesday, February 22, 2011

Glenn Haussman

By now you are fully aware that nearly all hoteliers at the top of the industry food chain feel the hotel business recovery is in full swing. After all, they cite surging demand, more advance leisure bookings and a solidifying meetings base as just some of the reasons for their new found glee. Oh yeah, they'll also talk about relatively modest new construction pipeline and the strengthening of the hotel real estate market.

On the surface it seems as if people are thinking its 2006 again. That is, a time when industry fundamentals were headed in an unprecedented upslope on its way to record breaking territory. It's a whole lot of good news that has many starting to become enchanted again about future profit potential.

But while many industry insiders were publicly lauding the industry's returning mojo, one thing has become abundantly clear: Many people on the property level have yet to see and feel what these top level leaders are extolling.

These owners and operators are in the trenches in their hotels. And while they can clearly hear the rallying cry they are sitting in their properties scratching their heads and wondering when the mysti
cal recovery will walk through the front door.

Here's the truth about what's going on. Yes things are getting better, and the recovery is real but hoteliers need to get more aggressive when it comes to raising rates or this recover will be crushed before it really has a chance to kick in. But more about that later.

According to STR, 2010 saw 52,000 U.S. hotels, a two percent increase from the previous year. Demand was up 7.8 percent with occupancy of 57.6 percent, a 5.7 percent increase from 2009. ADR was $98, a drop of 0.1%, while RevPAR came in at $56.50, a 5.5 percent drop. Overall room revenues increased 7.6 percent to $99.5 billion.

Sounds good, right? Here's the truth. If you are sitting at your property and wondering why the recovery isn't happening in your town, here's why. The industry is recovering but not in all markets and not for all hotel categories. What's happening is the top 25 markets in the country are boosting the overall numbers for the entire and making it appear that happy days are here again.

The root problem here is the overreliance on industry statistics that do not take into account the huge difference in potential market conditions for New York City and Decatur, GA.  The Big Apple is so strong and powerful it's skewing the average numbers for the entire country.

So while following the big numbers is a great sport for industry executives and guys like me who love to write about this trend, it's critical to cut through this clutter to get straight to the truth. And the truth is you must continue to be more aggressive when it comes to raising your hotel's rates. It's the only way your property is going to break this pattern of discounting which lead to the horrific losses on 2009.

But you have to have the guts to raise rates. For many this is no easy feat as the last several years have beaten down so many owners they've become frightened at the notion of asking for more money each night.

When you are worried about losing your family business it's tough to make that decision to charge more, especially if the hotel down the street is not following suit. We say forget about them and start knocking up your room rates a couple of dollars at a time.  Guests need to be conditioned to pay more for a room again and this is an easy way to do it.

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.

Also, be sure to stress the value your property offers consumers. Fully explain a lot of your amenities to guests. How about sharing how awesome your complimentary breakfast is compared to others, or that your internet connection is much faster than the other guys?

Perhaps your hotel has bigger televisions with more channels or even DVD players. What other unique or better feature does your property have? Figure it out and make it part of your sales spiel.

You may also consider turning away some of that lowball business for the short term. Chances are they aren't loyal guests anyway who are simply out on the hunt for the cheapest price. So why bother with them. While you may still be worried about the next mortgage payment, these types of clients will only hurt not help your bottom line in the future.

It's time to get out of the 'poor me' mindset and start thinking like a rock star. You have the power out there to control your own financial destiny one guest at a time.  You just have to remember why your product is so good and clearly share that with the consumer.  You can do it, you just have to remember why your hotel is the best in town.