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It’s Still a Seller’s Market, But Don’t Get Greedy
In response to the post-pandemic demand surge and faced with constricted inventory due to labor shortages, rising supply costs, and other challenges, hoteliers pushed their prices back to pre-pandemic levels in record time. It was understandable that hoteliers would push rate – a hotel’s goal is to maximize revenue and profit, and they had a lot of missed opportunity to make up for. People were so happy to be traveling again that they paid.
Sources predict that hotels’ pricing power will remain strong. However, we don’t need a pandemic recovery to fall into the trap of overpricing. Why do we do this?
Misjudging demand & customer profile
I was at a select-service hotel in a second-tier city when the Grand Prix was announced. The CVB predicted unprecedented demand, and we revenue managers jumped on this opportunity to grow ADR. We put out non-refundable Super Bowl prices with 3-night minimums.
Our demand dried up. As we waited for the promised wave of demand to arrive, we realized we had misjudged the market’s profile. Firstly, our city is a drive-in market; guests don’t stay for three nights for special events. Also, we didn’t consider the demographics of our target guests. We were offering Monte Carlo prices to a NASCAR crowd. Of course nobody was booking.
Mistaking inventory shortages for demand increases
The downtown convention hotel I worked at had a repeat group over Thanksgiving weekend. They consumed more than 80% of our inventory – it was a hotel dream in a city where people leave during the holiday. With a special holiday discount in place, we achieved over 90% occupancy during my first two years there.
A new general manager arrived during my third year. Not having the history with is weekend that we did, he did not understand why we discounted our remaining inventory. He reasoned that we were down to our last rooms, and low supply meant high prices. He insisted despite our objections, and rates rose to just above our normal weekday rates.
Rooms stopped selling, and we needed to revert to our original holiday pricing. Why did the laws of supply and demand fail us? Because travelers didn’t care that we had limited availability. It was Thanksgiving weekend in a city where people wanted to leave; the fact that we were running low on rooms didn’t make people want them more.
Assuming that past demand will repeat
Consider the same hotel for Labor Day weekend. Just like Thanksgiving, people left the city rather than came to it. In 2012, we were chosen as the location for a new concert festival with some very popular headliners. As soon as the concert was announced, rooms began to book. We couldn’t raise our rates fast enough. It was beautiful.
The concert returned with similarly high demand the next year,