European hotels that price above competitors see comparatively higher revenues
Thursday 25, March 2010
A new hospitality industry research study finds that rates are the key factor in maintaining revenues, rather than occupancy, when European hotels compare their rates and revenues to their competitive set. A study from Cornell's Center for Hospitality Research (CHR) analyzed comparative rates (ADR), occupancy, and revenue per available room (RevPAR) for hotels in all parts of Europe.
While hotels that maintained an ADR below that of their competitors did gain somewhat on occupancy (in comparison to their competitive set), those low-rate hotels also recorded relatively lower RevPAR.
The hospitality research team also found that hotel size or management structure (that is, chain or independent) did not alter the pattern. These findings are detailed in the new CHR report, "Strategic Pricing in European Hotels: 2006–2009," by Cathy Enz, Linda Canina, and Mark Lomanno. Enz and Canina are faculty members at the Cornell School of Hotel Administration, while Lomanno is president of STR, which supplied aggregate data for the study. The report is available at no charge from the CHR at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2010.html.
"Our international hospitality research study included well over 8,000 observations from good economic times and from the last two years during this terrible recession, and the results are consistent," said Enz. "Hotels that maintain a higher price position than their competitors record relatively higher RevPARs, even though their average occupancy is relatively lower. We are well aware of the current pressure on hotel managers to drop their prices, and we cannot speak to a specific hotel or market situation -each hotel has to determine its own position. But what we do know is that relative demand does not seem to respond sufficiently to offset relative price changes within a competitive set. Plus, our new analysis shows that the pattern holds regardless of hotel size or the presence or absence of chain affiliation."
The hospitality research analysis noted that small and medium size hotels gained relatively higher occupancy when they offered prices lower than their competitors, as compared to large hotels. But the study's main findings still held. Previous studies analyzing relative rate, occupancy, and revenue results among competing hotels in the U.S. and Asia have had similar results. The European data were taken during 2006 and 2007, just at the end of the last boom, and during 2008 and 2009, when most nations endured an abrupt recession. The findings were also consistent for all regions of Europe, although the results showed more volatility for hotels in southern and eastern Europe.
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