Road to Recovery: The hard lessons learned from the hotel industry's climb out of the downturn
By Mike Kistner President, Chief Executive Officer & Chairman of the Board, Pegasus Solutions | November 20, 2011
At the 2009 American Lodging Investment Summit (ALIS), the overriding sentiment seemed to be relief, relief that we had survived the devastating downturn that hit in September 2008. Never before had we clung so tightly to the numbers to understand our fate – the depth of the downturn, the damage to demand, incredibly shrinking rates. Six months later, we began tracking data from billions of monthly hotel shopping transactions to track industry performance, and ultimately, help the "survivors" understand the road to recovery. Like the major lesson in rate-cutting we all learned post-September 11, 2001, the last three years have taught us some incredibly valuable lessons.
Looking at bookings volume, average daily rates (ADR), revenue, length of stay and booking lead times for approximately 90,000 hotels worldwide, the most recent industry numbers have, for the most part, portended positive growth for both the global distribution systems (GDS) and alternative distribution systems (ADS) channels. Both segments continue to experience increases over 2010 for the next several months, but ours is a market forever at the whim of world events, whether they be financial, political, geographical or social.
Lesson 1: Protect your rates
In July 2009, the overall pace of decline had slowed somewhat since early 2009, but the industry was still in a difficult position compared to the same period in 2008. Year-to-date, there had been a global decline in both channels for reservations, length of stay, ADR and net revenues, with the most dramatic declines occurring at the start of 2009.
The negative influence of depressed ADRs is easing today for many hotels, and has begun to round the bend for others. Whether trying to fan flickering hopes of ADR growth or basking in the warm glow of rising rates, the key to altering the state of the rate to more favorable conditions is to harness the power of strategic pricing.
Better pricing isn't simply about offering the lowest ADR your hotel property can afford, which is what often happens in a downturn. Any salesperson worth their salt knows that price points are simply a tool. They can be used to differentiate your product and maximize your value proposition. We need to consider each consumer as an individual, not a target market, and realize that each has an idea of what they're willing to pay.
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