A Tale of Two Segments: Can Budget Hotels Match Upscale RevPAR Gains?

By Dan Denston Executive Director, Mystery Shopping Providers Association - North America | April 14, 2013

No business has been unaffected by the economic downturn of the last few years. Most often, the state of the economy IS the state of the hospitality industry. Though the current recovery of hotel industry, overall, has been stronger than that of most businesses.

PriceWaterhouseCoopers (PwC) says as the US economy inched forward, the travel segment experienced a "robust recovery." In 2011, PwC reports, the hotel industry experienced an 8.2 percent increase in Revenue Per Available Room (RevPAR), just 2 years after it reported a 17 percent dip.

But when you dig deeper, you notice the more upscale properties are faring better and are forecast for a greater RevPAR boost than economy brands. While we won't assume anyone is out of the woods at all, it seems clear that budget hotel brands need to focus on the "blocking and tackling" methods of filling rooms.

Many budget hotel clients of mystery shopping firms are reporting that a constant, almost hyper focus on ensuring that price, service and amenities is helping them compete within their segment, and that customers are beginning to expect an upscale feel at modest prices. Tracking that delivery across an entire chain of hotels seems daunting but once executed – our clients tell us – puts them at a RevPAR advantage compared to neighboring properties and competitor brands.

The State of Recovery

Leading hotel consulting firms are predicting healthy progress for lodging in 2013; PKF Hospitality Research last fall predicted an overall RevPAR boost of 6.2 percent for the year, while PwC tabbed growth at 5.6 percent.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.