5 Questions Hoteliers Should Ask When Supply Growth is Hurting Rate Growth


While most of the US hotel industry enjoys a natural RevPAR lift due to the pricing power gained from increased demand and muted supply, other markets haven’t been as fortunate. Take a market like New York, for example, that has struggled to grow rates in the face of a 21% supply increase in the last 5 years.

This is an interesting case, because it gives hoteliers in markets across the country an opportunity to watch what happens when supply dampens demand in a market. While it’s unlikely the supply change in every market will be as drastic as it has been in New York, it is likely the effects of increased supply are coming to many more markets, with the potential to eat away at pricing power.

Increased supply, especially in a high occupancy market, poses an interesting problem for revenue managers. If rates are generally stagnant, and your hotel is already operating at a high occupancy, how can you drive RevPAR?

It’s All about Your Business Mix

Optimize your busy days, and find the stay patterns that favor your shoulder nights. So, in times when rate can’t be driven and occupancy is already high, consider asking the following questions to drive better revenue:

  1. Are you anticipating your peak demand early enough to close out discounts and yieldable, fixed rate business?

Forecasting by day, by segment outside of your normal booking window will allow insight into the total available demand with price sensitivity in mind. From there, you can put the proper controls in place to ensure you’re accepting the most profitable demand mix.

  1. Are your groups displacing higher rated transient demand on busy nights?

Take a look at your group mix. Understanding the displacement of transient demand over the requested group dates is key in helping you make the right decision when you accept or reject a group. Of course, don’t forget about total group profitability. If groups are weighing down your ADR, be sure your total revenue is making up for it.

  1. Do you have an appropriate strategy in place that favors shoulder night business during peak demand periods?

Developing an understanding of your demand by arrival date and length of stay allows for proper management of your peak days and the surrounding shoulder nights. This goes back to anticipating your peak demand days early enough to do something about it and boost your shoulder nights.

  1. Does your online reputation afford you the ability to command a few extra dollars over your competition?

Your online reputation relative to your competitors can certainly be a factor in your pricing power. Compare your online reputation to your competitors and see if you have some opportunities to drive rate. If you don’t, enlist the help of your operations team to get you there. Think differently about your online reputation and start utilizing it beyond operations and marketing; use your online reputation for competitive pricing.

  1. Are you overbooking effectively?

You need to take advantage of every opportunity you can, and there is no excuse for empty rooms on busy nights. Develop a solid understanding of your cancellation and no-show rates to ensure optimal overbooking. Make sure to balance your overbooking decision with the opportunity cost of walking a guest.

As the rest of the industry enjoys the luxury of driving RevPAR with rate, hoteliers in New York and other markets will have to find more sophisticated and advanced ways to take advantage of revenue opportunities if they want to remain ahead of the market. And, the rest of us might as well take notice. If you haven’t felt the pressure of new supply yet, enjoy the ride! But, with hotel investments continuing to heat up, supply pressure is on the way.

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