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Cutting room rates not profitable
Hotels that attempt to boost occupancy by lowering room rates will not increase revenues according to a recent report.
The report found that although discounting rates does lead to increased occupancy, hotels that maintain their price structure experience higher revenues than the competitors that discount rates.
“These results suggest a preferred pricing strategy of holding rates constant when competitors are discounting, or even raising prices to a small degree”, said an author of the report, Professor Cathy Enz.
“By raising prices above the competition, a hotel will lose occupancy but make up for that loss with higher RevPAR. By offering a lower relative price, on the other hand, a hotel will gain occupancy but its RevPAR performance will be lower than that of its competitive set.”
Ms Enz was part of a team from The Centre for Hospitality Research at the US-based Cornell School of Hotel Administration. The report is available online at http://www.hotelschool.cornell.edu/chr/. It was carried out using data from 6,000 hotels over a two-year period.
Report by Ginny McGrath
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