The 2022 rate increases: how did your Hotel react?
It is no secret that, after two dark seasons, hotels have finally begun a recovery, obtaining results in some destinations above all expectations: companies that deal with Revenue Management speak -in fact- of an increase in Average Daily Rate between 15% and 40% compared to 2019.
Let's try to understand if and to what extent sales strategies have contributed to these results but, above all, let's analyze the phenomenon by striving to imagine the short-to-medium term scenario also by resorting to the data in our possession.
In fact, despite the fact that pandemic events have (momentarily) downgraded the value of historical data in Revenue Management, if today we are talking about an increase, if we are comparing 2022 data with 2019 data (it would not make sense to compare the current performance of a Hotel with the same period in 2020 or 2021), then it means that these data continue to be a fundamental reference for the analysis activity.
So let us see what has happened by trying to put the data in proper context.
That there have been general increases from 2019 to the present not only seems obvious to me but also normal.
The average price of gasoline in 2019 (in Italy), for example, was €1,574 per liter, compared to €1,891 in 2022, an increase of 20% percent.
If we take a look at the restaurant sector, which is much more akin to our own, we will find that the increases are even larger: according to a Food&Beverage consulting firm we surveyed, the price increases were about 15 percent for Hotel restaurants and 30-35 percent for conventional restaurants.
And by how much has the average Hotel rate increased ?
If we talk about an incredible average rate increase of 27%, referring it to a 3-star city hotel, we are looking at a price that, in the example of an article recently published on an industry website, went from 102.00 € in 2019 to 130.00 € in 2022.
Honestly, given the increases discussed above, this does not seem to me to be earth-shattering news.
However, the story changes if -the same percentage increases- are observed on higher category hotels.
Thanks to our data warehouse, we have aggregated data from Hotels in some well-known destinations, thus showing average increases of 41% percent that, in the analyzed Hotel category, translate into a daily rate increase from €454.00 in 2019 to €641.00 in 2022.
In the latter case, on the property (and revenue) side, questions come to mind.
- Did we simply have a lucky season that was the child of post-pandemic events?
- Was our revenue manager good at taking advantage of favorable circumstances and, more importantly, was he able to sell at the right time?
- Was it the sales rate that was wrong in 2019?
In this context, we are not so much interested in having an exact answer or answers right away but, in my opinion, we need to ask a further and different question, namely, to understand how much and to what extent our Hotel is able to absorb substantial increases in the sales rate.
Indeed, it is common knowledge that "bold rate jumps", perhaps not punctually accompanied by growth in Hotel services, are harbingers of ephemeral economic results, usually predicted by a slow and steady decline in brand reputation.
Considering also that it is certainly arduous to predict whether these rate levels will be a replicable circumstance, then the question for insiders-at least those who plan activities-is about the bottom rate for the 2023 season.
Honestly, I don't think any of us can predict (with acceptable margin of error) what will happen: in our work we have learned -also out of necessity- to shift our focus from the future to the present, trying to optimize as much as possible the new and different circumstances.
In this transformation -or rather actualization- the real protagonist of our strategies (which no RMS software will ever be able to suggest to us) must be flexibility.
It is not enough to analyze the history, the demand of a given moment or to work on improbable budgets: we must adapt quickly to momentary circumstances.
Revenue and the "Hotel Ecosystem" must necessarily gravitate in the same orbit: on the one hand, we improve the overall experience of our guests-returning them the higher rate paid-and, on the other hand, we offer our brand at rates that must generate appropriate expectations, punctually then met.
It is like a dance in which revenue and ownership coordinate with harmony and complicity: if one of the dancers stumbles, it will also get in the way of the other in the movement.
If we allow this ADR increase to remain a pleasant and unexpected contingency, perhaps taken for granted or even due, then we will most likely find that our Hotel, in order to absorb such significant rate increases, must be supported by the new standard that, perhaps without even knowing it, by applying those rates, we are in fact proposing to our guests.