The new coronavirus (yellow) emerges from cells (blue and pink) taken from a patient and cultured in the lab at The National Institute of Allergy and Infectious Diseases Rocky Mountain Laboratories in Hamilton, Montana. As the virus gathers strength and spreads across the U.S. and cripples business, hotel industry experts advise operators to avoid cutting rates too low. (Photo: NIAID-RML)
“Discounting is not going to bring back demand that has left for fear of COVID-19. Don’t drop your rates to try to recover business related to the coronavirus.” Lily Mockerman, Total Customized Revenue Management
As the new coronavirus spreads throughout the U.S., the nation’s hospitality industry is reeling from the sudden loss of business.
Average RevPAR in the first week of March dropped nearly 12 percent, reported STR.
Experts in revenue management and asset management advise hotels to avoid offering deep discounts in rate. Business might seem bad now, but slashing prices will make it much worse.
Lily Mockerman, founder and CEO of Total Customized Revenue Management, said her Phoenix-based company is busy working with hotels to “set smart strategies to react to what’s going in the markets.”
In an informal survey of about 100 of its clients last week, TCRM learned the booking pace is changing almost day to day. Hotels with group activity are experiencing the heaviest losses while transient bookings are less so.
In a blog on TCRM’s website, Mockerman gave five tips on how hotels can combat COVID-19.
One of the tips? Whatever you do, don’t drop rate without a plan. It won’t attract new business. And decreased rates won’t fill up the room block that now stands empty.
“Discounting is not going to bring back demand that has left for fear of COVID-19. Don’t drop your rates to try to recover business related to the coronavirus,” she said.
Smart pricing strategies should prevail.
“If your entire comp set is dropping rate you don’t have to stay proud and empty, either. You should be maintaining a similar price positioning to your overall comp set in the market, as you always have.
“Don’t drop from the top down to the bottom because that’s going to drive your competition down,” Mockerman said.
“In the midst of all this panic we need to hold on to the lessons that we learned around similar events like SARS and 911, and not sacrifice rate unnecessarily in an attempt to create demand that’s simply not going to respond.”
Mockerman advises hotel operators to think of price gouging “except in the opposite direction.”
“Normally you would maybe run some type of promotion. Historically we recommend you look at what types of discounts you have offered in past and try to stay within that band.
“If you’re seeing cancellations, your competition is, too. So the best response is to manage your operational costs over that period. We had one client who had a group that had 100 rooms a night cancel just five days before the event. Realistically, we aren’t going to refill those rooms.”
Susan Barry, founder and president of Hive Marketing in Atlanta, said one of her clients lost $5 million worth of business in 48 hours. “It’s a gut-wrenching experience,” she said.
Barry said hotels that stand to lose business from canceled events should work with event organizers to postpone rather than cancel meetings.
While many business-related events and individual corporate travelers are considering using technology to set up virtual meetings in lieu of tête-à-têtes, Barry said we should remember the value of real-life face time.
“It’s incredibly important that we not lose sight of fact that face-to-face meetings, getting together as a group or an industry or a company are now and ever more will be important. They can’t be replaced with virtual connections.”
Barry said she is not anti-technology by any means. She values webinars and other online learning platforms. But she believes she is like many other business people, who, during such virtual events, grow bored and start to check their email and do other things. Gathering with others helps hold her attention and keeps her engaged with the presenters and content.
Last June, Barry was a guest on a Lodging Leaders Episode 217 advising hotels how to prepare for a downturn in the market. She noted hotels needed to begin to recession-proof their businesses heading into 2020.
In Lodging Leaders’ most recent Episode 254, Barry said, “Six months ago there were very few signs of a recession although people were feeling a little bit twitchy about how long the upcycle had lasted. Now is the opportunity to go back to those contingency plans and ideas and really see how they can help hotels stay afloat in a tough, tough time.
“My big message to hotels is to control what you can control. On the practical side that includes things like reviewing your expenses, making adjustments, postponing big expenses that don’t make sense right now, such as a brand new marketing campaign while no one is traveling.”
For franchised hotels, Barry advises owners and operators turn to the brands.
“Opt in to any brand supported offers and marketing that is out there. Now is really a good time to leverage the power of the brand by opting into everything you possible can.”
And, though it may seem far off, getting your hotel business ready to capitalize on the upswing is as important as tying a knot and hanging on.
“Now is a good time to do research about target accounts because when this situation eases or levels out it’s going to be a very competitive market,” Barry said. “Anything you can do to get ahead, make plans decide what you’re going to promote, what offers you’re going to have out in the market. All that work can be done now so when it feels like the right time, you’re not starting from scratch; you’re ready.”
Where to find up-to-date information about COVID-19
AT A GLANCE
Here are some updates regarding the impact the new coronavirus outbreak in the U.S. Long Live Lodging will continue to update this chart as well as other information as part of its Special Report on Coronavirus and the U.S. Hotel Industry.
Lodging Econometrics has tracked the hotel industry since 1998. Its global database includes new-hotel pipelines as well as renovations and brand conversions. Hotel franchisers once eager to launch new brands are focused on converting existing hotels because it’s a faster way to recover revenue lost to the COVID-19 pandemic than through new construction. In Episode 346, Lodging Leaders explores the increasing number of conversions in the U.S. hotel industry and what owners and operators need to consider before repositioning an asset.
In the first few months of the COVID-19 pandemic in the U.S., financiers anticipated a swell of distressed hotel businesses. Some raised rescue funds to respond to what they thought was a pending crisis. Though there are financial rescues taking place, the level of such activity is far below what industry advisers and fund managers expected. Commercial real estate investors positioned to act in the early days of the pandemic held off and are now just beginning to unleash their cash hoards totaling billions of dollars. Episode 345 of Lodging Leaders podcast explores the state of capital investment in the hotel industry.