Room for Savings: Optimizing Hotel Spend - Carlson

Complex pricing
Hoteliers use different pricing strategies that take
into account supply and demand.
Macro-economic rate fluctuations. Hotel
supply is relatively inelastic in that new hotel
rooms take time to come onto the market in
times of strong demand and do not
disappear when demand weakens. Strong
economic growth therefore tends to be
accompanied by high hotel occupancy and
fast-growing room rates, while slower or
negative growth leads to lower occupancy
and rates that rise more slowly or even drop.
This is illustrated in Figure 8, which shows the
evolution of average room rates in the United
States during the last recessions (1990s,
early 2000s, and the end of 2008).
Figure 8: Economic growth impacts hotel occupancy and rates
Year-over-year changes in occupancy and average room rates (ARR)
in the United States, January 1988 – January 2009
(12-month moving averages*)
Year-over-year
change in ARR
10
Average occupancy (%)
65
5
0
60
-5
-10
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
55
Year-over-year change in ARR Average occupancy Recession
Source: CWT Travel Management Institute
Based on U.S. hotel performance data provided by Smith Travel Research and STR Global
* Twelve-month moving averages mean that the occupancy for January 2009 is the average occupancy from February 2008-January 2009
and the year-over-year change is the difference between the annual average for January 2008 and for January 2009