Trying to figure out how to best build up your ADR after the crisis? Don’t worry, it might be a matter that is out of your hands more than you think.
NB: This is an article from berner+becker, one of our Expert Partners
After the last financial crisis, many “experts” claimed that price dumping had a bad effect on the re-building of hotels ADR and RevPAR after the crisis. Also, it was said that those hotels who dropped their rates during the crisis lost more revenue than the ones who kept their prices high.
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After having been involved in revenue management the last 12 years of my career, seeing countless of hotels and markets, and now after having lived through what we probably can call the worst crisis for hotels yet, I can honestly say that I now only partly agree.
First, the hotels that haven’t reacted and done nothing in the last 15 months and just kept their prices high, have for sure been the biggest losers. It has been crucial to be pro-active and find new business through new distribution channels, promotion planning, and yes, also sometimes going smartly down with the BAR prices. According to our data, those hotels are the clear winners and have excelled in both RevPar and market share.
Demand Restoration = Price Increase
And now when the turnaround is coming? Will those hotels be able to increase the prices to pre-corona levels? My answer is yes, without a problem. What we are witnessing now is that as long as the demand in a market is back, there is no stopping where the price levels can go. This is why I find it important to highlight my conclusion, in contradiction to the above; that the re-building of ADR is much more correlated to the restoration of demand in the market and has much less to do with the after-effects of price cutting during the crisis itself. I am not saying that slashing you BAR rates in half is the right strategy for whenever tougher times might come again, but do adapt to the situation, and don’t worry about the long-term effects too much.
And now, if you are a leisure hotel in Germany and hopefully experiencing a boom in demand like many do at the moment, I can only recommend keeping on pushing prices upwards and win back some of what you’ve lost! For hotels operating in markets where the demand is still far from pre-corona levels, unfortunately to a large extent this is out of your hands. As you cannot change the market demand itself by changing only a price. Instead, rather talk with your destination marketing office and collect all efforts you can to bring back and find new demand to your destination.