Profitability and staying one step ahead of demand has been the overarching theme of hotel revenue management in 2023.
At a time when rising costs have put downward pressure on hoteliers, many revenue managers this year have tested various strategies. Some of those strategies worked while others didn't.
Gilbert Arredondo, senior vice president of revenue strategy at Remington Hospitality, said driving more profitable channels and business across Remington's portfolio was his focus in 2023.
"We started looking at this year, even more than ever, different ways to drive revenue into the hotels, whether it be through raising parking prices, relooking at resort fees, relooking at food and beverage. It became about how can we drive incremental revenue to help offset rising costs," he said.
There were high hopes for a repeat of summer 2022 when strong leisure demand filled in many markets. But that didn't quite happen this year.
Remington's team looked at discounting rates but it didn't necessarily end up driving occupancy.
"We tried it at a few hotels. We quickly moved away from that," Arredondo said. "I think if anything, [what] the pandemic taught individuals about travel is they want experiences. If [people] want to be in a certain market, they'll be there. They have a price point in mind and as long as you're within that price point, they're OK with it. They're not going to move from one hotel to another for $10."
Exchanging occupancy for average daily rate is a slippery slope, though, he said.
In the branded hotel world, third-party hotel managers such as Remington must monitor thresholds in terms of reward redemptions.
"If you're in a high-leisure market, for example, you're a couple-hundred-room hotel and you have 10% or 15% of your weekend [with] people staying on points, those thresholds are determined by occupancy levels," Arredondo said. "How much the brand reimburses you is determined by occupancy levels. There's a big difference between running 75% and 85% [occupancy]."
When there aren't occupancy thresholds to worry about, Arredondo said exchanging occupancy for rate is a good strategy for some hotels.
"If you can maximize your [revenue per available room] by selling less rooms at a higher rate and you're still hitting an equilibrium, that's better than selling more rooms at a lower rate," he said. "Unless you're a resort ... you have a resort fee, everybody pays parking and everybody's going to eat there, [in this case] occupancy actually generates more total revenue for the resort than rooms. Those are the exceptions."
Seonju Lawrence, vice president of revenue strategy at Mission Hill Hospitality, said her company has a downtown Atlanta hotel near a convention center that benefited from an increase in convention demand throughout 2023.
"With a strong group base, we shifted our strategy to focus more on maximizing ADR opportunity. The convention group base allowed this hotel to limit the discounted segmentation and selectively take higher-rated businesses such as retail. As a result, the hotel is expected to grow ADR by 10% and occupancy by almost 4% [in 2023], which is strong performance," she said.
Demand at its Florida hotels has been softer than anticipated with normalizing leisure demand, she said. To address that, Mission Hill implemented an aggressive pricing strategy to shift the demand from the competitive set in the market to drive RevPAR.
"It was to test the market's price elasticity. When you lower the price point, is the demand reacting to that? In markets [that] are more leisure-driven demand, it was worth taking a risk in offering a competitively lower rate," she said. "In this case, the strategy worked."
Lawrence noted, however, that it's not a strategy her revenue-management team will deploy throughout the entirety of 2024 but rather specific times such as shoulder periods.
Harry Carr, senior vice president of revenue management at Pivot, said via email he would best describe 2023 as having a "sobering effect." This comes after a previous interview with HNN when Carr had described 2022 as having a "champagne effect."
"Guests have returned to a more thoughtful approach to travel [in 2023]. Leisure demand is still very high compared to historical levels, but people are not spending with the same abandon we saw in 2021 and 2022," he said. "[Average daily rate] has leveled off across most markets as guests focus on overall value for their vacation time."
That's not to say that travel and experiences haven't been a high priority in 2023. It's that there are more options available for travelers compared to the previous two years, he said.
Travelers now have more choices through outbound international trips, cruises and the resurgence of city-center experiences.
Revenue-management strategies that Carr focused on across hotels in Pivot — the lifestyle hotel operating vertical of Davidson Hospitality — include value-add packages rather than a percentage off the retail rates.
"The team has done an excellent job of offering enticing products that include parking, credits toward spa or food and beverage, third-party excursions, etc.," he said.
In additional to value-add packages, Pivot successfully used the strategy of prepaid non-refundable rates.
"During the 'champagne effect,' the booking window was extremely short. There were more impulse trips where guests decided to book within a few days. There were many in the industry that thought that would become the norm," he said. "The Pivot hotels have found that more guests are willing to lock in trips further in advance in exchange for a discount."
Carr added that these advance reservations have made forecasting more accurate for his team, and properties are less affected by weather and other short-term factors.
Nancy Obstler, vice president of sales, marketing and revenue at Raines, said the theme of 2023 for her team is "staying ahead of the market" as they kept a close eye on demand throughout the year.
"The way that the year played out for us, and I'm thinking for everyone, was the first half of the year was [chasing demand] until we hit the summer," she said. "Keeping your eye on everything, pushing rates where you can and watching the market actually grow. When we hit the summer ... people were tightening up their pocketbooks from the year prior. I think everybody just started battling with each other more in the markets. If you kept an eye on [demand] from the beginning, then you were hopefully winners in the end."
She said much of 2023 was also about learning what the new realities were post-COVID-19, because 2022 still saw the effects of the pandemic.
As 2023 progressed, Obstler's team at Raines tested and measured strategies as they went. Strategies included taking more of a risk with rates midweek across Raines' better-performing corporate markets.
"All of a sudden this year, because there were no new hotels built in some of these smaller markets, those [were] markets where we really could push the envelope Tuesdays and Wednesdays," she said.
Pre-pandemic, her team would take all the group business it could to build that base.
This year, Raines strategically took in fewer groups within its markets that had strong demand for amateur sports and instead layered in more transient guests.
Obstler said this strategy paid off in many of Raines' youth-sports-centric markets.
"Those were some risks that we took. I can't say that's going to happen going into '24 but it's something we did this year," she added.
Raines monitored the Taylor Swift Eras Tour as well as Beyoncé's Renaissance World Tour and how they positively affected hotel demand and rates.
The company has a hotel in the New Orleans market that is set to benefit from Swift's tour in October 2024 when she returns to the U.S. for another leg of concerts.
"Looking into the future, we already know the 'Taylor Swift effect.' We've learned a lot and know exactly what to do," she said. "I'm guessing that when the tour started [in 2023] that a lot of the markets might have been caught off guard and didn't push [rates] to where they should. We've done our research and we're ready for Taylor Swift 2024 in New Orleans."