After a period when consumers were prioritizing spending on travel and experiences regardless of the expense, hotels in some markets are now beginning to see that trend slow down as inflation persists.
Harry Carr, senior vice president of revenue management at full-service hospitality management company Davidson Hospitality Group, said at this time in 2022 there was a “champagne effect.”
Carr said the champagne effect for Davidson’s portfolio, which is composed of 84 hotels and resorts, meant that “consumers were prioritizing travel above many other things, and they weren’t really concerned about the cost … regardless of the expense, [they’re] going to do it, [they’re] going to have that extra glass of champagne.”
Even if the nightly rate at a mid-range hotel in Miami was $600, Carr said the consumer didn’t care.
“Really, there was no price ceiling, there was no thought about ‘maybe I’ll put this off,’ and the discretionary income that they had, or the savings that they had, was banked. And it was also a little bit of ‘hey, if I’m going to work remotely, midweek I can go here, go there,’” he said.
Though it varies by market, Carr said that type of demand is now beginning to slow down in the second quarter.
In aggregate, Carr said Davidson’s portfolio is up slightly in terms of occupancy but rate is starting to slip, especially in leisure markets such as Phoenix, Los Angeles and Charleston, South Carolina, he said. Conversely, leisure demand is picking up for its hotels in markets such as Chicago and Minneapolis.
Carr said consumers are no longer buying on impulse when it comes to booking travel and are willing to shop around more. This includes choosing to book a trip outside of popular holiday periods such as July Fourth to still get the experience “without breaking the bank,” he said.
Dan Paola, vice president of operations at management, development and investment company Raines, said in an email interview that his team is still comparing performance to 2019 from a stability standpoint. Both 2021 and 2022 resulted in “incredible revenge travel, but some of that is starting to die off,” he said.
“We still saw a very strong start to the year, but people continue to be rate sensitive. We have been seeing year-over-year gains but not the [average daily rates] we anticipated for the year. A majority of our growth now is in occupancy,” he said. “As a portfolio, we are almost flat in ADR year over year, but up over 5% in occupancy. April may be the first month that some of our hotels don’t see overall year-over-year increases. It’s hard to tell with some properties because there continues to be new supply entering the market. With so many brands, guests are looking to try something new.”
The pickup in business and group travel is helping offset some of the leisure slowdown, he said.
“Sporting and social groups continue to rebound well, and we are seeing more and more moderately sized corporate group bookings,” he said. “In traditional leisure markets, such as New Orleans, travel for special events and festivals is moving in a positive direction, and rates are higher than pre-pandemic levels.”
However, Paola said even corporate travelers are now looking for a deal and how they can show their companies they are saving on cost.
“From what we see, guests still prioritize travel but at the right price points. Five dollars can make all the difference, “ he said.
Isaac Rodriguez, senior vice president of revenue strategy and distribution at management company Twenty Four Seven Hotels, said his company’s portfolio — which is concentrated in markets such as California, Arizona, Las Vegas and the Pacific Northwest — has experienced a weaker booking window.
“I think what we’ve been enjoying the last 12 to 15 months in some of these markets during the time of discretionary spend, is definitely a very short booking window. So this summer, we’re not really going to get a full perspective of that until we actually get into the summer months with a high-demand period,” he said. “We’ve noticed a slowdown in April, we’ve noticed a slowdown in March … we’re trying to determine how much of that is adverse effects of [colder weather in California], how much of that is [from less] discretionary spend.”
Which Purchases Are Consumers Scaling Back On?
Paola said customers are now booking more standard rooms across Raines’ portfolio.
“We are constantly upgrading guests to free up the standard room types so the bookings continue,” he added. “This certainly points to rate sensitivities, and that guests are still looking for a deal that allows them to spend on food and beverage and local attractions.”
Carr said length of stay has decreased slightly, “depending on the market between a tenth of a day to a quarter of a day. It’s not as though they were staying four nights, then [went] down to two.”
There’s much more stability in length of stay at its higher-end hotels, he said. It appears that the people who did well during the pandemic are continuing to do well.
“If you weren’t laid off, didn’t have a disruption, that’s where we’re seeing probably the most consistent demand,” he said. “[At] the midrange — we have four hotels in the Florida Keys — and one is just not [performing well].”
Carr said Davidson’s portfolio is seeing a large gap in the middle of its room type offerings in the first quarter of 2023 compared to 2022.
“We’re seeing good production in your base, so your standard rooms are booking at roughly the same pace. And our high-end [rooms] are actually slightly up. It’s that they’re not buying a partial ocean view, [they] want to be oceanfront, or [they] want the base category because [they’re] being a little more cost-conscious,” he said.
Strategies To Stay Ahead
Paola said commercial strategy teams should use future pricing strategies and group bookings to build base, then optimize rates to blend in transient business.
“Thinking creatively, we all know how well the extended-stay properties have done and will continue to do. Even the brands are launching new extended-stay brands into their portfolios. So that being said, does your property have the ability to use extended-stay-tiered pricing to take advantage of that segment. We’ve recently gone through and audited our websites and online travel agency sites to make sure all of the information and photos are current and accurate. As much as we may not like to admit it, having correct OTA strategies is an important way to keep bookings going if there is a slowdown.”
To stay ahead of a leisure slowdown, Rodriguez said his team is focusing on the “tried and true” value-based bundle packaging and longer-stay patterns.
“What we can do is hopefully get a higher rate capture,” he said. “And we’re going to continue to focus on personalizing the guest experience just to see what we can do in terms of value-add to hopefully increase revenue capture throughout the guests’ stay.”
In comparison to past downturns, Rodriguez said the biggest difference now is that hotel brands have improved their tactics to alleviate pressures when consumers trade down.
After the onset of the pandemic, he said all major hotel brands implemented a freeze on corporate rates, and this is the first year that brands are back to renegotiating those.
“During 2021 [and] 2022, we locked those [rates in, which] protected us. What it allowed was no emotional-based pricing on corporate for the last two years,” he said. “So even though there might be a trade down in leisure, as we do see the corporate preferred [accounts] come back, there is not a feeling of dramatic effects. If anything, we can maintain or slightly increase those rates. As a result of that, we’re not really seeing lower ADRs compared to the last two cycles. ADRs definitely have improved.”
At Davidson, Carr said value-add packages that are focused on food and beverage or a bundle of activities continue to attract guests, and that’s what they’re opting to book.
When leisure travel was booming, Davidson slightly pulled back on offering those packages to instead focus on obtaining the highest rate. Now, Davidson is finding success through offering resort credits.
“Even if it’s not a huge discount, it is attractive because they are going to spend more when they’re on property,” he said.