Our travel team is an extension of Advance Travel and Tourism, which means we’re tracking nationwide trends in travel, watching for changes in how travel-intenders shop for and plan with destinations. We’re always watching for changes in the market and how our destination partners are improving on their strategies year over year.
Many destinations are seeing hotels and resorts increasing their room rates to match or beat inflation rates and cost of goods. This adjustment can reap rewards in room tax revenues for CVBs, but watching for the impact of these increases is an important step. Careful measurement of the value proposition for the destination and visitor sentiment becomes increasingly important as room rates are adjusted. Because increasing room rates can have both positive and negative impacts on occupancy levels, there are factors to consider.
Price Sensitivity
Guests are sensitive to price changes, and an increase in room rates may lead to reduced demand if the increase is perceived as too high or unjustified.
Competitive Markets
If competitors offer lower rates or alternative accommodations, increasing room rates may prompt guests to choose other options. Ensure your rates remain competitive within the market.
Perceived Value
Increasing room rates should be accompanied by added value or improved services. Offering additional amenities or enhancing the guest experience can help maintain occupancy levels despite higher rates.
Demand Elasticity
Different segments of guests may have varying levels of sensitivity to price changes. Understanding the demand elasticity of your target market can help determine the impact of rate increases on occupancy. In other words, understand your target demographic and their perceptions, and work with your hoteliers to make decisions accordingly.
It is possible that increasing room rates can help improve revenue even if occupancy levels decline, especially if the demand is low or if the hotel is already operating at high occupancy levels. Revenue management strategies should be used to determine the optimal balance between rates and occupancy for maximizing overall revenue.
Striking the right balance between room rates and occupancy is crucial. Regularly monitoring market dynamics, conducting competitor analysis, and understanding guest preferences can help you make informed decisions about rate adjustments to minimize the negative impact on occupancy while maximizing revenue.
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