|The Impact of the Rising Cost of Gas – Why It’s Different This time!|
By Carol Verret
Monday, 19th March 2012
It’s almost Easter – the first test of the impact of the cost of gas on leisure travel; it’s a good thing the Energizer bunny runs on batteries!.
Haven’t we been here before? Didn’t we go through this last summer and the year before that with the gas prices? What’s the difference between those years and this year – this is more serious as the price per gallon threatens to leap to over $5 may be even $6! The $5 0r $10 gas card isn’t going to impress.
The most obvious impact will be in leisure as the cost of a drive vacation and rising air fares will take a quantum leap but it goes much deeper than that – it will also significantly drive up costs on the hotel side. Decreasing revenue and increasing costs are not a good cocktail and just when we thought we could begin to drive rate in the leisure segment!
Just when business travel was making a strong showing it appears that the cost of gas is impacting this revenue generator. In an article in USA Today, it states that “Business travel had been on the rebound, with expectations that spending on corporate trips would return to 2007's pre-recession levels by spring, (Michael) McCormick's (executive director of the Global Business Travel Association,). … But if fuel prices stay high and economic emergencies such as the debt crisis in Europe aren't resolved, companies may again pull back.” (USA Today, 3/13/12)
Group business will not feel the impact immediately due to advance bookings. “Group committed occupancy on the books for February through the end of 2012 is up 5.9 percent compared to this time last year and new group business added over the last month is up 5.1 percent. However, ADR in the group segment is down marginally from a year ago by -1.1 percent.” (TravelClick, 3/8/12) Inquiries and bookings going forward may take energy costs into consideration for new bookings.
The most immediate concern is leisure this summer as there are no indicators that the price of gas will retreat that quickly. Strategize now for the summer!
Rate and Revenue Management strategies. Be realistic about rates – don’t just stick to the budgeted numbers! Mine the data in your comp set to see what rates they are projecting for this summer. Value add breakfast if you don’t already offer it as this is a tangible value that a customer can easily monetize. Be ready to adjust rates on a dime and at the last minute, even on the same day, depending on pick up. It’s astonishing how many travelers book on the OTAs and the web site for the same day! Then there are the leisure travelers that will drive into a market without a reservation to see if they can cut a ‘walk in’ deal.
Distribution strategy. Be prepared to give up some rate in exchange for occupancy and visibility. Last minute deals and discounts for length of stay on the OTAs can generate additional volume and don’t forget Mobile only deals. Work with market managers to get a feel for their summer promos and participate when it makes sense. Remember the Billboard effect – the more visibly the hotel has the more reservations are actually made through the web site.
Promotions. Remember the one tank of gas promos from years past? They make sense again. Target areas in that circle that are roughly one tank of gas away. Consumers may be reluctant to give up their vacation plans but will definitely be conscious of the price of gas to get there. Locals promotions – create an experience package ‘tourist in your own town’ for people within 100 miles of the property.
Don’t forget the other two segments. Take the temperature of your corporate accounts and see what if any impact the price of energy is having on their travel plans. Monitor production closely. In these situations, companies are tempted to ‘trade down’ into another segment that offers more value adds like breakfast or manager’s receptions and of course, free WIFI.
Keep your booked groups close and monitor to see if rising gas prices and air fares are going to impact their pick up before the drop date. Take the pulse of new group inquiries in terms of their sensitivity in this area going forward.
Develop a ‘what if’ or contingency strategy for each market segment now so if the worst case scenario occurs, you are ready to roll out alternatives to keep and attract future business. You may even want to look at the alternative strategies you developed the last time this happened. Déjà vu!
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