Hotel operators must position themselves now for a future recovery—even though there's no certainty of when that recovery will occur.

Participants in the latest webcast in the CHR–SAS Webcast Series, "Preparing for Recovery," explored the ways that hotels can strengthen their rate structure for future profitability. For many hotels that slashed their rates too quickly, a turnaround may be relatively far off.

The February webcast brought together expert views and commentary from both industry practitioners and faculty members from the Cornell School of Hotel Administration. Joining William Carroll, Jan deRoos, and Sheryl Kimes of Cornell were Ravi Mehrotra, President and Founder of IDeaS, Philip Schaetz, Vice President Revenue Management, International Operations, Hyatt Hotels and Resorts, and, by satellite connection, Corin Burr of Bamboo Revenue, Doug Hesley of Norwegian Cruise Lines, and Michael Vinci and Shonette Harrison of Harrah's. The web series is jointly produced by CHR and SAS, which is a CHR partner. Kelly McGuire, Product Marketing Manager, Gaming and Hospitality, helped produce the series for SAS.

Panel participants agreed that hotel operators faced severe challenges in attempting to maintain rates, especially in markets where competitors slashed rates. Even granting that each hotel faces its own individual market situation, all participants agreed that cutting rates generally was not a successful approach to increasing occupancy, particularly in the long term. In a study of 950 hotels, for example, Kimes found that cutting rates was mentioned most often as the tactic that hoteliers would not try again. Said one respondent: "We didn't get new business; we just gave a lower rate to guests who would have come anyway."

Most panel members were anticipating that the industry would see recovery by the end of 2010, but a return to previous business levels might still be several years away—especially considering the weakness of the employment in the U.S. Thus, the key strategy to position for recovery is to pay attention to rate structures. Carroll pointed to the reality of a more careful consumer, both in leisure and business segments. Leisure guests are taking more economical holidays, and business travelers must economize and seek to avoid the appearance of luxurious accommodations.

Looking at his corporate accounts, Burr is seeing more accounts come to life, but booking windows are shorter and prices offered are lower than previously. Echoing Kimes's findings, he believes that the industry has learned that slashing rates doesn't work. On the other hand, de Roos sees strong players willing to fight a price war—even one they didn't start—with the idea of being the eventual winner and removing excess supply from the market.

Looking at the strategies for recovery, Schaetz noted that those strategies will vary because recovery is occurring at different rates and in different ways in various markets. Mehrotra focused on the need to use revenue management strategically. He said that hotels are realizing that RM is a long-term strategy that aims for optimizing revenue over the long term, and not just in one-day or one-week increments. He is concerned about hotels that deeply discounted, because it's difficult to bring prices back up once they are down.

Schaetz and Carroll suggested that hotels can use online travel agents (OTAs) as an integral part of their pricing and distribution strategy. Carroll said that hotels should view OTAs as a marketing entity, especially since they serve a large segment of the market. Schaetz outlined an approach that makes OTAs partners with the hotel brand in both good times and bad.

Harrison explained that Harrah's is working to create a broader appeal in its casino properties, to compete in more leisure time activities, and Vinci cautions hoteliers to be quick on their feet and ready to change tactics with the changing economic environment. Burr sees hotels becoming more strategic in rate management, for example, by setting rate fences and purchase requirements. Above all, suggested Hesley, operators must be at their absolute best at all times. He believes that you cannot manage for an unknown recovery, but you can manage for excellent current operations. Finally, Mehrotra urged hotels and other travel business to integrate their revenue management strategy to include all revenue sources, so that hotels don't sell one aspect of the operation at the expense of the others.

The webcast can be viewed at no charge through the CHR and SAS at www.hotelschool.cornell.edu/research/chr/events/webcasts/webcast-15192.html

Three previous CHR and SAS webcasts are also available for view at no charge, at www.hotelschool.cornell.edu/research/chr/events/webcasts . They are as follows: Loyalty, Rewards and Value: What Do We Want from Our Customers?, Right People, Right Jobs, Right Time: The Art and Science of Labor Planning, and Where's My Data? Tips and Tricks for Designing a Strong Data Quality and Data Integration Strategy.

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About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 78 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.