Deep Price Cuts Will Set Bad Precedent for Hotels After Pandemic Ends

By paul owers | 10/1/2020

Hoteliers are bracing for a tenuous tourist season as the fallout from the COVID-19 recession lingers, but deep discounting should not be part of the recovery playbook, said Peter Ricci, Ed.D, director of the Hospitality and Tourism Management program in Florida Atlantic University’s College of Business.

Ricci contends that hotels should keep rates what they were prior to the pandemic and instead institute a bare-bones operation that includes reduced staffing and expenses with only a small percentage of rooms available to reserve.  

“This will maintain brand integrity and the quality expectations without denigrating the experience,” he said. “Once doors are opened to guests at lower rates, they will anticipate similar rates in the future.” 

Ricci has more than 20 years of managerial experience in hospitality industry segments such as food service, lodging and destination marketing. 

Hospitality is the largest private employer in Florida with more than 1.1 million people working in the industry. Estimates showed that roughly half of those workers were laid off or had hours reduced at the height of the COVID-19 pandemic earlier this spring when it disrupted nearly every aspect of American life. Many workers have since returned to their previous jobs, but their futures remain uncertain as hotels grapple with declining revenue amid a still-soft travel market.   

In April, the average daily rate (ADR) for hotel rooms across the United States plummeted 45 percent from the same period a year earlier, according to analytics firm STR, the leading source of data for the lodging industry. The ADR has improved each month since, but still was down 23 percent in August.  

STR notes that post-9/11, room rates fell sharply for 12 months and took double that time for the ADR to return to what it was prior to the terrorist attack, the firm said. The rebound from the financial crisis of 2008 took roughly the same amount of time.    

As the traditional tourist season looms, property owners can slowly reopen more rooms and add staff while maintaining rates near pre-pandemic levels, Ricci said.  

He suggests offering an increase in value rather than simply deep price discounts. For example, hotels can stand out from the competition with built-in items, amenities and services, such as free face masks, hand sanitizer in the rooms and a list of local restaurants noted for social distancing.   

Hotels should consider rehiring management professionals to help maximize revenue streams as part of a daily strategy once the crisis passes, according to Ricci, but getting customers back through the lobby doors by slashing rates is a bad precedent that can have long-lasting repercussions.

“Don’t just drop the rates 50 percent or more to get back in business. Offer a value so you can stay in business,” he said. “Hoteliers need to panic less, strategize more and move forward.”