The Price of Rate Cutting

The graph depicted in this blog from Smith Travel Research clearly shows the challenges a hotel has when deciding to drop room rates as a way to book business for its property. If a hotel is running at 58% occupancy a 10% drop in average room rate will mean that the hotel will need to obtain 64.3% occupancy just to get even with the rate decrease. These numbers make a very compelling case about the challenges of price cutting. 

We clearly understand there are times when discounting a rate to attract a meeting or convention makes economic sense. Some RFP’s are very specific about its price points, and the client will eliminate a city from contention if the room rate exceeds what they deem conference attendees are willing to pay.

I strongly encourage our hotel partners to seriously consider offering value-added options during the next 12-18 months versus offering discounts at the outset of negotiations. Consider instead offering a free continental breakfast or free Internet service or free movies… There are a variety of value-options hotels can turn to without driving down its own average room rate. Value-added offerings should be considered for group bookings as well as for the business and leisure traveler. Let’s continue to work together so that when the economy turns around, Louisville will be poised to benefit greatly from the decisions we are making today.