How lessons from 2009 can help pricing in this downturn
How lessons from 2009 can help pricing in this downturn
20 AUGUST 2020 8:07 AM

During an online HDC presentation, STR’s Carter Wilson examined when ADR dropped in the last recession and compared it to what’s being seen now in the current downturn.

REPORT FROM THE U.S.—The current downturn caused by the COVID-19 pandemic has brought on more questions than there are answers when it comes to hotel pricing, but to figure things out, hoteliers can start by looking at past downturns.

During the “Pricing psychology in this downturn” session during this year’s online Hotel Data Conference, Carter Wilson, SVP of consulting and analytics at STR, examined how long it took for demand to decline in 2009 before average daily rate started to decline and compared that pattern to what’s happening now.

(STR is the parent company of HNN.)

In 2009, “there was a long period of time (approximately 300 days) where we saw demand decline … before we saw that first overall day where average rate declined,” he said.

This time, it only took 10 days of demand decline before rate started to drop.

“That speaks to the severity of this decline,” he said.

Source: STR, © 2020 CoStar Realty Information, Inc.

In June 2020, average rates declined 32% year over year nationally, he said. STR looked at five groups of hotels in different locations to see “what’s happening behind the scenes of average rates” and found that drive-to beach markets only saw a 15% decline.

In the group studied, luxury hotels saw a 21% increase in average rates over the same time in 2019, he said. Urban convention properties saw ADR decline 55% and national parks reported flat ADR in June.

Extended-stay properties reported that ADR was only down about 9% for that month, Wilson said.

Looking more at 2009
During the last recession, hotels that saw drops in pricing was due to a comp set problem, Wilson said.

First, one hotel in a comp set would panic and drop rates. Then, a second property in the set would slash prices about a month later, and the rest would follow.

STR data shows that higher chain scale properties in central business districts reacted faster and dropped rate.

Source: STR, © 2020 CoStar Realty Information, Inc.

STR also looked at two groups of hotels during the 2009 recession: The ones that recovered in rate and the ones that never recovered. Wilson said when the two groups were compared on an occupancy level, “their actual absolute occupancies were pretty similar.”

“However, when we looked at their annual average rate change, you can see there is a difference,” he said. “Those properties that never recovered in rate ended up being the ones to drop rate the most in the trough, 2009, 2010, so that leads us to believe, perhaps, those properties were willing to sacrifice rate to maybe hold occupancy.”

Looking at hotels open from just prior to the downturn between 2007 and 2013, when rate started to recover nationally, 10% of hotels never got to its previous peak, which was a higher number than expected, he said.

He added that the ones that didn’t return tended to be upscale and upper upscale properties.

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