Researcher says resort hotels might be able to charge more
April 13, 2013
SNOWMASS VILLAGE – Recent trends show that mountain-resort hotels are in a good position to raise room rates and depend less on an occupancy-driven business model, a senior lodging-data analyst suggested Wednesday.
Jan Freitag, a senior vice president of Smith Travel Research, presented hotel-industry data from the U.S. and resort markets during the Mountain Travel Symposium at the Westin Snowmass Resort in Snowmass Village. At this point in the economic recovery for resort markets in Colorado and Utah, occupancy is still driving revenue per available room, but Freitag said room rates will play a bigger role in 2013 and 2014.
Freitag presented charts comparing occupancy levels for the past six winter seasons and demonstrated that the industry is selling more rooms now than even in the 2007-08 season, “arguably the high-water mark for a lot of people,” he said.
He also showed how demand and room rates had fluctuated each month during the past four winter seasons. For November, January and February of this season, demand was up from the 2007-08 winter. However, the rate increases for each of those months was smaller than last year, when demand was down or flat for those months.
“Is the demand fluctuation caused by very moderate rate increases, or could that be the snow?” Freitag asked the audience. “Is one driving the other, or are they completely separate?”
Winter average daily rates across the industry are up from 2007-08 and last year.
Freitag next delved into summer occupancy. Peak winter demand is between 400,000 and 450,000 stays, he said, but summer starts at 500,000.
Summer occupancy in four select markets, including Aspen, saw a strong rebound in 2012. Three of those four markets discounted room rates significantly in the summer – Aspen by an average of $123 in 2012. South Lake Tahoe, however, charged the same average daily rate.
“This either makes no sense or all the sense in the world,” Freitag said.
An audience member pointed out that South Lake Tahoe is as much a summer destination as a winter one, and another noted that resorts have more competition in the summer because nonskiing areas are thrown into the mix. One attendee, however, speculated that maybe resort hotels themselves were responsible for charging less.
“I just thought, from the outside looking in: Is this possible?” Freitag said. “Is this (the South Lake Tahoe model) the new paradigm? Demand numbers are very high. People want to come here in the summer. To me, I’m like, ‘Well, then charge more.'”
For the U.S. hotel industry overall, supply, demand and room revenue were at all-time highs during the 12-month period ending in February. Revenue per available room was up 6.7 percent and was driven by average daily rate, Freitag said.
Average daily rate is below where it would be if it were consistent with inflation, he said.
“The discounts post-9/11 were so steep that it took us six years to get back in line with inflation,” he said.
Discounts applied in 2009 brought the average back down, and hotel rates still are not matching inflation.
Demand growth is healthy, while supply is slowly but surely growing as well, Freitag said. The average daily rate at hotels is driving revenue, and he expects the industry to stay the course at its current success levels for some time.