Thursday, May 20, 2010

Rate Wars. Can Anyone Stop Them?

Rate Wars, Can Anyone Stop Them?

It’s like being forced to watch someone commit suicide, only in this case, you have the power to stop it, but only if you can get everyone to agree.

Sounds like the makings of a great movie, doesn’t it? Poor little Samson, up against Goliath…

Unfortunately, it’s no movie, it’s just the annual Hotel rate wars that spring up in virtually every city across North America as the season heats up, and Hotels get nervous, and it happens year after year.

It’s painful really, because no matter which city I have been in when it happens, there is invariably a Hotel Association, and sooner or later, or what’s worse, repeatedly, someone springs up out of their seat at a meeting of the local Hotels and asks the philosophical question; “what the hell are we doing?”

“Our rates are in the basement, this Hotel has this special out there, and that Hotel has this special out there, and at the end of the day, all we are doing is giving rate away, all of us.” The irony is, in a great many cases, the person who sprang up is in fact one of the culprits, if not the worst of the bunch.

When pressed, they’ll say; “we had to cut rate because X Hotel did this, so we had to follow.” News flash, no, you don’t, but that’s the problem, everybody follows the leaders in the pack, which are often the big brands represented in the market, and once the discounting starts, there’s no stopping it.

At the end of the season, everyone is at the Hotel Association meeting again complaining about what a lousy season it was, “demand was good, but rate suffered.” Of course rate suffered, you’re the one who cut it, and now you’re surprised it was down?

What I don’t get is that these are smart people. They know the impact of these decisions, they know that there is a point at which their RevPar numbers no longer make sense, from a profitability stand-point, but they do it anyway.

I guess I should also admit that I know that at times, the “big boys” are getting direction from on high and they have to tow the (corporate) line at the Hotel level.

I get that, but what I don’t understand is why the guys at the top of the (corporate) food chain, people a lot smarter than I am, don’t see this for what it is.

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