"We are encouraging all of our franchisees and owners to resist discounting"
Published: 21 Nov 2008
Stephen P. Holmes, chairman and CEO, Wyndham Worldwide, has emphasised that aggressive discounting is not a good formula and often leads to failure.
"The US lodging industry has been one of the strongest sectors over the past few years but it is not immune to this economy. Recently, the story is declining occupancies reflecting declining demand, but so far, room rates have continued to hold up as hoteliers have resisted major rate cuts. Those of us who remember the aftermath of 9/11 will remember that there was severe rate cutting to try and capture room nights at any price. This tactic did not succeed in bringing in incremental room nights. To the contrary, it simply reduced revenues without increasing occupancy," he said.
Holmes added, "Once the recovery was underway, even with demand on the rise, it was very difficult to raise those rates back up to pre-9/11 levels. We are encouraging all of our franchisees and owners to resist discounting as history has proven that it does not work. So far, we see the industry holding rates but losing occupancy as demand softens. Since the financial success of a hotel is largely driven by the hotel's ability to "yield manage", which means balancing price with occupancy, aggressive discounting is not a good formula and often leads to failure."
"Most travel pundits are predicting conditions will worsen in 2009. Historically, limited service brands, like most of ours, that offer great value for the money, will continue to do well as both business and leisure travelers seek alternatives to spend less, but not stop their travel. Many people refer to this trend as "trading down". We prefer to call it simply "smart"," said Holmes. "The fact is, times like these create trial for our brands, bringing in new customers who discover the value this segment delivers. These times also make a franchise brand that much more valuable to hotel owners who need a global distribution platform to deliver more business."
On the air travel side, he said ironically, even as the industry has made searching, shopping and buying airline tickets convenient, easy and even fun, however, taking the trip itself has lost its joy.
"Travel hassles, long security lines, flight delays, and cancellations caused 41 million trips not to be taken last year, by TIA estimates, including 29 million leisure trips and 12 million business trips. This is a total loss to the travel industry of $26.5 billion: $9.4 billion to airlines, $5.6 billion to hotels, and $3.1 billion to restaurants, as well as a loss of $4.2 billion in federal, state and local tax revenue."
"It is in all of our best interests to improve the air travel process. We are all part of this great travel industry, and our success will be that much greater if we work together toward comprehensive reform and a real commitment to build a travel infrastructure appropriate for the 21st century and beyond."
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