Inflation is having a substantial impact on the hotel industry, particularly as it is related to the US hotel rate landscape. Prices of services and goods provided by hoteliers steadily continue to rise, including the cost of running hotels.
Many hotel managers are hesitant to raise their current rate, fearing it might deter potential clients from booking rooms. Unfortunately, by not adjusting their prices to keep up with rising inflation, hotels may lose the money they need to keep their business afloat.
Similarly, inflation has contributed to a significant rise in labor costs for hoteliers, even as the economy slowly opens. Hotels now have more job vacancies than there are people to fill them. This influx allows hoteliers to offer higher wages, thereby increasing their management costs.
Why Inflation is a Concern for Hoteliers in 2022
As the prices of goods and services continue to rise, so does the concern for inflation. This directly affects your hotel’s bottom line as the cost of running a hotel increases as the cost of goods and services go up. Without proper management, planning, and execution, this can eat into the hotel’s profits, making it difficult to beat the competition.
In addition, hotel owners are increasingly focused on the guest experience. The number of guests booking hotel rooms increased after the COVID-19 pandemic. Hotel managers are no longer worried about guests wanting to stay in their rooms. Instead, they’re more worried about how they can provide their guests with the best experience.
One drawback of inflation in the hotel industry is that hoteliers don’t fully understand how to approach this landscape. It becomes more of a gamble to find the best strategies to keep up with the competition while maximizing profits.
Effect of Inflation on the Hotel Industry
Another concern for hoteliers is increased labor costs. Now, many hoteliers must adjust to the rates they usually charge. A US Bureau of Labor Statistics study found that hotel rates rose by 1% from the months of May to April. This backdrop remains broadly inflationary, considering the historic jumps the hotel industry has experienced post-pandemic.
By factoring in the above elements, increased room rates and oil prices impacting travel, travelers may rethink, travelers may rethink their vacations, hotel bookings, and rental services.
Despite hotel technology and management costs rising, they are becoming a necessity. Companies that are lagging in spending more on data scientists and other specialists for their projects risk missing out on this new but critical venture in the hotel industry.
Inflation's Impact on Hotel Pricing
The rising labor, supplies, and construction costs impact the hotel industry and influence company margins despite the pricing and demand record levels.
Hoteliers have two effective methods of adjusting hotel prices in response to inflation in the hotel industry. They can either raise or lower their prices. Both options have benefits and drawbacks. Therefore, it’s important to consider your hotel’s specific situation before choosing the best approach.
If you lower hotel prices, the decrease should be significant enough to attract prospective and previous guests. Otherwise, this move may end up losing your hotel’s potential profits. For example, if the current inflation rate is 4% and you lower your hotel prices by 3%, you will effectively charge your guests 1% less than they paid the previous year. The amount may also not be enough to entice guests to reserve rooms at your hotel.
On the other hand, if you raise hotel prices, the increase should be in line with current inflation rate. Otherwise, your hotel may end up pricing itself out of the market. In other words, if the inflation rate is 4% and you raise prices by 6%, you’ll be charging guests 10% more than they paid the previous year. This move may make your hotel less competitive as guests consider making reservations elsewhere.
However, the best approach to fighting inflation in the hotel industry varies depending on your depending on your hotel’s situation. Though, many hoteliers find that raising hotel prices is a more effective strategy to offset inflation effects and stay afloat.
Adjusting Room Prices for Inflation in the Hotel Industry
The best approach, as mentioned before, to inflation depends on a hotel’s situation. There are a few critical factors to keep in mind before deciding whether to lower or raise room prices in response to inflation.
Your first step is to first consider the type of guests your hotel typically attracts. Provided that most of your guests are budget-minded, a small price increase would unlikely deter them from reserving your hotel rooms. Although, if most of your guests are luxury travelers, hiking your prices could put them off.
Secondly, you should also monitor the competition’s prices. Observe whether the competition is raising their room prices in response to inflation. Depending on their increase in prices, you should do the same to remain competitive. On the other hand, if the competition has kept its prices unchanged, you could get away with keeping yours unchanged too.
While also monitoring the competition’s prices, you should also monitor other operating costs. All hoteliers must monitor their overhead costs to determine whether raising their room prices will help them break even. Yet, if overhead costs remain the same, you could be able to keep your current prices unchanged to maintain the current guest flow.
Use the adapt method amid inflation
No matter what your pricing approach in the hotel industry is, it is important to monitor profit margins closely to ensure you’re still making a profit and your prices are in line with your competitors. It’s common among hoteliers to use the ADAPT (adjust, develop, accelerate, plan, and track) method to keep their margins in check.
Follow these ADAPT strategies to keep track of your business:
● Regularly adjust your prices to keep up with inflation
● Plan for unexpected expenses
● Develop a pricing strategy that accounts for your hotel’s unique features
● Track your ROI and other results closely
By following the ADAPT method amid inflation in the hotel industry can make your business more sustainable and profitable, even during the ever-changing hotel landscape
Get Inflation Services Today
Inflation in the hotel industry has proven to be a big issue for hoteliers. Without proper planning and price adjustments, it can eat into your profits. You need to consider the state of the economy, the type of guests your hotel attracts, and other operating costs before deciding the best pricing decision.
NewGen Advisory provides hoteliers with the best hospitality and lodging assets and advice. Our team of experts will help you find and implement the most effective strategies to protect your margins.
Get in touch to help your hotel remain profitable, despite current inflation.