By: Mark Lomanno
For as long as I have been following the hotel industry, room rates that guests are charged have almost always gone up or down based on seasonality. The habit of pricing by season often results in wide fluctuations in room rates during the course of the year. This is of course with the intent of maximizing revenue by adjusting room rates charged to the guest based on anticipated or historical demand levels. I have often wondered how much revenue hotels have left on the table by either not raising ADR sufficiently during peak months or lowering them too much during slow months.
Recently I examined some Airbnb pricing data that made me think further about the value of pricing by season. Specifically, I was looking at some pricing by city (large cities with a large Airbnb presence) and by month for Airbnb vs. hotels, segmented by chain scale category. Initially, I was looking to see how Airbnb pricing compared relative to the various chain scale classifications to see where they were most competitive with hotels (a discussion of how we derived what we believe to be the most accurate way to determine pricing is a bit too lengthy to review here). While that data was extremely interesting, what was also fascinating was the difference in pricing by month reported by Airbnb properties vs. that of hotels.
What we saw was Airbnb properties have little to no seasonality in their pricing, while hotels have the variability discussed earlier. What further piqued my curiosity is that, while there was little seasonality in pricing, there was very significant seasonality in occupancy. In fact, the occupancy seasonality mirrored that of the hotels. This almost certainly indicates that the Airbnb operators are not capitalizing on their room rate potential in peak months. However, we see they do not drop their rates during slow periods, but still maintain an occupancy pattern similar to hotels, which results in a much better revenue performance than hotels in slow months.
Some of this is due to a lack of revenue management tools for Airbnb operators, a dearth that will likely disappear in the near future. Still, one man’s conclusion is that hotels need to take a hard look at their seasonal pricing, especially during the low season. Does all that discounting really do any good for your bottom line? I have long suspected that the industry does not need to lower their room rates as much as they do, both in downturns and seasonally.