The Dance of GDP and RevPar - Lessons to Learn

With fear of recession still looming over, hoteliers need to be worried. Gross Domestic Product (GDP) can have a significant impact on the hotel industry, including the revenue per available room (RevPAR).

When the GDP of a country grows, it usually means that there is increased economic activity and greater consumer confidence. This can lead to an increase in business and leisure travel, resulting in higher occupancy rates for hotels. As demand for hotel rooms increases, hotels can raise their room rates, leading to an increase in RevPAR. On the flip side during an economic downturn, hotels may need to lower their room rates to attract guests, which can lead to a decrease in RevPAR.

The most common correlation metric used to measure the relationship between two variables is the Pearson correlation coefficient (r). Studies have found that there is generally a positive correlation between GDP and hotel RevPAR, although the strength of the correlation can vary depending on the specific market and time period. However, it's important to note that correlation does not imply causation, and there may be other factors at play that impact hotel RevPAR in addition to GDP. During the last economic recession that began in 2008, the hotel industry experienced a significant decline in demand, resulting in decreased occupancy rates and RevPAR. According to data from STR, hotel occupancy rates in the United States declined by 10.3% in 2009, and RevPAR declined by 16.7% compared to the previous year. According to data from the World Tourism Organization, international tourist arrivals declined by 4% in 2009 compared to the previous year, and many countries experienced a decline in hotel occupancy and RevPAR.

Revenue leaders should consider a range of economic and market indicators when making pricing and revenue management decisions to prepare themselves for a recession.

1. Analyze past data: Need I say again that data is the new oil!! Review past data on how your hotel has performed during previous recessions. This analysis will give you an idea of what worked and what didn't. Use this information to create a plan for the future. Remember this is not a tactical play but a long term one. You might be reviewing your pricing strategy for the next cycle by analyzing this data. While you work on your KPIs today, the steps that you take define your tomorrow.
2. Monitor the market: Keep a close eye on the market and the economy. This will help you anticipate changes in demand and adjust your revenue management strategies accordingly- again both tactical and strategic
3. Develop flexible pricing strategies: Develop flexible pricing strategies that allow you to adjust rates quickly in response to changes in demand. This will help you maintain occupancy levels during a recession. Remember agility is the winner here
4. Focus on cost control: During a recession, it's essential to focus on cost control. Review all expenses and identify areas where you can reduce costs without negatively impacting the guest experience. Not just a RM play alone so you will need to work with your wider sales and operations team to start defining this. Remember what segments you bring in to your hotel defines profitability. How your guests book your hotel rooms define profitability. how much of loyal guests you bring back to your hotel defines profitability. So, still thinking that you were hired to deliver Top Line???
5. Implement new revenue streams: Consider implementing new revenue streams to generate additional income during a recession. For example, you could offer packages that include meals or activities to increase revenue per guest. But again think about are you trying to create additional demand or managing demand or unknowingly resulting in cannibalization.
6. Strengthen relationships with corporate clients: During a recession, business travel may decrease. Strengthening relationships with corporate clients and offering competitive rates can help you maintain a steady stream of business.Look at offering dynamic rates to your corporate accounts so that they get the benefit when needed but also protects you in relatively high demand dates as you manage your retail pricing.

There is no defined playbook that will cover you up with all the risks of recession but if you are proactively looking at your demand trends and have build an agile strategy and continue to implement effective RM strategies, you can definitely help yourself and your wider team to position your hotel for success. There is some good news though that hotel demand might still grow despite recession!!

The views and opinions expressed in this blog are solely those of the author and do not necessarily reflect the official policy or position of any company or organization.