Can premium room types save the hotel industry? - Insights

Can premium room types save the hotel industry?

premium room typesThis year has reshaped the hotel industry in ways never before imagined.  It seems every government action meant to help stem the tide of COVID-19 transmission hammers the hospitality industry more than any other.  CBRE forecasts an annual occupancy level of 41.0 percent for 2020, with luxury hotels being the hardest hit at only 33.4 percent for the year.

Conference sessions that a year ago were about how to thrive in the economic boom have become virtual sessions on how to survive in the apocalyptic environment we are facing today.

There is a lot of uncertainty in the hotel business right now; about whether to keep staff or furlough them, about whether to invest to improve the hotel during this time of low occupancy or horde cash.  One thing is certain, the hotel industry has weathered storms of economic and political change in the past and it will survive this one as well.  Good news in the form of a vaccine has already arrived with at least one exceeding expectations as strongly effective.  Another positive sign is that 99 percent of U.S. and Canadian travelers are eager to travel again with 70 percent stating that they plan to take a holiday in 2021, according to a Travel Leaders Group survey conducted in conjunction with the World Travel & Tourism Council (WTTC).

It’s clearly not an issue whether the hotel and travel industry will survive this pandemic but instead how operators can shorten the timespan from recovery to profitability.  Ideally, that will be the topic of conferences in 2021 when we see business travel on the rise and leisure travel booming as pent up demand results in a lot of vacations next year.

Fortunately hoteliers have a few tools to work with as business returns to drive bottom line recovery.  One of those is the premium room type.  Occupancy is projected to grow 57.3% in 2021 to 59.7% with an increase in ADR to $117.05 from $112.91.  REVPAR is also projected to grow by 63.1% in 2021 to $69.86.  Hotels with premium room types stand to benefit to a greater degree than those without as their standard room inventory is reduced, driving a higher rate particularly for groups.

Having a healthy mix of standard and premium rooms is a best practice for revenue management while also offering competitive differentiation in a market.  The most common premium rooms are those with the best view or larger square footage.  Other premium room types feature themes or specific benefits such as a hypoallergenic environment for guests with particular health concerns.  Premium room types that feature air and surface purification in particular can help hotels drive incremental revenue while making a positive impression and spurring guest confidence in their stay experience.

Hotels need to be more proactive now than ever in planning for their recovery as 2021 approaches.  Adding premium rooms to the property could very well shorten the path to profitability for hotels while offering guests a new incentive to stay.


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