Accommodation Rates to Increase

For the last 12 months the GFC has forced travel operators to offer more competitive pricing, but in the wake of a recovering economy, one leading industry player says consumers should brace themselves for price hikes once more.

Dynamic (or variable) pricing was in full swing just 18 months ago, with large accommodation providers charging the corporate world up to three times more for its rooms during peak periods.

The GFC reversed this dynamic, causing average room rates and occupancy rates to decline dramatically.

Will the accommodation industry continue to suffer, or will the much maligned dynamic pricing model re-surface some time soon with the improvement of business confidence?

Quest Chairman Paul Constantinou has been in the industry for more than 30 years. He is the founder of the successful Quest Serviced Apartment group, which boasts more than 120 properties across Australia, New Zealand and Fiji, and has seen the many cycles that the industry has undergone.

“Four to five years before the GFC hit, the industry had been under-supplied. The strong demand for accommodation caused bigger players to get greedy and introduce dynamic pricing to the market.

“This meant that providers were able to charge significantly more during peak periods. Corporate travellers were unhappy because they could be charged up to three times more during the week than normal. They found it difficult to predict prices and to establish budgets and stick to them, being forced to arrange their travel week by week.”

Mr Constantinou instead believes in transparent pricing and fostering a win-win relationship with the corporate world.

“Quest has always had a price integrity model where we negotiate a price at the start of the year and stick to it. We believe it’s important to take the corporate customer’s perspective and treat the business market separately rather than throw it in with the leisure market.

“The corporate world has travellers who need accommodation for the entire year. They are travelling for business, but are penalised during peak periods as well as during event periods where they must compete with leisure travellers,” he said.

“It’s about looking after your customer, driving loyalty, and not treating them like they’re a commodity. There’s no use giving a customer a loyalty card if you have no loyalty,” he said.

According to Mr Constantinou, the accommodation industry was facing a severe undersupply heading into the GFC. Over the past 12 months, this under-supply has still underpinned the industry, but has been temporarily masked by reactive travel budget cuts.

With the economy recovering, he believes that undersupply will continue to worsen and we will see the potential return to dynamic pricing and increased volatility in the industry.

“The capital issues from the GFC have put a hold on the development of new properties at a time when developers would be trying to capitalise upon the short supply of accommodation by building. As business confidence increases and demand for accommodations picks up again, we will move straight into under-supply again and there will be no stock. This is already starting to kick in, with accommodation prices already on the up,” he said.

So with prices rising and a scramble for accommodation on the cards soon, can large accommodation providers look forward to a pot of gold? Mr Constantinou thinks not.

Mr Constantinou believes that the shake out of the financial industry has forced the major consumers of luxury accommodation to moderate their spending and seek better value in the market place and many have turned to serviced apartments operators, such as Quest, for their corporate travel requirements.

“The financial world is becoming increasingly accountable to its share-holders. Some of the hotels in the USA have dropped their rating from five-star to four, because there has been a turn against corporate excess and wastage.

“Clients and shareholders are increasingly saying ‘It’s my money, you need to be accountable’,” he said.

Mr Constantinou believes that a reduced propensity to overspend on accommodation will give the corporate world more negotiating power.
The lesson for big business is that it will still be able to demand more from accommodation providers despite looming potential for under-supply, it just needs to understand that it will hold more cards than it realises.

The clear lesson for accommodation providers is to focus on the long-term and build genuine relationships with its corporate customers, through thick and thin.