The price is right: Setting your room rates at the right level after coronavirus

23 July 2020 by

Hotels across the UK are finally opening again following the coronavirus lockdown. But with a mix of strong staycation demand, fragile confidence and subdued activity in other business areas, how should hoteliers set their room rates? Neil Gerrard finds out

Openings are always a fraught business. Ask any hotelier and they will tell you of the sleepless nights, the last-minute staffing and maintenance crises, the anxiety over whether or not the team is ready or how guests will react to the experience they offer. But with it comes a great deal of excitement and exhilaration.

Almost exactly the same can be said of reopening after the coronavirus lockdown, albeit with a host of new decisions to make. How should rooms be cleaned and what will it cost? Should staff wear masks? Will guests submit to having their temperature taken? And perhaps one of the most crucial questions of all: will demand return and how quickly? It's that conundrum that sits at the heart of another consideration: where should room rates be pitched in the post-lockdown world?

Holding strong

It's hardly a surprise that Winston Zahra, chief executive of Ryan Giggs' and Gary Neville's GG Hospitality, has applied a footballing analogy to reopening. "We have used a starting XI football grid plan from day one. We have gone through our defensive and midfield mode and we are now preparing for attacking mode. Our preopening training plan is titled ‘Getting Match Fit Again'," he says.

Winston Zahra, Ryan Giggs, Gary Neville and Stewart Davies of GG Hospitality at the Stock Exchange hotel.jpg
Winston Zahra, Ryan Giggs, Gary Neville and Stewart Davies of GG Hospitality at the Stock Exchange hotel.jpg

GG Hospitality's Manchester hotels, Hotel Football near Old Trafford and the Stock Exchange hotel in the heart of the city, have been closed to the public since 22 March but have been playing host to healthcare workers and medical professionals as they combat coronavirus. For the time being, that continues to be the case, but GG Hospitality plans to reopen its venues to the public in August, subject to discussions with Manchester University NHS Foundation Trust (MFT).

But in city centre locations, with Hotel Football in particular closely linked to sporting events, the future is hard to predict. "We still don't have clarity on when fans will be allowed into the stadiums. In the meantime, we are going to do our utmost to bring football to the fans within Hotel Football in a safe way," says Zahra.

One thing he is certain of though, is that despite the challenges, GG Hospitality aims to stand firm on rates, not least because of the increased costs of incorporating extra cleaning measures and the impact that social distancing is likely to have on occupancy. He explains: "We have to be really careful commercially and we will keep our rates where they were. Increasing them will probably be foolish but dropping them will also be foolish. We believe that our guests will put safety before the rate and will appreciate that the rates need to remain the same for us to maintain a safe and hospitable environment."

We believe that our guests will put safety before rate and will appreciate that the rates need to remain the same for us to maintain a safe and hospitable environment

Despite being a cyclist, Jonathan Raggett, managing director of Red Carnation Hotels, also employs a footballing analogy to describe the situation facing the group he runs. Red Carnation has more than 600 bedrooms in central London, but also runs countryside properties like the 25-bedroom Summer Lodge in Evershot, Dorset.

"It's a game of two halves," Raggett asserts. "The demand for Summer Lodge, which is a Relais & Châteaux property in beautiful country- side, has been more than we have ever had before. There has been this pent-up demand for staycations. There has been no discounting of rates whatsoever and, in fact, people have been buying premium accommodation. That's the positive side of it.

Jonathan Raggett
Jonathan Raggett

"The less optimistic side is I am responsible for more than 600 bedrooms in central London. And clearly it is chalk and cheese."

In London, the plan for Red Carnation in the short term is to open around 30% of the room stock, including hotels like the Rubens close to Buckingham Palace. But such hotels are reliant on international tourists, particularly from the US, who visit the capital's attractions, theatres, sporting events, and conferences – most of which are not currently running.

Despite this, Raggett does not plan to reduce rates but instead to add value. "We will be doing complimentary upgrades for our guests bookings and afternoon teas, to try and entice people to choose a Red Carnation hotel," he says.

"The people that are coming back are guests of Red Carnation and these are the people that know us, like us and trust us. If all of a sudden they see the rates vastly reduced, they will start to ask questions. The other thing is that the cost of running a hotel – in terms of the cleaning and PPE – isn't going down either. It is a bit of a false economy to start bringing rates down," he adds.

The cost of running a hotel – in terms of the cleaning and PPE – isn't going down either. It is a bit of a false economy to start bringing rates down

Robin Hutson, chief executive of the Lime Wood Group and Home Grown Hotels, also highlights increased running costs as a reason to stay firm on rates. He says: "A bedroom will now take twice as long to clean and sanitise as it did but we are absorbing that cost. And because we are seeing strong demand for staycations, I don't feel the need to discount. We try to stick pretty hard and fast with our published rates."

Marlin apartment
Marlin apartment

And David Grieg, group revenue manager at London-based serviced apartment operator Marlin, doesn't expect discounting to work anyway. He explains: "We're seeing that in the current market, prospective guests are not responding to low rates and deep discounting in the way that we would normally expect. The indication would be that overall value is important, and guests are viewing safety and flexibility as key priorities."

Slashing prices

Not all operators are of the same view, however. Embattled budget hotel chain Travelodge, which in June underwent a company voluntary arrangement (CVA) to reduce its rent bills until the end of 2021, hopes that offering wide-ranging discounts will stimulate demand.

The firm, which kept 62 of its 450 hotels open for NHS staff and is now reopening at the rate of around 100 sites a week, has recently embarked on an offer of one million rooms priced at £29.

"We don't know what the demand is going to be," explains Shakila Ahmed, Travelodge's communications director. "We know there are a lot of searches taking place and the coastal and rural locations are popular and we know that people are really affected financially, so we hope this offer will help Britain get a break of some kind this year. I think people will be very nervous about going away. We are really focusing on the low-cost factor."

People are really affected financially, so we hope this offer will help Britain get a break of some kind this year

Meanwhile, at the Manor House in Castle Combe, Wiltshire, part of the Exclusive Collection, general manager Gaius Wyncoll is finding that a 30% discount off its standard rate for stays of three nights or more is helping to drive longer staycations.

Manor House, Castle Combe
Manor House, Castle Combe

The hotel, which had 14 weddings booked in July and 11 in August, is hoping to fill the gap with accommodation sales and is seeing a surge in demand for its hotel rooms and cottages. "I don't know if it was a surprise to me, but we have had a lot of people book," says Wyncoll. "People have booked for nine, 10, 14 nights – especially in the cottages in suites. We will keep the offer running for as long as we feel the need to. August is looking good. I am hoping we will get to 50% occupancy, which is not going to be near the 80%-plus that we would normally run at because we haven't got the chunky wedding business, but people seem confident enough to come away, which is great."

Manor House
Manor House

Roberto Pintus, general manager at the Varsity hotel and spa in Cambridge, says the business is currently offering lower rates to reflect the fact the spa is closed in line with government guidelines. "Once we reopen it, we will return to normal rates, but we are not planning for a rate increase at present. We have traditionally had high occupancy levels, so we don't expect them to be the same in 2020 as they were in 2019. However, we expect our food and beverage outlets, including our rooftop and our bar and brasserie, to have strong bookings," he says.

With operators in more rural and coastal locations reporting strong demand for stay- cations, they may find it easier to hold up rates than their counterparts in the cities, which could find themselves affected by a lack demand from key groups like international visitors and corporate customers. Flexibility as the year goes on, coupled with the ability to offer value for those guests confident enough to return, are likely to be key.

But Zahra concludes with a warning for his fellow hoteliers: "If the industry starts to try to compete on rate then it becomes a vicious downward spiral. No one wins. Short term one might argue that the guests win because they are paying less, but in reality the guests don't win either because standards fall, corners are cut, and, especially in this kind of situation, if corners are cut on health and safety that could be disastrous."

Six tips on setting room rates after lockdown

Margerie Suon
Margerie Suon

Margerie Suon, senior revenue management executive at Hamilton Hotel Partners, predicts how the market will play out.

  1. Hotel teams and their revenue systems need to be flexible as they learn what the constituents of demand are in their market.

  2. Historically, price wars do not generate additional demand, and we see reassurance from the industry benchmarks that average pricing has not dropped significantly so far in most markets. However, the market will inevitably be more competitive. It's difficult to see this playing out in any way other than a softening of rates, though we hope this is not the case.

  3. Although flexibility in the terms and conditions is an understandable requirement from customers during the pandemic, we believe in maintaining an attractive (and changeable) pre-paid option in order to support hotels' cash flow. This is a critical element for most hotels, who will continue to balance lower top-line revenues with increasing running costs, including marketing and distribution spend.

  4. Offers and staycation packages aimed at the domestic market will be a key element of the recovery marketing efforts, but an attractive price needs to be combined with the promise of a memorable and safe experience for the customer.

  5. Hotels will also rely on additional "value-adding" attributes to compensate for a lower base rate, whether through offers on higher categories of rooms/suites or experiential add-ons or looking to secure longer stays.

  6. For branded properties, loyalty programmes and the related member reduced pricing will be a strong lever to convert bookings in the short-term but also sustainably re-engage customers with the added reassurance of cleanliness programmes.

Occupancy and rates rise at Lympstone Manor

Lympstone Manor
Lympstone Manor

In some rare cases, businesses have seen their summer occupancy and rates increase, rather than fall. The five-AA-star, 21-bedroom Lympstone Manor in Exmouth, Devon, is enjoying high demand. "Reservations are coming through thick and fast," says chef-patron Michael Caines. For the first weeks of July, the business has opened to residents only for dinner and has been using only one dining room for lunch, opening only five days a week without afternoon teas. After that, it plans to open up more dining rooms and return to being a seven-day-a-week operation.

Michael Caines
Michael Caines

Forward bookings for the rooms are ahead of last year and Caines is also seeing rates rise on last year. "The reality is we have just taken on a fairly considerable loan to survive. You can't open up and trade on a discount. If the demand is there then we must protect the business. We have actually seen an increase in our room rate and quite a significant improvement on last year but also on budget," says Caines, who admits that Lympstone Manor's spacious countryside location on 28 acres of land, and its affluent, domestic customer base that is less sensitive to changes in rates have worked in its favour. At the time of writing, room rates were already up £28 year-on-year for July, £71 in August and £71 in September.

Lympstone Manor
Lympstone Manor

"We lost so much business through April, May and June. Anything we can rescue through July, August and September will be great. The only downside to that is we are restricting lunches, afternoon tea and dinner in the short term," says Caines.

But if he and his colleagues at Lympstone Manor feel fortunate in the face of what looks like a potentially strong summer performance, Caines is at pains to recognise the wider struggles of the industry.

"We are very optimistic about the next few months but that is tempered with the fear of a second spike in the winter, so we are making a little bit of hay while the sun is shining. Let's not forget that this Covid-19 situation is far from finished and the consequences of it will have a big impact on the industry. While we are having a period of relative demand, we recognise that some of our colleagues in the industry are challenged and our thoughts are with everybody as we look to open up," he says.

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