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Analysis

In Madrid, best to book a hotel two or three weeks in advance

A study of pricing strategies at Madrid's hotels shows that prices online are generally lower when rooms are booked 2 to 3 weeks prior to the stay. When demand is low for a given date, prices are decreased between J-30 and J-14, while hotels often increase their prices at the last minute. But not all properties and segments share the same rules…

Yield management makes it possible to optimise hotel occupancy by increasing or lowering prices depending on the intensity of demand. Spain's capital, however, after several years of difficulties in the hotel sector, improved last year (read our analysis) with, in particular, an increase in occupancy rates as well as a progressive recovery of average daily rates. In 2014, Madrid's RevPAR further increased by 9.2% with respect to the previous year. In this positive context, hotels are inclined to increase their prices, but as occupancy rate levels still offered room for improvement, prices must drop when demand is weak.

In order to determine how extensive this practice is in Madrid and when to book depending on the chain (for individual clients), the prices practiced on internet by hotels in each brand were systematically recorded several times in a single night, on a day outside the summer season. The date of the stay was from November 19 to 20, 2014. Recordings were made each week from September 30 to November 17, 2014.

Changes in prices at the upscale and upper upscale chains



Change in prices at the primary economy and midscale chains





Note on methodology: The breakdown of brands into different categories as presented does not always correspond to unique positioning by brand. Rather it considers the product positioning of each property. Thus, the categories are made up according to the starred ranking of hotels, and not according to brand logic. In Madrid, many brands, domestic ones in particular, present properties whose product positioning overlaps two categories, such as Catalonia, Husa, Sercotel, Tryp, Zenit Hotel.


On all segments, it is possible to observe an increase in prices posted between a reservation made a month in advance and two days ahead, this means that it appears almost always more advantageous to book "early bird" rather than "last minute". Those who book in advance are perhaps less and less numerous, but this fact gives these clients a better value at hotels that want to "secure" a certain level of occupancy in order to apply higher prices to last minute clientèle, this is undoubtedly because the latter are generally obliged to travel, particularly for professional reasons, and thus they are less price sensitive. The strongest increase between advance and last minute reservations is on the upscale segment (+17% on average), which has also been the segment with the highest occupancy rate for several years.

But it may be observed that when the price decreases, it is on the sixth day of recording prices - October 27, or 23 days before the date of the stay - and it is often the day prices shift in the other direction. The day prices increase is generally on the last two dates, November 10 and 17, corresponding to 9 and 2 days before the stay. Finally, hoteliers appear to adjust their prices downward when they observe, after looking at the month ahead, that demand is insufficient at their property. Then, from the last two weeks before the date of the stay, they sharply increase their room rates. Prices practiced on Internet in the Spanish capital are thus often lower 2 to 3 weeks before the date of the stay.

Prices obtained also indicate that more than half of the chains studied on the period observed, use a fairly extensive yield management program. In fact, 57% of them modify their prices in the month prior to the date of the stay with variations higher than +/- 9%.

44% of upscale and luxury hotels post stable rates during the period recorded, while this is true for only 29% of the midscale brands. Among the upscale brands, only 12% have rates that showed a downturn (versus 24% of midscale brands), while 44% applied rates that followed an uptrend (47% among midscale brands). The last minute drop in rates is thus an "original" strategy that is more widespread on the midscale than the upscale segment. In the economy segment as well, rates don't undergo much adjustment either, with increases in prices at Ibis remaining within 6%, while a brand such as 4C maintains stable rates.

This analysis was carried out with 200 economy brands in five European capitals (Paris, London, Madrid, Rome and Berlin). To read the full study on dynamic pricing in 2015 (with price positioning for 2015 by brand and by country on each segment, the scope of fluctuations by brand and by market for a single date during different reservation periods, the differences between rooms and suites by brand, specific pricing policies...)


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