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Europe : drastic shrinking of rack rates

A controlled slide for the economy hotel segment and a significant one for 3* and 4*: MKG Hospitality's annual survey of rack rates will be published this month and demonstrates the impact of the economic crisis on European hotel groups' pricing strategies. This complete study offers analyses of rate positioning by hotel chains, rate changes according to categories or countries, the relationship between average daily rates and rack rates, the change of these prices over time, monthly changes in pricing by major European destination…. HTR offers a taste.

A decrease in business demand, promotions on the leisure segment: the drop in prices spread widely due to the major crisis traversed by all European countries. Among the hotel categories, the economy segment was the least effected by this phenomenon. Its domestic character and its offer with a good quality-price value, both with respect to leisure clientele and business travelers, and for some regulars of higher categories, helped contain the slashing of prices. Countries where this segment is well developed like France, Germany, Belgium, Austria and Sweden stand out for their slight increase in rack rates by about 3% on average (*). On the other hand, countries hit particularly hard such as Ireland, the Czech Republic, Hungary and Italy posted rates down by 15% to 30%. In Rome, economy hotels saw their rates adjusted, leaving third place in the ranking of European cities to London, which posted growth by 2.4%. With properties positioned at the top of the segment, Amsterdam and Brussels take the first two positions. Amsterdam is strongly affected by the crisis, the difference between the two capitals is small, dropping from €13 in 2008 to €3 in 2009. Ranking fifth thanks to a large economy supply, Paris demonstrates its ability to offer inexpensive solutions for accommodations alongside its luxury supply. Inversely, the two capitals of the Iberian peninsula -Madrid and Lisbon - have slipped to the bottom of the ranking. In Spain, operators on the economy segment must follow the opportunistic rate strategy of the 3* segment, which expects a drop in rack rates by close to 50% for 2010. Hit full force by the drop in business activities as well as competition from other categories, midscale hotel chains massively lowered prices in order to maintain their occupancy rates. This drop, which was the most significant across all categories, was general throughout Europe. It was close to 50% in Poland and the Czech Republic, 40% in Hungary, 30% in Spain and the Netherlands, 25% in Germany, 20% in Italy, Belgium and the United Kingdom. France and Greece, two destinations with strong tourist appeal, stand out with the smallest drop by around 10%. In this context, Finland and Austria are exceptional as they post positive changes. The rate strategy for 2010 for hoteliers in the main European cities is a direct function of the impact of the crisis. The more the city is affected by it, the bigger the rate reduction. In Brussels and Amsterdam, which cornered the first two positions in the ranking in 2008 with prices higher than €200, drops in rack rates are greater than 40%. In London and Paris, prices are falling by 28% and 40.6% respectively. These two financial market palaces are surpassed in the ranking by cities such as Vienna, Stockholm and Copenhagen. In Berlin, the intense competition between segments encourages 3* hoteliers to consent to major price reductions. Although the reductions are less significant for the 3* segment, prices in the 4* category obviously reflect the current economic situation. In Portugal and Spain, as well as in Hungary and Luxembourg, hoteliers are reducing rates by up to 30%. The observation is the same in France, Belgium, the Netherlands and Germany with a drop in rack rates by 25%. In the United Kingdom and Ireland, this drop is by 20% on average. Among the least affected, Scandinavian hotels post an average drop of -15%. In Stockholm, which is less dependent on international clientele, the drop was by only -7.8%, which sent the Swedish capital to the fifth position in the ranking of European cities. A major event on the ranking is that Geneva pushed Paris out of first place. Meanwhile, Switzerland resists the crisis, which is evident in hotel results. Upscale hotels of course lowered their rates between 2008 and 2010, but to lesser extents than in other European capitals (-14.5%). The other two positions on the podium are filled by Paris and Rome, despite price decreases by between -30% and -40%, which post rates close to €200. Among the cities with the biggest falloffs in prices are the capitals on the Iberian peninsula (Lisbon with -56.0% and Madrid with -47.7%), Amsterdam with -45.5% and Brussels with -41.8%. The two Anglo-Saxon capitals are particularly affected by the contraction of business tourism (London with -52.0% and Dublin with -50.7%). * public price, available via internet, not during exceptional events, based on a one night single occupancy stay

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