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Ipach : prices in the net

The cornerstone of any rate policy, the rack rate is a representative indicator of the good or bad health of the hotel industry. In 2008, rack rates, studied after the end of a summer that was devastating for the world economy, express hoteliers’ concern. The drop is moderate (- 0.5%) but breaks away from the acceleration observed last year (+4.5%). The upscale segment revised its ambitions for rates downward whereas the economy segment took an inverse approach and continued its ascendant phase.

The global economy is slowed and hotel rack rates are feeling the pull. In fact, the sampling of rack rates taken after the summer holidays, fully exposes the concerns of European hoteliers and the different strategies adopted for dealing with this slump in activity. For the four most representative countries – Germany, Spain, France, United Kingdom– the rack rate for a single hotel room at corporate operated chains posts a slight drop by 0.5%, far from the 4.5% progress of last year. In this difficult context, France stands out. Rack rates hold up with 4.4% growth to reach 117.4 euros. Inversely, Spain, which is more deeply caught in the crisis, sees its rack rates mark a net decline by 5.1%. Between these two extremes, prices in Germany and the United Kingdom are down an average of 1.0 to 1.5%.Like the economy categories, the midscale segment could also benefit from a contribution of customers from upscale hotels. Nonetheless, because of its positioning between the economy and upscale segments, this category adopts a very prudent strategy. This is true in all the countries studied, with the noteworthy exception of France where the increase for the rack rate is almost the same as that of economy categories (+7.4%). This voluntary choice testifies to a maneuvering margin that has increased for a segment that seeks better positioning between the 2* and 4*. The evolution of average daily rates expresses the desire to appeal to a more profitable clientele, eventually despite occupancy rates, to support growth in the RevPAR. What will happen if the drop in occupancy continues? In the United Kingdom (+1.2%) and Germany (+0.6%), increases remained very limited and in Spain rack rates in the 3* category were down (-2.1%).Faced with a lower demand hoteliers are offering less ambitious pricing policies. While not giving way to panic but quicker to adapt its sales strategy, the upscale segment is worried about the non-negligible share of its clientele that has been affected by the consequences of the crisis. Hoteliers have begun to observe cancellations and sales happening later and later. Of them all, the MICE segment risks being impacted the most. Reservations 2009 are on hold for a number of reasons: uncertainty about the budgets allocated, uncertainty as to how many participants will attend meetings, and anticipation of a drop in prices by hoteliers.On the upscale segment, France shows a certain tenacity, even if it no longer benefits from the effect of training for the World Rugby Cup. Rack rates are practically stable with respect to last year (-0.3%) whereas in the United Kingdom, they are down significantly by more than 5%. The morale in the City is low and London’s hotels, which rely on the financial community, no longer has the same margins as in the past. Even if Germany has passed a milestone with the FiFA World Cup in 2006, it too is down by 2.6%.While the drop in prices would appear to have begun, it only concerns – for the time being? – the 4* category. While the upscale enters a waning phase by force and constraint, economy hotels continue to watch their rack rates climb. The 0-1-2* categories are as dynamic as ever. High capacity hotels –Ibis in France or Premier Inn in the United Kingdom – continue to fill out their supply. And the new concepts pour in at B&B, Campanile, Motel One, hotelF1.This wave of renovation is bearing its fruits. These new products are driving rack rates up. These segments may also benefit in a near future from a beneficial domino effect. While traditional clientele may not be spared by the crisis, properties with a good value hope to compensate for these losses with a transfer of clientele from upper categories. And with regard to these, a slight rate increase would be practically transparent. With this dynamic underway, the United Kingdom and France are seeing a significant increase in rack rates. Nonetheless, hoteliers of economy properties have strategies that differ from one market to the next. And hoteliers in Germany and Spain seem to have a much weaker growth margin.Like the economy categories, the midscale segment could also benefit from a contribution of customers from upscale hotels. Nonetheless, because of its positioning between the economy and upscale segments, this category adopts a very prudent strategy. This is true in all the countries studied, with the noteworthy exception of France where the increase for the rack rate is almost the same as that of economy categories (+7.4%). This voluntary choice testifies to a maneuvering margin that has increased for a segment that seeks better positioning between the 2* and 4*. The evolution of average daily rates expresses the desire to appeal to a more profitable clientele, eventually despite occupancy rates, to support growth in the RevPAR. What will happen if the drop in occupancy continues? In the United Kingdom (+1.2%) and Germany (+0.6%), increases remained very limited and in Spain rack rates in the 3* category were down (-2.1%).

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