The Most Important Hotel Story of 2022

25.08.2023 - 14:24 / skift.com / Sean Oneill / Keith Barr

A pent-up surge in consumer demand for travel gave many hotel companies pricing power in 2022. But hoteliers charged the highest rates the market could support for more than just one-off circumstantial reasons. A critical ingredient in the formula was that hoteliers developed a newfound pricing discipline during the pandemic recovery — even when business travel was historically weak and international tourism was slow to recover in many markets.

Hoteliers’ pricing discipline was the sector’s most important story in 2022 because it suggested that hotels will be more resilient in future downturns than in the past.

For global hotel groups, the post-pandemic boom drove record revenue and profit. Hyatt Hotels Corp notched record average room rates system-wide in the second quarter, which led to record management and franchisee fees. Accor reported record revenues in the third quarter. Hilton reported the highest margins in its history. Indian Hotels Company (IHCL) said that its first quarter was the best in the company’s history.

Yet all of these and other financial records might not have been broken had hoteliers not stuck with charging top rates even when occupancy hadn’t yet recovered to pre-pandemic levels. In past recessions, hoteliers found it too painful to watch rooms remain empty and were tempting them to fill them by wooing guests through discounts or by leaning more heavily on costlier third-party distribution sources.

One change has been that hoteliers have put more trust in their computer models. Revenue managers used computers for a long time, of course, but they tended to override software-based suggestions for pricing and instead rely on their own rules of thumb.

In 2022, hotel decision-makers revealed a newfound faith in preserving “rate integrity” as they discarded oversimplified revenue management models.

Computer modeling of supply and demand has also improved significantly. For context, it’s worth quoting at length IHG CEO Keith Barr from his on-stage appearance at Skift Global Forum 2022 in New York in September.

“I think this industry has gotten very, very smart about pricing,” Barr said. “If you remember, during the beginning of the pandemic, everyone was saying that average rates are going to fall materially, and it’s going to take five years to claw those rates back. We completely disproved that. We saw that rates have gone up. Our leisure rates in the Americas are up 16 percent, year-over-year, versus 2019. Again, really strong demand there. Our corporate rates are up about 6 percent as well too, and so those are going to be sustainable.”

When Barr was asked if, when compared with five years ago, IHG has gotten much better at pricing discipline and extracting optimal rates from