Strategic Pricing in European Hotels: 2006–2009

This paper examines the pricing, demand (occupancy), and revenue (RevPAR) dynamics for European hotels for the period 2006 through 2009. The results of this four-year study reveal that in both good times (2006–2007) and bad (2008–2009) hotels that offer average daily rates above those of their direct competitors have lower comparative occupancies but higher relative RevPARs. Based on 8,026 hotel observations, this pattern of demand and revenue behavior was consistent for hotels of various sizes and type of hotel management (i.e., chain-affiliated or independent), and held true in most market segments across all geographic regions of Europe. Occupancy and RevPAR volatility was greater in eastern and southern European hotels (compared to those in the north and west of Europe) and in the economy segment (as compared to higher level hotels). The results suggest that higher relative revenue performance is accomplished by hotels that offer higher rates than their competitors. It also suggests that key strategic factors such as hotel size and chain affiliation do not alter the pattern of findings. The results support the view that lodging demand may be inelastic in local European markets, a finding consistent with previous work in the U.S. and Asian markets. The results of this study appear to confirm the view that RevPAR is not stimulated by dropping competitive prices, and that hotel size and chain affiliation do not in meaningful ways alter the patterns found for the percentage difference in occupancy and RevPAR