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Rate squeeze has ripple effect
Five-star properties have been putting pressure on four-star properties by significantly discounting their rates over the past few months, according to some hoteliers.
The four-star Peech Hotel in Melrose, Johannesburg, has been forced to discount its rooms because of rate pressure applied by five-star hotels, according to gm, Tarryn Scheuble. "As a small boutique hotel with only 16 rooms, to constantly discount our room rates to remain competitive is not sustainable. Some five-star hotels have been selling their rooms online at a quarter of the price they usually sell them for and the rates are, at times, lower than our corporate rates."
Tarryn says The Peech is working hard to create something special for guests, be innovative with specials, and keep its corporate rates competitive to retain corporate clients.
The four-star Quatermain Hotel in Sandton has also lost business to five-star hotels in the Sandton area, which, according to Rosey Chilewitz the hotel's gm, have been discounting their rates rather substantially. "We used to rely only on word of mouth and repeat business but have now had to employ a marketing person to knock on doors."
She adds that most four-star B&Bs have also been impacted, especially with respect to their corporate clientele who have opted to stay in five-star establishments where they can get a five-star room at four-star rates.
Brett Dungan, Fedhasa ceo, says all hotels in the industry are under rate pressure in the recessionary climate, and that five-star hotels are discounting rates out of necessity to maintain the occupancies they need to survive.
Phillip Couvaras, gm of Cape Town's The Table Bay Hotel and Fedhasa Cape Town chairperson, agrees saying that five-star hotels are dependent on international arrivals, which are a critical part of their business. "With arrivals down due to the economic disasters in the UK and US, these hotels will be suffering heavily and some will make the decision to drop their rates as they move focus to fill displaced business."
Five-star brands were particularly impacted during December as people downscaled, forcing hotels to discount their rates, says Danny Bryer, Protea Hotels' revenue management director. "Some of those hotels are still engaged in a price war, particularly those who don't have brand equity in the market and are looking to buy business."
The last thing a five-star hotel should do is get involved in a price war because it will take the hotel years to recover, says Danny. "The most important issue is to maintain brand standards and your five-star value in the mind of the customer. Hotels that are holding prices in the five-star market will succeed over time."
Clifford Ross, City Lodge Hotels ce, notes that the market is suffering the folly of overzealous developers who have not achieved the occupancies they've planned for because of oversupply and are therefore discounting rates. "These developers are threatening the viability of businesses that have been running good, healthy occupancies at achievable rates for years, and who are now being forced to discount their rates to get business because the market to which they are appealing is not there."
He adds that discounting does not necessarily result in more rooms being sold and could spell disaster for the hotel involved and the industry at large, as four-star hotels are pressed to sell at three-star rates, and so it spirals. "If you are priced right for the market to which you're appealing, you should not need to resort to discounting to get business."
Meanwhile, Phillip expresses concern over what is to come after the World Cup. "I have a feeling it's going to be very quiet. If hotels are feeling the pressure now, even while there's demand from the various interest groups involved with the World Cup, what is going to happen when those interest groups are no longer here?"
What are other hotels doing?
Brian Davidson, Legacy Hotels and Resorts group sales and marketing director, says that with so many new hotels opening in Sandton, there are a lot of interesting pricing strategies going on. "We don't get involved. The cheapest offer, which went out from The Michelangelo over the festive season, was for one-night weekends at R2 350 per couple per night, including dinner and breakfast. For The Michelangelo, The Michelangelo Towers and The Raphael Penthouse Suites, we maintained our rate integrity and grew our average rates nicely in 2009 compared with 2008."
Priya Naidoo, Southern Sun Hotels gm of communications, says that while there are many challenges in the current trading conditions, Southern Sun maintains its current pricing philosophy and continues to be brand focused. "Our dynamic pricing environment allows us the flexibility to price our hotels on demand and we continue to offer value-for-money packages such as our Sunbreaks offers that create great leisure specials for our domestic travellers."
Meanwhile, City Lodge does not involve itself in short-term discounting "solutions".
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