Are hotel room rates too high?

Christina Jelski

The rates may be too damn high.

Thanks to surging demand, hotel rates have skyrocketed this summer, with some particularly hot markets, such as Hawaii and Florida, reaching record highs.

The phenomenon isn’t limited to resort destinations, however. According to STR data for the week of June 11, the U.S. hotel industry as a whole saw its weekly ADR reach $155, which marked the second-highest nominal level ever recorded. That rate was also 23% higher than the weekly ADR the year prior, as well as 15% above the ADR for the same week in 2019.

Of course, hotel executives have pointed not only to demand but also rising operational costs as a key factor behind rate hikes. During a media Q&A session at the 44th Annual NYU International Hospitality Industry Investment Conference, held in New York last month, Hilton CEO Chris Nassetta cited more costly labor and the fact that other “input costs have gone up dramatically” for hotel owners.

“Everything’s more expensive these days,” said Nassetta.

Still, hotel rate increases appear to be outpacing general inflation.

STR reported that for the week of June 11, 40% of hotels had a weekly ADR that was 20% or more above 2019 comparables, which is well above the year-to-date inflation rate of 13%.

That said, there are some early signs that travelers may have reached their limit when it comes to hotel pricing.

  • Related: STR: Spike in room rates expected for U.S. hotels in 2022

A recent report from Inntopia’s DestiMetrics, for example, indicates that summer booking pace has already slowed significantly at properties across several key Western mountain destinations. The data shows that booking pace for arrivals from May through October has dropped 40.4% from last year at 17 mountain destinations across Colorado, Utah, California, Nevada, Wyoming, Montana and Idaho. Booking pace has also declined 20.6% from 2019.

In a statement, Inntopia senior vice president of business intelligence Tom Foley said that although room rates at mountain destinations remain at all-time highs, economic pressures may be causing consumers to retreat from the high pricing.

Likewise, during the NYU Q&A session, one reporter took particular issue with an $800-a-night rate she was recently quoted for a stay at a DoubleTree by Hilton property in Colorado, asking Hilton’s Nassetta, “How much is too much?”

While Nassetta acknowledged that $800 was far from a typical DoubleTree rate, he suggested that the high price tag was born out of the “laws of economics.”

“My guess is it was a unique circumstance where there were a lot of people that wanted to be at that ski resort at exactly that time in Vail, and thus, it’s price management,” said Nassetta.

When asked about whether high hotel rates — along with higher-than-normal gas and airfare pricing — could deter travelers from booking travel altogether, fellow panelist Mark Hoplamazian, CEO of Hyatt Hotels Corp., remained similarly untroubled.

“It may have some impact on maybe the edges of demand, but at least for Hilton and Hyatt, I think the category of travelers most impacted by making a trade-off between the pump and necessities at home and taking a trip … I don’t think that that’s our core base of customers.”

That prediction could certainly play out, but if the current trend at mountain destinations serves as a bellwether for the industry at large, then impact from high hotel rates and other higher-than-normal travel costs could soon seep beyond just the edges of demand. 

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