Panic Rates – New York City Edition (Case Study)

If there is one city where revenue managers have got things figured out, it has to be New York City, right? Although the demand drivers have changed a bit over the years (my dutch fur trading LNR’s are down 100% since the 1600’s, for reference) Manhattan remains one of, if not the most high demand market on the planet. When I first started revenue managing a NYC hotel, I thought would be going up against hundreds of Patrick-Bateman-caliber RM’s who would bury me alive on every STR report, but the more I acclimate to the NYC market, that theory really doesn’t hold up. The more I see of the market, the more I am convinced: New York City was just as illogical, irrational, fear driven, and reactive as every other market I’ve seen so far!

 

So for fun, let’s take a look at how the NYC Market prices and restricts inventory on the biggest, most iconic night of the year: New Year’s Eve.

 

I think first it will be useful to set some expectations of what I thought we could have reasonably expected to see on NYE. For starters, I believed that we would see a very logical price evolution, where hotels started at a reasonably high rate (as a complete ballpark estimate let’s say somewhere in the mid $400’s), and considering that these are midtown hotels, I expected rates to get VERY aggressive in the days leading up to arrival, probably in the high hundreds, perhaps even approaching $1000 day-of. Also, I expected hotels would begin tightening up their length of stay requirements as we edged nearer and nearer to the actual night of arrival. I expected most of the compset to have 1-night availability 30 days out, but fewer than half of hotels to have 1-night availability on the actual night of.

 

My expectations of one-night availability in the market for New Year’s Eve:

My expectations of how the market would price for New Year’s Eve:

To start let’s take a look at the less scandalous of the two revelations: One Night Availability trends. Take a look at the graph below, which shows how the market averaged in regards to their availability.

 

Surprisingly the market didn’t move at all how I expected it would. Every single day in the run up to NYE, at least 50% of hotels did indeed have 1-night availability. In fact, at 10 days out, all hotels had 1-night availability which may later turn out to be a harbinger of things to come (note that harbingers are usually bad, and I have yet to hear of a good harbinger).

 

Moving on to our pièce de résistance, let’s take a look at how rates evolved.

 

Well, it seems as though my expectations were more like expectorations because they weren’t even close.

Although the graph is ugly, there are still some trends you can pick up on: it looks as though rates were particularly speculative from about 30 days out until about 23-22 days out, when the compset mostly settled in between the 400 – 600 range with a few outliers on the high end.

A few hotels of note:

  • Hotel #16 is the top purple line that is most noticeable in the graph above. They have rates near $1200 starting 30 days out, and only lowered rates below $800 16 days before arrival. Their final sell rate on the day of NYE was $339! They ended up backing off $830 from their high point, and were by far the most volatile of the group.
  • Hotel #1 (which is my hotel) in in dark blue is hard to see in the graph above, but I wasn’t perfect by any means. My highest rate was $699, and I ended up dropping rate ultimately to $499 three days before 12/31, a drop of $200.
  • Hotel #3 (the bad boy heartthrob) was one of only two hotels that were trending upwards in rate in the final 5 days based on the data.

I’m sure at this point you’re thinking the same thing that I was: This data is uggggly, I’m hungrrrrry, when will this blog be overrrrrr, was the ‘94 MLB strike the only thing keeping the Montreal Expos from what would have been their only World Series winnnnnnn?

To make things a bit more digestible, let’s look at the market as a whole:

Above is a look at how the market moved on average, with our previous expectations overlayed (for comedic effect). Note how my expectations were almost perfectly negatively correlated to the real rate evolution for NYE!

The market average (above) is a much better view to really start interpreting the data and critiquing the compset (and myself). Although the compset dropped a huge amount over time, much of that decline really started to happen in the 5 days leading up to arrival, something we can call “the panic window”.

Hotels in the market started high at an average rate of $634, and reached their 30-day-high 27 days from arrival at an average rate of $641. This was short-lived, however. By the time NYE is 16 days out, the compset average had steadily eroded to an average sell-rate of about $586. The overall market average would slightly decline over the coming week, but the market average rate remained above $500 until the ‘Panic Window’ took hold 5 days to arrival.

From 30 days out until 5 Days out, the compset was, on average, lowering $5.11 per night for New Year’s Eve, but something happened on Thursday 12/26, (*hint hint* it’s when we started working again after Christmas), when the market at large really starts to stampede off of a cliff. In these last 5 days leading up to (and including 12/31 itself) the compset lowered, on average, $28.21 a day!.

As it turns out, NYC is by no means immune to the herd mentality and panic pervasive everywhere in the Hotel Revenue Management world, and once again guests were better off waiting until the last minute to book a room, even on NYE!

I firmly believe that for New Year’s Eve NYC hotels would be better off not even paying attention to the compset’s rates, but rather pricing themselves based on historical pickup patterns, and market mix, and throwing on the blinders in regards to the compset’s strategy, at least for this one night.

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