You May Be Miscalculating Hotel Room Rates

“In the digital market, what the hotel reports on their PNL doesn’t necessarily tell the whole story,” Cindy Estis Green, CEO and co-founder of Kalibri Labs LLC, said in her opening remarks on The Numbers: What Are We Dealing With and Where Are We Headed panel at ALIS. In her opening presentation, Green illuminated the gap between guest-paid hotel rates and net hotel rates, the amount that the hotel actually gets after commission fees.

“In the old days, which I would call the analogue market, the hotel collected almost all of the revenue that they got directly. In the digital market, guests actually pay a lot of money to third-parties, and the hotel only gets a portion of that. The real rates that the guests are paying are not reflected in what is reported industry wide,” she said on the panel. This is called guest-paid revenue. “By guest-paid revenue, I mean the price that is recorded on the hotel’s PNL plus the wholesale commissions that are paid to the third-parties,” adds Green

Currently, guest-paid revenue is on an upswing. Green predicts that guest-paid revenue in 2018 will reach $161.6 billion, which would be a 4% increase from 2017. That translates to significantly increased per-night room rates. “The good news is that guest-paid revenue has actually grown at a pretty strong pace,” says Green. “We can look at guest-paid revenue and see that it will grow about 4% from 2017 to what we predict in 2018, which is a pretty strong growth. When we look at all of the costs associated with that, it is about $4 billion in wholesale commissions. That $4 billion equates to about $3 per night on the average rate across the US. That means that the actual rate that the guest paid is actually $3 more than what the guest reported.” In certain metropolitans, the bump is even more dramatic. In New York City, the average room rate is $8 more per night that what is reported, and in San Diego, it is $5 more per night. “The average rates are not reflecting what is actually happening in the market,” said Green.