Juan Luis Nicolau, PhD is the J. Willard and Alice S. Marriott Professor of Revenue Management in the Virginia Tech Pamplin College of Business. He has authored 2 books, 8 book chapters and more than 160 journal publications (over 135 of them are published in journals listed on the Web of Science’s Journal of Citation Reports), such as Strategic Management Journal, Omega: The International Journal of Management Science, Journal of Business Research, Economics Letters, Marketing Letters, European Journal of Operational Research, Journal of Travel Research, Annals of Tourism Research, Tourism Management, International Journal of Hospitality Management, Tourism Economics, Journal of Services Marketing or European Journal of Marketing.

Before joining Virginia Tech, he was tenured Full Professor of Marketing and the Dean of the College of Economics and Business of the University of Alicante (Spain). He has received more than 25 research awards and recognitions. He is listed among the world’s top-10 international researchers in tourism according to the ranking published in Journal of Global Hospitality and Tourism.

Research

Hotel Performance Dynamics: Large-Scale Events and Operation Types

Informing a group of hoteliers about an upcoming World Widget Exhibition in town is sure to lift their spirits. These large-scale events are anticipated to draw tourists to the area, presenting hotels with lucrative revenue opportunities. However, the effect of such events on hotel performance may vary depending on the type of hotel operation. As argued below, this study hypothesizes that independent and franchised hotels obtain better performance than chain-owned/managed hotels during events.

Sourced from STR and TSSN, this study analyzes daily data from 435 hotels in five prominent US cities, namely, Atlanta, Chicago, Indianapolis, New York, and Orlando, between January 1, 2014, and December 31, 2019. These cities are chosen due to their status as top destinations for trade show attendees in the US. By incorporating hotel operation types into the analysis of the relationship between events and hotel key performance indicators, significant findings emerge.

Initially, the study establishes a baseline by analyzing data in the absence of events to uncover overall trends. Findings indicate that independent and franchised hotels typically have lower rates and higher occupancy rates compared to chain-owned/managed hotels, thereby bringing about a lower RevPAR for the former. Chain-owned/managed hotels, leveraging robust revenue management systems and brand value, seem to optimize performance more effectively than independent and franchised counterparts, in general and in event-free periods.

However, when events occur, independent and franchised hotels raise their rates and achieve higher RevPAR levels compared to chain-owned/managed properties. It appears that the presence of a brand makes chain-owned/managed hotels more cautious due to potential reputation damage from fairness-related issues. This could lead to reduced demand for the hotel's brand, in the city where the event takes place but also on future occasions in other locations. Consequently, charging premium rates should be more viable for independent and franchised hotels than for chain-owned/managed ones, because the properties of the former should be less influenced by perceived price unfairness and price gouging.

Thus, for chain-owned/managed hotels, this scenario appears to result in potential suboptimal performance at the property level in the short term, as individual hotels may have limited flexibility to adjust prices compared to independent and franchised hotels. Despite seeming counterintuitive initially, this short-term suboptimality in performance helps chains safeguard their brand from the alluded perceptions of price unfairness, which could harm brand reputation in the long term.

As a result, when individual hotels consult sector-specific reports (such as the STAR reports) to assess their performance against competitors in their competitive sets, a chain-owned/managed hotel may be shocked to find that independent and franchised hotels in its competitive set are outperforming them in metrics related to a recent event in the area. However, instead of becoming discouraged or even despaired, these chain-owned/managed hotels should understand that such occurrences are not uncommon after an event, and more importantly, that this short-term underperformance is likely to yield long-term benefits.