Hotels look to sustain their rate gains

Can Reno hotels hold onto last year’s gains in room rates?

In 2013, the average daily room rate rose 9.6 percent to $83.66, the largest jump since 2007, according to the Reno-Sparks Convention & Visitors Authority. Occupancy jumped, too, from 63.7 percent in 2012 to 66.6 percent last year.

Chris Baum, RSCVA president and CEO, credited the hotel properties for recognizing the need to bring the city’s perennially low rates closer to the national average, which is about $106. Meanwhile, hoteliers say they could raise rates only because last year was a banner year for events, creating demand and allowing them to push up prices.

“The year was packed with business,” says Rick Murdock, vice president of casino marketing at the Eldorado in downtown Reno. “When you have business on the books that’s coming, then you can get great increases.”

“The number one thing that helps drive ADR (average daily rate) is critical mass,” says Glenn Carano, director of marketing at the Silver Legacy Resort Casino. “We had some real positive stuff happen last year.”

That includes both men’s and women’s United States Bowling Congress championships, the Barrett-Jackson car auction, the Elks convention and the Safari Club International get-together.

But the Safari Club has outgrown Reno and moved its event to Las Vegas. The Elks convention, like most annual meetings of national organizations, rotates to a new venue every year. And in 2015, the USBC men’s championship is saying goodbye to Reno and heading to El Paso, Texas.

So the city is back to the same chicken-and-egg question: Can only demand drive room rates? Or can room pricing help drive demand?

“It’s been an ongoing challenge with this destination,” says Pat Flynn, executive director of Hotel & Sales at Peppermill Resort Spa Casino in Reno. “What is a fair rate?”

Everyone agrees room rates are and always have been low in Reno, which has historically sold itself as a value destination.

That’s a problem, says the RSCVA’s Baum.

“I’ve been in 11 states and I’ve never had associations tell me your rates are too low,” he says.

Baum says meeting planners for big events prefer uniform rates and reject destinations where prices are too low because attendees complain.

“If they’re in Fort Lauderdale one year and pay $250 for a room then go to Reno and pay $100, people want to know why you couldn’t get a great deal again. It puts pressure on the event organizer,” says Baum. “If rates are too high or too low it’s a problem for them.”

Baum also says research from Cornell University’s famed School of Hotel Administration shows that when business is competitive, hotels make more money keeping rates higher because lower rates do not drive volume up enough to offset the difference in price.

“Chris Baum has done a good job educating the general managers,” says Silver Legacy’s Carano.

Carano, who has served on the board of the RSCVA, helped get the Best Rate program started. The five-year old program ensures that each hotel’s Web site features their best available room rate so guests will book through the hotel rather than an online travel agency which takes a cut and reduces what the hotels take in. That, in turn, cuts what the RSCVA gets from the room tax, which provides about 80 percent of its operating budget.

Hotels have also upgraded the product to boost value. The Eldorado, for example, will soon begin the second phase of room renovations and recently refurbished its Tivoli Gardens restaurant and turned it into a 24-hour coffee shop called Millies24.

“You need an upscale product to increase the room rate,” says Seyhmus Baloglu, professor and Harrah Distinguished Chair at the University of Nevada, Las Vegas, William F. Harrah College of Hotel Administration.

He says hotels in Las Vegas, which like those in Reno once offered exceptionally low room rates subsidized by gaming revenue, have reversed the equation.

“Rooms are a significant revenue center,” Baloglu says. “They’re full resorts and they charge a resort fee for all the amenities.”

“Las Vegas has figured out how to make more money off rooms than tables,” says Silver Legacy’s Carano. “That’s what we need to do.”