Document Type

Article

Publication Date

1-3-2002

Abstract

Hotel operators and observers often employ industry-wide averages as key points of comparison and analysis for room rates, occupancy, and revenues. The use of simple averages, however, can be misleading if one does not take into account the possibility that a mean will be pulled in one direction or another by extreme values. This analysis of three industry averages shows that those averages are, indeed, subject to distortion, or skew. The analysis, which examines figures for virtually all brand-name hotels in the United States, determined that the means for average daily rate (ADR) and revenue per available room (RevPAR) are skewed in a positive direction by hotels with extremely high rates. On the other hand, occupancy is skewed in a negative direction by a group of hotels with inordinately low occupancy levels. A more complete picture of the industry’s ADR, RevPAR, and occupancy is gained by examining two other measures: the median, which is a measure of the data’s middle value, and the mode, which states the most common data point. By comparing the mean with the median and the mode, one can determine the extent to which the mean overstates the industry’s ADR and RevPAR and understates the typical occupancy. Specifically, 61 percent of U.S. hotels recorded a RevPAR below the overall mean and 63 percent saw an ADR below the mean, but only 48 percent reported occupancy below the mean. Many of the extreme values are found in the top-25 markets, which have hotels with inordinately high ADRs. Analysis of those markets shows that, once again, the overall statistics are distorted by a relatively small set of hotels with exceptional ADRs and occupancies. However, each of the top markets shows a distinctive rate and occupancy pattern. The pattern of skewed operating statistics carries over into individual lodging segments. The greatest distortions arise in the luxury and upscale segments, while economy and budget hotels record more consistent (normally distributed) statistics. Finally, the analysis shows that although the events of September 11, 2001, created much turmoil for the industry, the hotel business had already cooled substantially from its record pace of a year earlier. In conclusion, managers must be careful in applying overall industry statistics to their own situation and should take into account the factors that distort operating statistics.

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