Are hotel rates too low?

The Athens hotel industry may have missed the great opportunity of the 2004 Olympic Games to properly plan its development and tap its growth potential for the future. The lack of proper planning was reflected in falling prices last year, which helped maintain the average capacity utilization at the same levels as those of the Olympic year. In the last two years, serious steps have been taken toward reversing the flagging state of Greek tourism that began before the Games and building infrastructures in the Attica area which will support the capital’s hotel industry. The planned launching of the Athens Metropolitan Convention Center in the former Olympic tae kwon do center in Palaio Faliron, the creation of a thematic sea park and the promotion of the Athenian tourism attractions, particularly those on its seafront, are widely seen as the linchpin for turning around the fortunes of the capital’s hospitality industry. According to sources, Tourism Minister Fanni Palli-Petralia has prepared a list of priorities for the development of city tourism, beginning with activities for Athens and Thessaloniki. Giorgos Tsakiris, president of the Attica Hoteliers’ Association (EXA), argues that the policy of low rates and continuous offers has brought few benefits to the area’s tourism market. He also says it deprives hotels of revenue that would improve the quality of services, ensure the future availability of capital for their regular modernization and maintain their competitiveness at high levels. According to EXA data, only five-star Athenian hotels saw a rise in business last year. Four- and three-star units saw a decline. The average fall in rates for all categories was more than 20 percent, with a commensurate drop in revenues. At the same time, due to the considerable investment made, the financial segment of Attica hotels’ operating costs has grown significantly, impacting their economic results. Capacity utilization stable A positive indication was the maintenance of the average capacity utilization at the same level as in 2004, which, taken together with the fact the total number of beds was 10 percent higher, leads to the conclusion that the number of overnight stays increased by that percentage. The average room rate in 2005 was 106 euros, about the same as Berlin’s, while Barcelona’s was 145 euros, Munich’s 123, Madrid’s 127, and Istanbul’s 140 euros. Paris and London had the highest average rates, 179 and 178 euros respectively. In contrast to Athens’s falling hotel rates, Istanbul’s rose 14 percent. The drop in Athens was no doubt partly the result of strong competition, often observed among hotels even of different categories. The rise in Athens’s hotel capacity by about 10 percent (or 6,000 beds) in 2004 and the parallel entry into the market of 12,000 beds – mainly due to the Olympics – bolstered competition. At least 180 Athenian hotels have created conference facilities of various sizes and capacities. More than 20 hotels have introduced spa facilities. «The current rate policy, at micro-competition level, offers no more than a redistribution of the existing pie and market shares, the end result being a fall in total revenue and the deterioration of the financial position of the weakest. At macro-competition level, it has been observed that under normal circumstances, the biggest part of tourism demand for Attica is independent of price,» said Tsakiris. The trend of recovery in capacity utilization shows that Athens has the potential of attracting more visitors but would have to attract more of those in higher income brackets who would spend more.