Seasonal balancing of revenue and demand in hotel industry: the case of Dubai City

Abstract

For fact, a strong demand seasonality is observed in hotel industry, which needs early planning to prevent revenue declines. Cost cuts, although sometimes deemed tolerable, no longer help because expenditures have thresholds that hardly can be crossed. Increasing the revenue by raising rates, on the other side, adversely affects the level of demand. In low seasons, travelers are more sensitive to prices, and therefore, higher rates turn customers away to other rivals. To address the compromise between demand, supply, and prices, this work contributes to the existing literature by proposing a model that tests the balance of seasonal demands and prices to maximize hoteliers’ profit. Specifically, we present an approach that finds the seasonal elasticity of demand at the optimum profit. The model is capable of assessing the balance of prices with the market demand, which helps in the assessment of hotels. To validate the model, data sets from Dubai international and domestic hotels were collected and used for benchmarking. It was found that international hotels confront higher seasonality as compared to local hotels. Only couple of hotels (Local and International) demonstrated successful efforts in seasonal balancing of prices with the demand. The demand was also found to be more elastic in the low seasons owing to high room offerings, while less elasticity is observed in the high seasons. The model acts as an effective tool for placing hotels on the board of price and demand, which assists the hoteliers to gain more insights toward benchmarking and evaluation.