“Top Management”
The fierce battle for ADR
It is easier to open the door to occupancy than to implement a revenue strategy.
As a hospitality professional navigating the current surge of tourist demand in Portugal, I have consistently encountered a challenge: the market’s emphasis on occupancy rates rather than room rates. Despite the profitability implications—each euro in room rate directly contributes to operational margin, while the same in occupancy only yields approximately 40 cents after subtracting variable costs—the focus remains on filling rooms.
Two primary reasons for this behavior have been identified:
- Many units are emerging from a challenging period, operating below minimum efficiency levels, therefore having to prioritize “filling rooms”;
- Uncertainty about the sustainability of the new cycle make ambitious contracting strategies challenging for both hospitality and distribution, especially when dealing with Tour Operators and MICE.
A third factor to be considered is the limited access of companies to revenue management knowledge, hindering the implementation of effective pricing and channel management strategies. This lack of expertise is still prevalent among most hotel companies, with only a small minority being equipped with the necessary skills and tools.
Blueshift’s recent study on the comparative evolution of occupancy rates and average daily rates (ADR) from 2012 to 2016 provides valuable insights into the industry’s dynamics:
- The ability to grow ADR and profitability in a balanced manner is not exclusive to mature regions like Lisbon and Algarve, but extends to less developed destinations such as the Center and North of Portugal.
- Destinations that heavily rely on tour operators face difficulties channeling demand into Average Daily Rate (ADR) increases, showing a lag of two to three years.
- Price inertia worsens in scenarios of uncertainty, leading to situations where high occupancy growth coexists with sustained price drops.
Blueshift estimates that the delay in ADR response in regions like Madeira, Azores, and the North could result in a substantial annual loss of around €45 to 50 million, approximately 12% of the overall operational profits of the Portuguese hospitality sector.
This indicative value, based on assumptions that can be challenged, serves nonetheless as a warning for the industry as a whole:
- Private entities that have the ambition and means to do so, should invest in revenue management competences which will allow them to adequately predict and promptly reflect demand variations in their contracting and distribution channel management.
- Public entities need to establish a stable and secure competitive framework for economic agents, planning and adequately communicating policies that affect the market, be it the airport strategy, or structural changes in the licensing policies for AirBNB-style lodging (“Alojamento Local”) or other hospitality categories, to mention two examples currently in the media.
Exhibit 1: Evolution of Occupancy Rate and ADR in the Lisbon Region
Exhibit 2: Evolution of Occupancy Rate and ADR in the Azores Region
A CONTRIBUTION FROM…
Mário Azevedo Ferreira | CEO of NAU Hotels & Resorts Group
Considering your experience with NAU hotels in various regions, do you recognize the distinct realities reflected in the numbers presented?
I agree with the analyses and conclusions provided. Additionally, I review them when applied to NAU Hotels & Resorts. We assumed management of our hotels in 2013 amid the financial crisis in the context of restructuring. Initially, we needed to reintroduce a set of properties to the market and generate cash quickly, leading us to invest in Tour Operators, “bed-banks,” and OTAs at the best rates available. Simultaneously, we initiated actions to equip our organization with tools and skills to boost rates. Consequently, from 2014 to the present, our ADR has grown by 50%, significantly surpassing our 20% increase in occupancy. The growth was uneven across properties, and interestingly, it was easier and faster to increase ADR in the Lisbon and Algarve properties than in the Alentejo hotel.
What do you believe is crucial for achieving sustained growth in ADR?
It all begins with demand; when demand pressures supply, prices rise, and when it decreases, prices drop—an inevitable economic truth. The degree of variation depends on the sophistication of management. The product itself is the primary factor, but being good is insufficient; it needs market recognition through an appropriate communication strategy. The marketing strategy, encompassing pricing and distribution, must define segmentation and pricing objectives for each hotel category. Winning MICE events in winter, attracting beach tourists in summer, or appealing to golfers in the shoulder season are not the same. Growing direct sales involves developing a robust website, investing in communication, and, if feasible, implementing a loyalty and CRM strategy. Finally, two critical elements are technological resources (PMS, Channel Manager, Revenue Manager) and competent, motivated human resources. Alternatively, securing contracts with two or three tour operators, receiving payment in advance but leaving a 30 to 40% margin in the hands of intermediaries may provide peace of mind. However, recent insolvencies suggest otherwise.
Written by Filipe Santiago
November, 2017
This article was published in Publituris Hotelaria as part of the “Top Management” series. You can access the printed version here and the online version here.

