The Effects of Non-Stationarity Demand on Hotel Financial Performance

Although discounting hotel room rates to boost occupancy is one of the most popular forms of promotions used in the lodging industry, there is debate in lodging literature regarding the effectiveness of this pricing strategy. Most of the studies that reflect upon the effectiveness of discounting use descriptive statistical methods to form pricing recommendations and conclusions. However, these descriptive studies may err in providing an understanding of whether discounting works in the lodging industry. The current study analyzes the empirical effects of the non-stationarity demand of seasonal hotel room rate discounting on hotel financial performance as supported by the principles of the rational expectations theory. The study uses a series of unit root tests to determine the time series data properties and then proceeds to a co integration analysis. The study may be useful to both academics and practitioners as the results provide evidence that discounting is an effective short-term pricing strategy in the lodging industry. Additionally, the study contributes to advancing the considerable literature regarding the use of discounting as a pricing strategy in the lodging industry.