ST. LOUIS, Missouri—When occupancy plummets, many hoteliers’ reaction is to lower room rates to try and reverse the slide even though many consultants have explained repeatedly why this isn’t a sound business practice: It lowers revenue long term, and it takes a long time to restore rates to where they once were. When hoteliers lower rates across the board to boost occupancy, they devalue their property. Instead, they should hold steady on rate and emphasize the value (i.e., amenities) the hotel provides.

The St. Louis, Missouri, market has performed better than most in the top 25 when it comes to holding rates steady. The market’s average daily rate through the first three quarters of 2009 was USUS $82.44, down 6 percent compared to the first three quarters of 2008 when ADR was US $87.70.

Only four other of the top 25 markets in the country are performing better ratewise through the first three quarters of the year, year over year: Washington, D.C (-4.2 percent, US $146.15 from US $152.61), Norfolk-Virginia Beach, Virginia (-5.2 percent, US $87.38 from US $92.14), New Orleans, Louisiana (-5.4 percent, US $112.37 from US $118.72) and Nashville, Tennessee (-5.7 percent, US $89.75 from US $95.15).

Comparatively, the five worst markets among the top 25 markets are: New York (-24.7 percent, US $201.03 from US $266.88), San Francisco-San Mateo, California (-15.8 percent, US $131.83 from US $165.49), Phoenix, Arizona (-15.4 percent, US $108.09 from US $127.80), Chicago, Illinois (-15.1 percent, US $111.84 from US $131.77) and San Diego, California (-13.4 percent, US $127.06 from US $146.47).

Brian Hall, chief marketing officer for the St. Louis Convention and Visitors Commission, is heartened to see the decline isn’t as steep as some in first-tier cities or competing second-tier cities.

“Our positioning plays nicely into the economy,” Hall said. “No one sees St. Louis as an exorbitant trip. Las Vegas would call a lot more attention. New York is another city that could be viewed negatively. Traveling to St. Louis is viewed as fiscally responsible.”

St. Louis was a relative bargain to begin with, said Eric Strand, VP of sales and marketing for St. Louis-based Drury Hotels Company, which has 19 hotels in the market.

“We didn’t have as far to fall as some of the other major U.S. markets,” Strand said. “In addition, corporate travel managers have never considered a St. Louis meeting or business trip to be a boondoggle. Consequently, we haven’t seen corporate travel drop off as much as in other more resort-oriented locations.”

Many hotels in first-tier cities, such as New York, have superinflated their rates in prosperous times, Hall said. St. Louis, on the other hand, hasn’t had to reduce rates to attract business travelers.

“Our pricing represents a fantastic value and has been there right where it needs to be,” he said. “The value that we represent has been on the rise as the economy was headed in the opposite direction.”

Another factor that helps St. Louis maintain rate integrity is that fact it’s a drive-to market. Many people who attend meetings in the city can drive there.

“Our central Midwest location plays to our advantage because, for many, they don’t have to fly here,” Hall says. “Sixty percent of the U.S. population is within a one-day drive from here.”

St. Louis’ rate structure is reasonable, too. Rates at the Four Seasons in the city are less expensive than five-star hotels in a first-tier city. Even though St. Louis is a second-tier city—it’s the 25th largest in the country—its products and offerings rival many first-tier cities, Hall said, citing a considerable renaissance (i.e., investment) that’s occurring in the city, especially in the downtown area.

“As one of our customers put it, the second tier is the new frontier,” he said.

Extend your stay

Yet another factor of rate stability is extended stay because guests are staying for weeks at a time instead of days. Six of St. Louis-based Equis Hospitality Management’s seven hotels are in the St. Louis market, and five of those six are extended-stay hotels. Extended stays allow Equis to forecast more easily, said Sandi Phillips, director of revenue management.

“We know when a project ends, which then will be a need time for us,” she said. “We have an easier time filling that need.”

Equis tries to keep 40 percent of its extended-stay hotels filled with extended-stay guests.

Government business

Some government business, which is up 14 percent for Equis, is categorized as extended stay and contributes to rate stability. The government per diem for the market is steady as well at US$110 (excluding taxes). Equis’ government business is being driven by companies such as Boeing and Lockheed Martin, which revolve around the Department of Defense.

Additionally, the Internal Revenue Service had a training center downtown, which was a good driver, but that moved to Atlanta recently and will affect the marketnegatively.

Major events

Two big events this year also helped stabilize rate: the NCAA wrestling championship in March and the Major League Baseball’s All-Star Game in July, which alloweddowntown hotels to lock in high rates. Setting up for baseball’s FanFest, which took place the same weekend as the All-Star game, drove roomnights 3.5 weeks beforethe event, Phillips said.

Another rate driver has been locally based KV Pharmaceuticals, which was shut down by the U.S. Food and Drug Administration. Because of that, the company hired aconsulting company to help it earn FDA approval. The consulting company, which is a client of Equis, is still in town and using extended-stay hotels near the airport.

“They’ve driven a ton of roomnights near the airport this spring,” she said.

Additionally, the head of the CVC, who came from New Orleans, has directed group business to St. Louis as a result of cancelled business in the Big Easy because ofHurricane Katrina.

An unstable future?

Despite the market’s stable rate, it looks like it might be difficult to maintain it.

In the 30 days ending the first week of November, the market’s ADR was down just 5.2 percent, occupancy was down only 1.6 percent and revenue per available roomwas down just 6.8 percent, Hall said.

However, during the past month, Phillips said rates have weakened.

“We saw other management companies start to drop rates quickly when the recession hit,” she said. “The smaller hotels in the suburbs have been able to hold on torates better than some of the larger hotels downtown. And the extended-stay base has allowed our properties not to be forced to follow what some of the big box hotelshave done with groups.”

Adding to that, American Airlines used to fly into St. Louis from everywhere in the country, which gave the city an advantage over nearby cities such as Kansas City andIndianapolis.

“We lost some of the lift, and that will hurt a bit,” Phillips said.