What is ARI

What is ARI: Deciphering Average Rate Index (ARI) in the Hotel Sector

November 16, 2023
Nathan Baws

As hotel revenue managers, few metrics make us lean forward like ARI. Short for Average Rate Index, ARI provides an at-a-glance view of your property's rate positioning relative to competitors. It precisely illuminates where you stand on ADR.

However, if you're new to revenue management, ARI can also seem abstract and confusing. What exactly does this index measure? How is ARI calculated, and what does it signify? How should you interpret and apply ARI in your hotel pricing strategy?

This article will provide an in-depth look at ARI—from basic definitions to practical applications. You'll gain the knowledge needed to decipher ARI, harness its insights, and utilize it to drive pricing decisions. Let's shed light on this critical hotel performance metric.

Key Takeaways

- ARI measures your hotel's ADR compared to a competitive set

- An ARI above 100 means your rates are higher than competitors' average rate

- ARI is used to gauge rate positioning and inform pricing strategy 

- Monitor ARI trends over time to identify needs for adjustment

- Partner with revenue experts to optimize the use of ARI analysis

What is ARI: The Fundamental Hotel Metric

To understand ARI, let's start with a simple definition. ARI stands for Average Rate Index. As the name implies, it is an index measuring your hotel's average daily rate compared to a group of identified competitors.

Specifically, ARI looks at your ADR for a certain period and divides it by the aggregate average ADR of your comp set over the same period. The result is your ARI score, stated as a percentage.

For example, if your ADR is $150 and your competitors' average ADR is $125, your ARI would be 150/125 = 120. An ARI above 100 means your rates run higher than the competition. A lower than 100 indicates you trail competitors' average rate.

This comparison reveals your precise rate positioning in the market. ARI quantifies whether you price above, below, or on par with others. As we'll explore next, this intelligence should directly inform your pricing strategy.

Interpreting Your Hotel's ARI Score

When analyzing your ARI, first understand what a "good" score depends on your positioning goals. For instance, hotels in the luxury segment should price higher than midscale properties. A luxury hotel's ARI of 110-115 may be ideal.

The key is tracking ARI trends over time. If your ARI slips from 115 to 105, your rates lose premium positioning. This requires reevaluation of pricing for future periods to stay competitive.

Also, compare your property's ARI to individual competitors rather than just the aggregate. If you have an overall ARI of 102 but trail your closest comp by 10 points, that's a red flag for adjustments.

Monitoring ARI patterns week-to-week and month-to-month reveals when your rates gain or lose ground. Use this intelligence to maintain optimal alignment with market conditions and competitor behavior.

What is ARI & How is ARI Calculated?

The basic ARI formula is:

Hotel ADR / Competitive Set ADR x 100 = ARI

Hotel revenue management systems track your daily ADR and ADRs for your competitive set to calculate this. The system aggregates ADR for your hotel over any given period, calculates the average comp set ADR for the same period, then divides your ADR by the comp ADR and multiplies by 100.

The result is your ARI for that period. Standard periods to analyze are weekly, monthly, quarterly, and annually. This reveals both granular and long-term ARI patterns.

Selecting Your Comp Set to understand What is ARI

A critical factor when calculating ARI is carefully choosing your competitive set—the group of hotels used for comparison. Ideal comp set criteria:

- Similar location, amenities, service level

- Target same guest segments 

- Comparable room count and category mix

- Direct competitors for share of demand 

A poor comp set skews your ARI and distorts pricing decisions. Reevaluate your set regularly to ensure optimal alignment as market conditions evolve.

What is ARI

What is ARI: Strategic Applications of ARI Analysis

Now that we've covered what ARI represents and how it's calculated, let's discuss strategic applications for revenue management:

Monitor ARI Weekly to Gauge Positioning: Analyze ARI at least weekly to assess market alignment. Sudden ARI drops signal losing ground. Upward movement means you can likely support ADR increases.

Inform Pricing Adjustments: Use ARI precisely to adjust rates. For example, an ARI of 98 indicates lowering rates to be more competitive. If ARI is 110+, you have room to increase prices.

Identify Need for Value Enhancements: Lagging ARI may signal guests don't perceive the total value of your rates. Implement upgrades like renovations or amenity additions to support price hikes.

Compare Segments and Categories: Calculate ARI for crucial segments and room types. If the ARI for luxury suites is 85 but the economy room ARI is 115, adjust accordingly.

There are infinite ways to slice and analyze ARI data for strategic decisions. The key is actively monitoring and applying trends revealed by your hotel's ARI patterns.

Partnering With Revenue Experts

To conclude, demystifying ARI gives you immense power to optimize pricing and outperform competitors. My advice is don't go it alone. Lean on the expertise of hotel revenue consultants.

At Emersion Wellness, our team brings decades of firsthand revenue experience. We equip hotels worldwide with custom tools to calculate and leverage ARI. Our hands-on guidance helps you interpret ARI intelligence and drive strategy.

Don't leave money on the table. Contact Emersion Wellness today to discuss how ARI can transform your hotel's pricing and profits. Together, we can maximize every revenue opportunity.

Final Word

Whether you're a seasoned revenue manager or just starting out, I hope this article empowers you to harness ARI fully. Tracking and comparing your hotel's average rate against competitors illuminates precise opportunities to improve market alignment and performance. Partner with revenue experts to unlock ARI's full potential. Here's to optimizing your hotel's pricing strategy and profits!

FAQs

  1. Q: What does ARI stand for in hotel revenue management?

    ARI stands for Average Rate Index. It measures a hotel's ADR compared to an aggregated average ADR of identified competitors over any given period.

  2. Q: How do you calculate a hotel's ARI?

    To calculate ARI, you divide your hotel's ADR by the competitive set's average ADR for the same period and multiply by 100. For example, Hotel ADR of $150 / Comp Set ADR of $125 x 100 = ARI of 120.

  3. Q: What is a good ARI score for hotels?

    A "good" ARI score depends on your hotel's positioning and target metrics. Luxury hotels may target an ARI of 110-115 to maintain rate premiums. Mid-tier hotels aim to be near the overall market average.

  4. Q: How often should you monitor your hotel's ARI?

    Tracking your ARI at least weekly is recommended to gauge market alignment. Additionally, monitor monthly, quarterly, and annual ARI patterns over time. Sudden ARI changes warrant evaluation.

  5. Q: What does an ARI lower than 100 indicate?

    An ARI below 100 signals your hotel's ADR trails the average rate of your identified competitors. You may need to lower prices or enhance value to be more competitive.

  6. Q: How does ARI help inform hotel pricing decisions?

    ARI reveals whether you price higher, lower, or on par with the market. Hoteliers use ARI trends to determine when to increase, decrease, or maintain rates to optimize positioning.

  7. Q: How often should you reevaluate your competitive set for ARI?

    It's advised to reevaluate your competitive set at least annually as market conditions evolve. Your comp set impacts ARI, so ensure it aligns with your positioning and segmentation.

  8. Q: What technology can help calculate and analyze ARI?

    Hotel revenue management systems automate ARI calculations using daily rate data for your property and competitors. This allows easy tracking of ARI patterns over time.

  9. Q: What key data makes up a hotel's ARI?

    ARI is calculated using your own hotel's ADR and the aggregated average ADR of your defined competitive set. The comparison of these two data points produces your ARI score.

Contact us for more information

Also Read: What is the Concept of Revenue Management and Why It’s Vital for Hotels

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