Hotel Revenue Glossary · Demand

Demand Elasticity

The degree to which hotel room demand changes in response to a change in price. Elastic demand means a small rate change produces a large change in bookings. Inelastic demand means bookings change very little regardless of rate adjustments.

Why it matters: Demand elasticity determines whether rate increases will stick or drive guests away. Business travelers on compression nights have inelastic demand — they will pay the higher rate. Leisure travelers during shoulder season have elastic demand — a $20 increase may deter bookings.

Worked example: You hold Wednesday BAR at A$210 and sell 78 of 120 rooms — A$16,380. Test A$189 the following Wednesday and 94 rooms sell: 94 x A$189 = A$17,766. Demand moved 20.5% ((94-78) / 78) against a 10% price cut, an elasticity near -2.0, and the cut paid A$1,386. Repeat it on a sold-out Tuesday and volume cannot move; there the same cut only burns rate.

Common mistake: Treating a single week's result as the elasticity. Two Wednesdays differ by weather, a competitor's closeout, a conference in town — any of which moves volume more than your A$21. Elasticity is only readable across repeated tests on comparable dates, with the comp set and events held constant.

All glossary terms Price Sensitivity Demand Curve Dynamic Pricing