Are hotel owners undercutting themselves by lowering their room rates too much, rather than accept a certain amount of vacancy?
November 09, 2009 11:30AM
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Comments
expert
yes, definitely. although many hotels have large financial incentive to maintain very high occupancy from their managers/flags. so it helps them in the short run but hurts long term.
Comment #1 Posted By: expert 11/09/09
Anonymous
it is a very competitive market and it's natural that they lower prices since demand/supply rules.
Comment #2 Posted By: Anonymous 11/09/09
Anonymous
I disagree with expert's comment "it helps them in the short run but hurts long term." It absolutely helps owners long term. Consider this example: a business traditionally sends their traveling employees to Hotel X. During the downturn, Hotel Y offers the company reduced rates. If Hotel X does not match Y's rate, they may lose this group business even after the downturn (assuming the group enjoys their stay at Hotel Y). Filling beds is most important no matter the economy. Higher occupancy means more people at the Hotel's food & beverage outlets, more pay-per-view movies ordered, more telephone/internet charges, and the list goes on.
Comment #3 Posted By: Anonymous 11/09/09
Anonymous
You can't overlook the high rate of increase during the boom. Just like housing prices you have a reversion to the mean.
Comment #4 Posted By: Anonymous 11/09/09
Anonymous
no one has mentioned that hotel room supply is going to increase by 15% over the next 18 months in Manhattan. The bloodbath in hotels is just starting!
Comment #5 Posted By: Anonymous 11/09/09
Anonymous
It is impossible not to cut rates. Let's say Hotel X held on to rates that were prevalent 15 months ago, all Hotel Y or any other competitive hotel has to do is to offer rates that are 10% cheaper and Y is sold out! The cycle goes on till such time as occupancies reach 90+% (the situation in Manhattan today). The discounting will continue so long as there is even a sliver of profit (or even a small loss) available. Compound the foregoing with loads of news rooms coming on line - even now some dolt-heads are actively planning new hotel projects in the city - and you have a recipe for serial bankruptcies. When the debt load is squeezed down in chapter 11 proceedings, things will improve along with an eventual (?) resumption of normal business activity
Comment #6 Posted By: Anonymous 11/09/09
Anonymous
The only way to keep hotel room rates from falling is if every hotel banded together to agree to keep room rates artificially high. But the problem with this is that it is, um, considered racketeering.
Comment #7 Posted By: Anonymous 11/09/09
Anonymous
NO thats stupid
Comment #8 Posted By: Anonymous 11/09/09