Association Events

Last week I blogged about how luxury hotels across the country are dropping rates in order to stay competitive and boost occupancy. In the short-term, enticing guests with the promise of luxe accommodations at a low price works, with most travelers raving about the deals they've found. However, the strategy also has big disadvantages, such as the loss of luxury hotels' hard-earned reputations.

"This is a huge issue," Jan Freitag, a vice president at Smith Travel Research, recently told the Las Vegas Sun. "Rates are a signal of quality in the hotel industry."

Perhaps more pressing is the difficulty hotels will face in increasing their hotel rates in the future following such price drops.

"It hurts the business, it hurts the market fairly significantly, because it will take a number of years to recoup the rates," John Brost, general manager of the Best Western Lakeside in Kissimmee, Florida, told The Orlando Sentinel.

Customers will expect hotels to keep these deals coming, agreed Thomas P. McConnell, a senior managing director at Cushman & Wakefield.

"Once you get a $149 rate in Manhattan, it will be difficult to charge $349 for that room next year," McConnell told The New York Times.

This slow recovery has been seen in the past. Take, for example, the nationwide travel slump that followed the September 11, 2001, terrorist attacks. In Orlando, average room prices slid 11 percent and did not recover until four years later, despite occupancy returning to pre-9/11 levels after three years. In New Orleans, hotels are still struggling to recoup room rates as they recover from Hurricane Katrina four years ago.

Interestingly, a recent study by the Cornell University School of Hotel Administration of U.S. room rates from 2001-2007 found that "hotels that set their prices higher than direct competitors—in good times and bad—generated more room revenue over time," The Orlando Sentinel reported. Hotels that discounted prices were not able to stimulate sufficient demand to make up for the discounted rates.

"There’s nothing wrong with offering selected discounts, but hotels shouldn't give them away to everybody because their occupancy will still be down," Sheryl Kimes, a professor of operations management at Cornell's School of Hotel Administration, told the Sun. "With fewer people traveling, everyone is fighting for a smaller pie."

Still, with occupancy rates for luxury hotels worldwide falling over 50 percent this year, it seems they have few good options.

"The bottom line is the operator is stuck between a rock and a hard place," Richard Maladecki, president of the Central Florida Hotel & Lodging Association, told the Orlando Sentinel. "They need to fill those rooms because, obviously, yesterday is not going to happen again."