Luxury hotels and price elasticity

Prior to the collapse of financial markets worldwide, some analysts were speculating that the custom for luxury hotels may be impervious to price hikes owing, in part, to the wealth of its clients. Articles headlined "Are luxury hotels recession proof?" were circulating with the suggestion that "luxury hotel guests indicate a willingness to accept larger rate hikes compared to a year earlier (2007 vs 2006)" and that "wealthy individuals to whom price is less of a factor in selecting a hotel".

But as most luxury purveyors of lodging are finding, unfortunately, that premise had much validity as predictions of $200 oil by an ostensible oracle. Unfortunately, the rich, it appears, are just as prone to cut backs and demand better pricing. Around the world, luxury hotels have been battered by the economic
recession demonstrating that high hotels have a price elasticity that
is no different to any other commodity subject to the vicissitudes of
discretionary income.

Yet as USA Today reports, the NBTA expects hotel prices to increase from 1% to 4% nationally while American Express forecasts U.S. hotel rates to decline between -2% to +5.5% as compared to this year's rates.  The New York Times also reported earlier this month that the "Four Seasons hotels in New York, Miami and Scottsdale have been offering a third night free while for Christmas, the Boca Raton Resort & Club in Florida has a family holiday package that offers two connecting rooms for the price of one (starting at $249 a night)".

The aftermath of what appears to be an unprecedented economic downturn could still follow historical patterns for and, as was the case in 2003, only a sustained business cycle recovery will spur a price uptick for hotels, luxury and otherwise.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

One thought on “Luxury hotels and price elasticity”

  1. I read both of these articles earlier in the week and completely agree with the summation. The interesting thing is that many luxury hotels have been doing this for years, but they have not been actively promoting these types of offers, even though they exist. This is mostly due to the reputation control that luxury hotels must maintain a high price to keep their clientele feeling that they are in an exclusive environment.
    Savvy travelers and internet users, however, have definitely taken full advantage of the ability to seek out and find deals. Now these same hotels are very actively promoting the offers and deals once they noticed their average daily price tank in the past few months.
    My site, Perfect Escapes, has been publishing a weekly newsletter called the Perfect 10, which is 10 luxury hotel offers that we have found or negotiated.
    If you haven’t ever visited us, you should take a look and see. We currently have over 200 deals on the site, which includes 2,500 4- and 5-star hotels in more than 100+ countries.
    Have a happy holiday and I look forward to reading more from you in the future.

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