The road to perdition – discount redux

It's raining discounts in the travel industry with hotels arguably leading the way. The Associated Press reports that " Major hotel companies are cutting event costs" as they "are taking it easier on clients planning large events".  The list of majors include Omni, Hyatt, Marriott Fairmont, Wyndham and a host of other lesser known names. The "freebies" include "waiving fees of $10,000 or more that are levied when an event draws fewer guests than promised; offering 2 percent discounts, doubling reward points and easing penalties for individual no-shows;10 percent discount at resorts and a 6 percent discount at hotels in North America and a 3 percent discount on the total room bill and 10 percent discount on food and drink".

Hotel room rates across continents have also seen discounts either directly on the rate or by providing "free nights". A recent Business Travel News report headlined "Hotels Taking A Worldwide Beating on Room Rates" notes that "All major cities in (worldwide) January saw year-over-year
decreases in average rate—based on actual room nights booked and the
rates paid by HRG's clients in the United Kingdom as well as industry
figures—and Moscow was the only city surveyed to see a modest rate
increase of 3 percent in February. Most cities were down for the two
months together, and rates fell faster in February than in January in
the cities surveyed, according to the Hogg Robinson Group, an international corporate travel services company".

The slew of discounts offered on almost all aspects of the hotel industry's revenue base has, expectedly, had many financial ramifications not the least of which is a ratings cut on public companies by Moody's. But as a Zacks Investment Research report points out all this will 'in most cases result in material long-term
damage to the (hotel) business".

Discounts are the road to perdition and despite all the high minded talk about "rate integrity" last year when the first signs of a recession were obvious, hotels, particularly, at the high end have seen dizzying rate drops. That view is underscored in this report in the Wall Street Journal headlined "Falling Room Rates Threaten to Prolong Hotel Downturn".

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.

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