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".