Hotels open the door to new era in pricing

Eager for business, chains adopt the airlines' system of fluctuating rates -- with some twists


July 14, 2002|By Jane Engle | By Jane Engle,Special to the Sun

Once upon a time, hotels had so-called "rack rates," the "official" room prices published in brochures. These were mostly inflated, but at least they gave guests a benchmark when bargaining for a room.

Forget that.

Rack rates have largely lost their meaning in the last few years as major chains switch to the computerized yield management system that airlines have long used to determine fares. When demand is projected to be high, prices automatically increase; when it's low, they drop. Fewer and fewer directories of chain hotels even bother to list rack rates, says Robert Mandelbaum, director of research for PKF Consulting, an industry research company.

A colleague slipped into the pricing quicksand earlier this month when trying to get a room for one night at the Hilton La Jolla Torrey Pines, near San Diego. The reservations agent quoted her $234 for a view room, recorded her credit card number -- then said with what seemed like genuine surprise that the rate was changing as she was booking it. Now the price was more than $300. But -- good news -- it could be brought down to $255 by using an American Express card. When my colleague checked the hotel's Web site, it showed about $240.

Later in the day, I checked the Hilton Web site again, and it showed no rooms available. Five minutes later, I called the hotel and was quoted $225 for the view room -- the last one in that category, I was told.

Peter Strebel, senior vice president of sales and marketing for the hotels division of the conglomerate Cendant Corp., thinks yield management helps consumers get better rates in low-demand periods, but he acknowledges some frustration with it.

"Rooms were disappearing while I was on the phone [in April booking a family trip to Orlando, Fla.]," he says.

Two other techniques borrowed from the airlines also are appearing in the hotel industry: Internet-only prices and non- refundable bookings.

"Hotels are just grasping now to do anything to get more business," Mandelbaum says. His company's research shows the average U.S. hotel suffered a 19.4 percent drop in profits in 2001 -- the largest in more than 60 years -- and it projects an 11 percent decline this year.

Web site promises

In an effort to control price chaos and build brand loyalty, some hotel chains are offering guaranteed rates on their Web sites. If you can find a lower rate on another Web site, they'll match or undercut it.

But you might be able to get a better deal by calling the hotel yourself, as I recently discovered.

Cendant's "Guaranteed Best Available Rate" program made its debut June 17. It promises that Web sites of its brands -- AmeriHost Inn, Days Inn, Howard Johnson, Knights Inn, Ramada, Super 8, Travelodge, Villager and Wingate Inn -- "will have the lowest rate publicly available to consumers on the Internet." If you find a lower rate, Cendant will beat it by 10 percent if you can document it.

Cendant does not promise, however, that its Web sites will beat members-only deals such as those offered by the American Automobile Association and AARP; rates offered to people who call for reservations; or rates booked on sites such as or www., which don't disclose details until after the booking is made.

I spot-checked three Cendant hotels against the promise earlier this month, comparing the lowest rates for the same weekend in July. Besides the hotels' Web sites, I used Internet hotel discounters and, and I also called the hotels. Results were mixed.

For the Days Inn-Seattle Downtown, all sources offered the same rate: $109.85. (So far, so good.) For the Wingate Inn-Portland-Hillsboro in Oregon, the Cendant Web site offered $79, $69.95, and the hotel $89.10. (You lose, Cendant.) For the Ramada Inn & Suites-Gaslamp / Convention Center in San Diego, the hotel Web site offered $118.99, $129.95 and the hotel $89.99. (Cendant wins the Web site race, but I would have lost $29 for relying solely on the Web.)

One lesson I draw from these spot checks: No source has the corner on low hotel rates. You must check all sources or get a travel agent to check them.

But cheap rates can come with potentially costly conditions.

In checking out the "lowest Internet rate guarantee" of another corporation, Six Continents Hotels, I found a $148.85 price on its Web site for a room at the Holiday Inn San Francisco-Fisherman's Wharf in July. That nosed out the $149.95 rate on and the $153.43 rate the hotel offered by phone.

But when I clicked to the hotel Web page to book the $148.85 rate, I saw this note: "Advance purchase reservations cannot be canceled, changed or refunded." By contrast, I could cancel the $153.43 room up to 6 p.m. the day before arrival without penalty, the hotel's reservations clerk said. would charge me a $10 penalty for changes up until 24 hours before arrival. I would be willing to pay $4.58 more per night to avoid losing $148.85 in case I had to cancel.

Not all Internet hotel rates have such restrictions. Strebel says Cendant doesn't offer any Internet-only or nonrefundable rates, but it is studying the issue.

One rule of thumb: The less research you do, the more you're likely to pay.

Jane Engle is a reporter for the Los Angeles Times, a Tribune Publishing newspaper.

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