Study: Discount rates no bargain for hotel profit
By Mark Johnson
ALBANY, N.Y. -- Hotels that offer discount rates during the offseason to attract guests might be doing more harm than good to the bottom line, research shows.
Rather than boosting occupancy during slow periods, discount rates simply hurt revenue, the study by Cornell University's School of Hotel Administration said. That is especially true as more consumers use the Internet to find travel and reservation sites offering the cheapest rooms they want.
Inexpensive rooms do not entice people to travel but only give cheaper accommodations to those who are on the road anyway, the study showed. When hotels offered discounts of up to 20 percent, room occupancy increased only slightly while revenue fell by about the same percentage.
"Our data are clear, the demand boost will not be large, but the loss of revenue will be painful," Cathy Enz, executive director of Cornell's Center for Hospitality Research, said in the report.
Web sites such as Priceline.com and Travelocity have made it easier for consumers to find the lowest rates for rooms they would have booked anyway, the study said. While good for customers, such sites have hurt hotels by undercutting their rates.
Still, many hoteliers say some discounting is necessary and, done properly, can be crucial in filling rooms that might otherwise go vacant.
"Discounting doesn't create demand, but if you don't discount and your competitor does, you're going to get nothing," said Anthony Mangano, general manager of the Syracuse Ramada Inn, whose business is split almost evenly between business and leisure travelers.