Why Hotel Rates are Becoming Less Competitive and What You Can do About It

In this article you will learn about:

  • Online Travel Agencies, their history and who owns what
  • How to avoid falling for marketing tactics that may not benefit you
  • Which websites help you find the best rate quickly
  • How far ahead to book a hotel for the best discount
  • The least and most expensive time of the year to travel
  • Average hotel rates in popular cities around the world

Hotel rates are on the rise, reaching post-recession highs in some regions.  How much more you’ll have to pay depends a lot on where you live, and whether you are travelling abroad in which case fluctuating currencies can mitigate or exasperate the increase.  For example, if you are from the USA and travelling to Canada, you’re in good shape because the Canadian dollar has dropped significantly against the US.  When the opposite is true, you’ll find price increases can be significant.  

These scenarios vary by country, but hotel and accommodation prices in general have been on the increase over the last 6 years – this in spite of added competition from Homestay and residential properties coming into the market.The following chart is based on Hotels.com Hotel Price Index, shows the increase in hotel rates by region from the post-recession 2009 low to the first half of 2015. You can see most regions have experienced significant increases since the recessionary lows of 2009, the exception being Asia, where prices remained relatively stagnant for the past 6 years. In North America prices have now exceeded pre-recession highs.

Hotel Rate Increases 2009-2015

Let’s take a look at some factors contributing to higher hotel rates.  Besides economic health and inflation rates, we need to look at marketing, a major cost factor for most businesses. For hotels, marketing is crucial to keeping their rooms filled.  Let’s begin by taking a look at how marketing has changed over the last two of decades – useful information for every consumer.

The Evolution of Online Travel Agencies

Beginning in the late 1990s, the wild west days of the internet, new ways to search for and book accommodations made their debut.  Not surprising, considering how the internet has revolutionized so many things and is continuing to supplant industries and business models (some not so old themselves).  When was the last time you went to a store to rent a video?

The two largest online travel agencies (OTAs) today came on the scene during the early growth phase of the internet and home computers.  Priceline.com (now Priceline Group) was first founded in 1997 and dabbled in different markets.  Acquiring a number of travel sites, they ended up focusing on hotels.  The other giant in the room, Expedia was a 1999 offshoot of a business started by Microsoft in 1996.

Prior to that, you’d typically walk into to a ‘brick and mortar’ travel agency, talk to a travel specialist and perhaps take home a handful of glossy brochures to study, before booking a hotel.  Or, you might stick with the trusted hotel chain you always use and call their reservation line or the hotel itself to reserve your room.

The rapidly growing internet introduced opportunities for new business models to evolve.  The travel sector quickly became one of the largest and most competitive online sectors.

The ability to choose from 100s of hotels while sitting at home was clearly something people took a liking to.  Why go to a travel agency any more?

Adding the ability to read and leave reviews made the process even more interesting.  Reviews are  a touchy subject in the industry, due to the perception that many reviews, both positive and negative, may be biased or fake and used by hotels to try and gain a competitive advantage.  This criticism is especially directed towards TripAdvisor. Anyone can leave a review on there without establishing they actually stayed at the property.  This clearly leaves an opportunity for abuse, but that’s another topic.

This period was the start of a ’love – hate’ relationship between the hotel industry and up and coming OTAs (online travel agencies).  While  hotels provide inventory to the OTAs to ensure they’re visible to the large number of people searching these sites, they’re not happy with aspects of the agreements and restrictions they have to follow to be in the program.

High Cost of Advertising

With large numbers of travellers searching for accommodations on the proliferating hotel booking sites and search engines, hotels were bidding more and more to get their listing near the top.  

The only way for a hotel to gain more exposure than their competitor with the many potential bookers searching on Google or other major search engines, is to pay for an ad positioned above the organic search results.  This is very costly.  Hotels are competing not only with each other, but also with the large Online Travel Agencies for these top spots.  

Googles Unfair Advantage?

Adding to the challenge, Google is taking advantage of their captive audience by featuring a block of three hotels at the top of hotel related search results chosen according to the potential for them to monetize a booking or click.  

In some cases, you can now book one of these hotels without leaving Google, although the actual merchant is still an OTA or the hotel itself. This presents a new opportunity for Google to earn revenue and pushes the organic search results (which Google makes no money from) farther down the page. This change is transforming Google into more of an ecommerce store.

We understand their need to make money from the services they provide, but this used to be strictly in the form of selling advertising space in the search results; now they are moving in the direction of becoming a marketer or merchant themselves. If you think that might be a conflict of interest, you certainly aren`t alone. Scroll down the results and have a look at what you actually searched for.

Takeovers and Acquistions

The other huge story in this sector is consolidation – plenty of it.  While there are many online travel agencies, their numbers are declining. This is because the largest two, Expedia and the Priceline Group have been on a major acquisition spree, buying up one online travel agency after another.  While some of these continue to run as separate brands, others are absorbed and disappear.  This potentially means less competition for the consumer and gives the two mega online travel agencies even more clout with hotels. Additional acquisitions are expected to take place this year.

Today, Expedia owns many major brands including Hotels.com, Hotwire.com, Egencia, Venere, Orbitz, Travelocity, Wotif, HomeAway and metasearch site Trivago.com.

The other behemoth, The Priceline Group owns Priceline.com, Booking.com, Agoda.com and metasearch site Kayak.com.

Many consumers are unaware of who actually owns many of the booking sites.  Believing they are all competitors, they are perplexed why so many sites offer the exact same rate on the hotel they are interested in.

Along comes Metasearch

Another major change to the landscape came with the advent of metasearch.  With the proliferation of booking sites, consumers who wanted to make sure they were getting the best deal for their money  had to look up a specific hotel and dates on every hotel booking site they could think of to see who had the best rate.  

When metasearch sites came along, this was already done for you. Metasearch sites regularly crawl and cache (store) the information and prices from 100s of online booking sites and show you a summary of all the results. When you make your choice the link normally sends you to the Online Travel Agency or Hotel Site to complete your booking. Some metasearch sites are now providing the ability to book some properties without leaving their site, but the actual transaction is still handled behind the scenes by the OTA.  

The first large and successful metasearch site for hotels was Kayak.com.  Other major metasearch sites include Hipmunk, Trivago and Hotels Combined.

These are a great time saver for consumers, but now the OTAs have to share their commissions with the metasearch sites who send them traffic.  

So now we have 3 layers:

1. Hotels or hotel chains
2. Online Travel Agencies
3. Metasearch Sites

Do more Acquisitions mean less Competition?

So, what was the next logical step?  The online travel agencies were paying a share of their commissions to the metasearch sites that were gaining significant traffic share, so why not just purchase a metasearch site outright.  Again, more consolidation and now the rather odd situation of a metasearch site showing inventory from not only their parent company, but also from their competitor.  

Why else did this make sense?  Well, if an OTA can’t keep a customer from booking through their competitor, they may as well grab a share of the competitor’s commission by way of a finders fee through their subsidiary metasearch site.

It’s difficult to say if all of these acquisitions are a significant factor in rising hotel prices. The acquisitions were subject to U.S. antitrust approval which means the Federal Trade Commission was satisfied the deals would not have a negative affect on consumers, but it only stands to reason that less competition adds upward pressure on prices.

What You Can Do

So where are we today and what does this all mean to you as a consumer of hotels?

First, it’s good to know there are still choices, but, you may have to dig a little deeper for the best deals.  

Be Wary of the Top Results on Booking Sites or Google

It’s the same principle as the retail stores placing the highest margin items on ends facing the aisle or at eye level on the shelves.

The order in which properties are listed on booking sites has a lot to do with how much the website or OTA stands to earn from the booking.  Filter the results and dig down a bit.  You may find some great deals from hotels that haven’t offered the OTA an extra fee or larger commission for preferential treatment (1st page in the results).

I would also caution you to be wary of Google’s top results.  They push the organic (unpaid, natural) search results well down the page in favour of showing you a few popular hotels they can make the most money on, either because the hotels have outbid others for that particular search term, or they are offering a better commission for any bookings coming via Google.  These results may or may not be a good deal, or the best option for you.

The actual organic search results are below the ads and you just might find more relevant and helpful information there.  It’s certainly worth a look, rather than just clicking on the first thing you see.

Metasearch: Still The Quickest and Most Convenient Way to Search for Hotels

There’s still nothing more convenient for quickly finding and comparing hotels than using a good metasearch site.  They cover a huge number of properties and have good filtering options to help you narrow your choice.  Our own Hotelfinder provides a metasearch not affiliated with Expedia or Priceline Group.  It will show you prices from them, but also from smaller, lesser known sites which sometimes have better deals.  For several popular hotel chains, we also show the rate for booking directly on their own website, so you’ll know when that is the best option.

One thing to keep in mind when looking for a hotel on a metasearch site, is you are not actually booking the hotel through it. They only show you information provided by the OTAs and hotels. Your actual booking will be with the OTA or hotel you choose and is subject to their terms and conditions, cancellation policies, etc., so be sure to read all of the conditions. If you have any issues with your booking they should be directed to the hotel or OTA that handled your booking.

We’ve come across some unusual sites where you have to register in order to see their rates.  In most cases they are no cheaper that what’s available from other sources, although sometimes they were a couple of dollars less.  One newer site we saw claims that if you book a room through them and the price drops before your stay they will cancel and rebook on your behalf and refund the difference providing there is a difference after any cancellation fees.  However, when we checked some of their prices, we found they weren’t competitive to begin with.

There’s no free lunch, but there are good deals if you are willing to take on some extra risk.  Many bookings through OTAs offer free cancellation, but you will find some of the deepest discounted rates don’t allow you to cancel.  It comes down to a trade-off between price and peace of mind.  If you do make a booking that offers free cancellation, be sure to check back from time to time to see if there is a better deal.  

Last Minute Deals Usually Aren’t Better: How Far in Advance Should You Book to Get the Best Discount?

Contrary to a popular belief, last minute rates are seldom the best deal.  The hotel business, like any other, is driven by supply and demand.  In popular destinations, hotels often book up well ahead.  When less rooms are available, prices climb – a lot.  You may find it difficult getting a room at all if you wait until the last minute.  You could literally be left out in the cold, not something you want on your vacation.  This may not be the case in destinations that have an oversupply of accommodations or during the quietest times of the year.

Backing this up, a study by Trivago demonstrated that the best time to book to maximize savings is about one month in advance.  Booking 2 months in advance results in about the same discount as booking on the day of or day before your stay.  Booking more than 2 months in advance, usually results in below average savings.  

Keep in mind these numbers are based on averages and no two bookings are the same. They are an excellent guideline though.  The optimal time to book a hotel falls within a range a few weeks either side of the one month mark.  This range tends to vary a bit by city or region, but the one month mark us almost always in the optimum range.

Best Time to Book Chart

Chart illustrating the average discount based on how far in advance a hotel room is booked

Another important consideration is that booking one month in advance may not give you as many choices in popular destinations during their peak periods. In that situation, you may have to book further in advance to be sure of getting something suitable.

Where you travel also has a large bearing on the cost of accommodations.  If you’re travelling for pleasure and are flexible about where you can vacation, you can certainly find some great deals.

When are Hotels the Cheapest?

When are hotel rates the lowest?  There are obvious factors such as seasonal differences.  More people travel when school is not in session, such as Spring Break  and Summer Break, but those time frames can vary by country and region, so you should do some research on the area you are travelling to.  As a general rule, hotels in the northern hemisphere are less expensive during winter with the prices climbing to the highest levels in the summer.  However, hotels in tropical or subtropical locations will buck that trend because of all the people flocking to those regions to escape winter for a bit.   

One of the biggest things to drive prices up, are special events or business conventions.  These type of events are usually known of by the hotel industry well in advance and they will adjust their rates accordingly.  If you’re seeing unusually high rates for the city and dates you are searching for, try changing the dates and see what happens to the rates.  You may find prices are significantly lower just a few days earlier or later.

One more tip: If you’ve selected a suitable hotel and are about to book, you may want to give the hotel a call first.  You might be able to negotiate a better rate or an upgrade. You have nothing to lose by trying.

Which Cities have the Lowest and Highest Hotel Rates

To see which popular cities provide the best accommodation for your money, check out the following chart.  It is based on the Hotel Price Index for the 1st half of 2015 and is sorted from the least expensive to the most expensive city based on the average price per night at a 3 star hotel.  It also shows the rates for 2, 4 and 5 star hotels in the same cities which don’t always exhibit the same price correlation as 3 star properties.

City2 Star3 Star4 Star5 Star
Buenos Aires$41$84$138$362
Las Vegas$77$87$129$247
Mexico City$81$103$189$327
Hong Kong$60$108$173$351
Sao Paulo$45$112$146$272
Cape Townn/a$112$130$268
Niagara Falls, ON$92$131$215n/a
San Antonio$79$150$225n/a
Rio de Janeiro$65$157$208$300
San Diego$93$158$239$347
Washington D.C.$109$181$231$420
Los Angeles$116$185$290$548
New York City$159$227$276$448
San Francisco$146$229$281$458


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