Isabella’s Professional Travel Tip: Should You Buy Prepaid Hotel Rooms?

Good afternoon from my sunny spot on the Cloud. I hope you are having a relaxing time wherever you may be!

I’m frequently asked by friends if they should buy a prepaid hotel deal in order take advantage of the best hotel rates. I’ll give you my professional opinion based upon my years of experience.

First, let’s consider competition from travel suppliers. There are around five hundred airlines around the world and generally only a handful that service your home airport with sufficient frequency to mean that you will use them often. While no airline generally has a monopoly at any particular airport, they tend to split where they are dominant, so you probably use less than a handful of airlines consistently. For all practical purposes, this means that there is very little competition for your share of spend on air travel.

This is definitely not the case for hotels. There are hundreds of thousands of hotel properties worldwide at all price points and literally hundreds at any major destination that compete for your share of hotel spend. This means that hotels must be much more competitive for attracting customers than most airlines. In addition, guests stay for one or more nights at hotels which means that it is difficult for hotels to fill all rooms all of the time unlike airlines that can maintain a very high load factor.

Also, it is important to consider that filling a hotel room with a guest when the room would otherwise be empty doesn’t add any real costs to the hotel. An extra occupied room doesn’t require extra personnel. However, an additional guest offers a high amount of incremental revenue from what she spends in restaurants, on laundry, from the mini-bar or other ancillary services. All of this means that hotels can profitably drop their rates to very low levels whenever they know that rooms will otherwise be empty.

In the industry, we say that hotel room prices have ‘high volatility’ because room rates change very quickly when there are empty rooms. This is the main reason that hotels have not adopted non-refundable prices and ‘instant book and buy’ as stringently as airlines, which have fewer competitors, have been able to enforce. More hotel competitors mean better deals for guests!

In practice, this means that changing a hotel reservation to a lower price at the same or a competing hotel has very few restrictions. After all, there is generally no charge for booking or cancelling a hotel reservation and payment occurs at the property.

All of this means that the budget-conscience traveller should not buy prepaid hotel rooms but should continue to shop for a better rate once she has booked an acceptable price at a property. You will be rewarded with lower prices by frequently shopping for a better deal, both at your hotel and at nearby competing properties that offer similar amenities.

Hotel price comparison sites are a good place to obtain competing rates, but be careful to read the ‘small print’.  Hotels with ‘free cancellation’ often have a time limit by which that cancellation must occur or a fee is charged. In addition, many properties will not credit the guest loyalty points if the booking originates from a price comparison site.

Also, be aware of events that might drive demand. Special events can mean that demand for rooms is high and this reduces the low priced rooms that are available. To obtain a great hotel rate, be aware of demand at the location and choose a time when demand is not at its highest.

I’m reminded of a quote from that great economic sage, Willie Nelson, who said, “The early bird gets the worm, but the second mouse gets the cheese.” In my humble opinion, it is better to let the ‘early bird’ prepaid hotel room go by in order to be the second mouse to snag the tasty morsel of a late booking hotel deal!

Love,

Isabella

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