Hotels and tourism on a sticky counter around high prices

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When it comes to building customer loyalty in tourism, word of mouth about value for money is key.

Returning to their home country after a visit abroad, most travelers usually focus on three things – the weather, what they did and the price or price – when recounting their experience of holidays to others.

So in terms of repeat business or business recommended by word of mouth, the cost experience of visitors is of vital importance.

According to Fáilte Ireland, the country has done reasonably well in recent years, with 8% of tourists saying they got poor value for money and 80% saying they got good value for money.

But as that organization’s chief executive, Paul Kelly, told an Oireachtas committee in recent days, early indications suggest those scores are likely to worsen over the summer.

Over the past few weeks, anecdotal stories of apparent “scam” charges and “price pricing” by hotels, car rental companies and other tourist services here have abounded and are quickly coming to define the outside given our tourism economy.

Anecdotes are never the best data on which to base assessments, but it is clear that the sector faces a growing perception problem.

Hoteliers on the offensive

The Irish Hotel Federation (IHF) has gone on the offensive over the week in an attempt to counter some of the increasingly negative narrative – a narrative which, in the age of social media, can quickly spread to the stranger.

In essence, his argument is that the high prices reported by customers are the consequence of a significant imbalance between supply and demand in the hotel sector, particularly in Dublin.

For starters, he argued that the number of available hotel rooms in the city (which has historically been underserved by hotels in recent years) is 3,000 less than it would have been if the pandemic didn’t happen. had not disturbed the construction.

Of the stock of 22,492 registered rooms in the capital that are available, the IHF says only 82% are actively used as hotel accommodation.

A further 15% is used for government activities such as housing Ukrainian refugees, and the remaining 2% is out of use due to understaffing, or because it is used to house staff or is in renovation course.

On the other side of the equation, demand for IHF claims came back much stronger than expected, giving Dublin the highest occupancy rate of any city in Europe at 83.6% in april.

But with this scenario of hotels also replicated in car rental, the tourism industry finds itself on a sticky wicket.

The hotel industry operates a business model similar to that of airlines, where groups of seats – or in this case rooms – are sold at a particular rate, and when they are all sold out, another tranche of rooms is released at a higher price.

This process continues until only the last rooms are available, usually at a significantly higher cost than the first batch to come to market.

So in a normally functioning market, where supply can keep pace with demand, you would expect there to be a reasonable choice of rooms offering good value for money, until you get a lot closer to your chosen stay date, unless there is a big event on or some other reason why rooms sell out early.

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But in this country at the moment, according to the IHF, a depressed supply coupled with strong demand has led to the bulk of the available rooms selling out much earlier than normal, leaving only a small pool at the moment. upper end of the price continuum.

To illustrate its point, the IHF indicates that in June, 80% of the hotel rooms available for the month had been pre-booked, compared to 65% compared to the same point in 2019.

The situation is further complicated by how some of the big booking engines work and what they require of the hotels that use them.

And it is this unusual overall dynamic, he says, that has seen potential visitors faced with limited choice and prices per room in many cases around €300 a night or more for hotels of one to four. stars when they visited popular booking sites. looking for a room in the coming weeks.

A reasonable explanation?

On the face of it, this is a reasonable explanation, based on some pretty basic market principles of supply and demand.

We may not like it, but the industry has the right to adopt whatever business model it chooses – it’s a model that’s been in use for some time and wasn’t introduced just to take advantage of current circumstances.

Although it can be argued that given these unusual circumstances, hotels should consider moving beyond the usual model by releasing the latest tranches of rooms at more “normal” average prices to increase the perception of value.

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The IHF and tourism leaders in general do not dispute that some operators are deliberately taking advantage of the situation to raise prices – but they say the numbers are low.

They say evidence of this can be seen in data compiled independently by STR, which shows average rates in April were €154, lower than London, Rome and Amsterdam, with indications it will be higher. around €177 in May – around 15-16% higher than the same month before the pandemic.

This is not an insignificant increase, but it must be considered in the context of soaring costs for energy, food and materials, as well as staff shortages that lead to higher salaries.

Collectively, that’s not an explanation consumers will necessarily want to hear – after all, no one likes to feel ripped off, for whatever reason.

And it makes excellent fodder for tabloid headlines and outraged politicians trying to score points with Leinster House voters.

Car rental companies have faced similar criticism

But with this scenario of hotels also replicated in car rental, the tourism industry finds itself on a sticky wicket.

Indeed, rising prices and pressures on staff mean that other tourism-focused businesses, such as restaurants and pubs, are also facing increasing questions about value for money and service standards.

There is little the industry can do to combat this perception, as many of the circumstances that determine supply, demand, prices and labor market dynamics are beyond its control.

Yet it must, by taking as pragmatic and innovative an approach to pricing as possible, up its game on the service and bend over backwards to deliver value for money over the next few months.

Because if it does not act decisively, the sector risks suffering significant damage locally and internationally, while it is already struggling to get back on its feet after the ravages of Covid.

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