U.S. Hotel Industry: I'm Concerned About You

A Typical Hotwire.com Listing

I find it particularly hard to watch more than 15 minutes of television before being reminded that William Shatner is out there somewhere bullying hotel front desk clerks on my fiduciary behalf. As comforting as this is for my near-term travel plans, it makes me wonder how the future of the hotel industry will take shape.

Like a growing number of adults, I rarely ever book hotel rooms through the actual building at which I will be staying. Hotwire.com is my go-to site and it allows me to regularly stay at wonderful hotels that I would otherwise have no way of affording. Most recently hotwire.com allowed me to stay at the Capital Hilton in Washington, D.C. for $89 a night. Hotwire grades this location as a 4-star and I certainly agree with this assessment.

The online discount hotel bookings sector originated as a solution for clearing out the excess inventory of available rooms that remain unreserved as the date of use nears. Personally, I'm not anticipating my consumption patterns to change anytime soon. Through 5+ years of experience I have learned that a 3 or 4-star hotel in a major metropolitan area should cost no more than $129 a night. What began as a solution will ever increasingly become a problem.

Most 3 and 4-star hotels cannot possibly have a cost structure that is sustainable if most paying customers begin to expect such low rates. But as I age and younger consumers adopt the same booking patterns, how will hotels generally be able to keep up the experience that I am enjoying, based on the subsidized level of service that older, less web-savvy consumers are maintaining for me at their higher rates? What will happen if hotwire.com or a competitor develops a sizeable corporate division that books discounted rates for business travelers? Currently, leisure travel makes up a large percentage of these discounted bookings. But, this sector has ever more room to grow in corporate bookings.

Margins industry-wide are going to compress as these discounted rates increasingly become expected rates over time. I think what we're going to begin to see is the unfortunate commodified price effects of the American department store (special sale every day!) and airline industry take hold in the hotel sector. Price will be king and service/upkeep will slowly erode. I hope I am wrong.


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