Thursday, June 17, 2010

Traveling On The Cheap

I find I'm getting more frugal as I get older.  One of the great things about the Internet, at least from the consumers perspective is that it provides many opportunities to save money if you know where to look and can be a little flexible.

I'm on a short vacation right now.  I didn't do a lot of planning in advance and what little I did do has been mostly blown out of the water by changing circumstances.  Since I knew this could happen based on prior experience I didn't bother to book a hotel for tonight.  This is good, as my planned one night stay turned into two midway through today.  Since my only real requirement was to be somewhere in the Portland Oregon area I was able to go onto Travelocity.Com and get a room at a three star hotel for $55 a night.  I have a king sized bed, free breakfast, free Internet and am less than a hundred yards from a very good restaurant.   The standard Internet rate for this place is twice that.  Why was I able to get such a great price?   Because I was willing to commit to purchasing two nights before I knew where I'd be staying. Why would a business be willing to make this kind of deal?  Well, in large part it has to do with the kind of business a hotel is.

First of all hotels have very high fixed costs and relatively low variable costs.  Put another way, the costs for the company running a hotel are only slightly higher  if the hotel is full than they are if it is empty.  Additional guests are going to use more power & water but those costs are minimal when compared to staff and facility costs.  The second thing to keep in mind is that the value of a hotel room drops to zero at midnight.  If nobody has rented it the hotel will see zero revenue for that room on that day.

When you combine these two facts you get an intriguing possibility.  What if you were a hotel with a bunch of empty rooms?  If you could get even a buck or two for each of those rooms you would be ahead of the game revenue wise since your costs would hardly change at all with each additional occupant.  And if you have a restaurant or other for fee services/facilities you just might get some additional revenues that way as well.  The problem of course is that you don't want everyone waiting until the last minute to book at 50% or less of your normal rate.  Yes, your costs are fixed but you have your reputation to consider and your shareholders interests to protect; and thus it is a balancing act.

So, on the one hand you want to fill those empty rooms, even if it is at a rate significantly lower than you normally charge.  On the other you don't want to cheapen your brand and encourage people to game the system.  Travelocity isn't the first to offer a service that meets the needs of everyone in this scenario reasonably well.  At Travelocity it is called the "Top Secret Hotel (TM)".  Basically you tell them generally where you want to stay, how nice a hotel you want to stay at and they give you a list of choices.  These choices do not have names, just some very general details as to where they are and how nice an experience you are likely to expect.   You then pick your choice, pay your bill and Travelocity tells you where you are going to be staying.  This works for the hotel as they don't advertise that lower rate, you only get to see it after you have paid.  It works for the consumer because they get the lowest possible price.

Hotel's aren't the only travel related business to do this of course.  Most businesses in this sector have the same general dynamic.  Empty plane seats aren't bringing in any revenue either.  You can also find entire vacation packages at steep discounts if you're willing to be flexible.

Of course if you wait until the last minute and have very specific requirements you are going to pay a premium.  That's just the way these things work.  So it pays to either be early, or be flexible.

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