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Luxury Hotels & Price Elasticity
By Vijay Dandapani.
Sunday, 4th January 2009
 

Prior to the collapse of financial markets worldwide, some analysts were speculating that the custom for luxury hotels may be impervious to price hikes owing, in part, to the wealth of its clients.

Articles headlined "Are luxury hotels recession proof?" were circulating with the suggestion that "luxury hotel guests indicate a willingness to accept larger rate hikes compared to a year earlier (2007 vs 2006)" and that "wealthy individuals to whom price is less of a factor in selecting a hotel".

But as most luxury purveyors of lodging are finding, unfortunately, that premise had much validity as predictions of $200 oil by an ostensible oracle. Unfortunately, the rich, it appears, are just as prone to cut backs and demand better pricing.

Around the world, luxury hotels have been battered by the economic recession demonstrating that high hotels have a price elasticity that is no different to any other commodity subject to the vicissitudes of discretionary income.

Yet as USA Today reports, the NBTA expects hotel prices to increase from 1% to 4% nationally while American Express forecasts U.S. hotel rates to decline between -2% to +5.5% as compared to this year's rates.  The New York Times also reported earlier this month that the "Four Seasons hotels in New York, Miami and Scottsdale have been offering a third night free while for Christmas, the Boca Raton Resort & Club in Florida has a family holiday package that offers two connecting rooms for the price of one (starting at $249 a night)".

The aftermath of what appears to be an unprecedented economic downturn could still follow historical patterns for and, as was the case in 2003, only a sustained business cycle recovery will spur a price uptick for hotels, luxury and otherwise.

Vijay is Chief Operating Officer and part-founder of Apple Core Hotels- a chain of 5 midtown Manhattan hotels offering value and comfort in the heart of the city.Member of the board of Directors - Hotel Association of New York. www.vijaydandapani.com

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