New Research Shows Booking Hotel Rooms in Advance Doesn’t Save Money

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Todd Montgomery has released new research that shows that booking a hotel room in advanced may not necessarily save money.

For years, airlines have been training their customers to book airline tickets in advance to save money. This pricing strategy is based on the simple concept that flexibility costs money. In the industry, this concept has led to two pricing principles. The first is that business travelers tend to pay a premium for last-minute bookings while leisure travelers tend to prefer lower prices to flexibility. The second is that airlines should always hold back airline seats for those willing to pay a premium for the convenience of last-minute travel. These principles apply throughout the travel industry, and are generally accepted by major airline, cruise and car rental agencies. Over the years, most customers have learned to accept these principles as a reality and have adjusted their buying behavior accordingly. But are these principles being applied in the hotel industry, and is it cheaper to book a hotel room in advance?

To look at this specific question, a study was conducted that analyzed two years’ worth of historical pricing data, which included 1.3 million data points, covering 200 hotels and three major markets. Surprisingly, customers who book their hotel rooms 60 days in advance tend to pay 4% more than those who book their rooms the day before they arrive. By comparison, airline customers saved 7% when they booked their airline tickets in advance to the same destinations during the same period. Furthermore, the study found that the hotel industry does not always hold back rooms for customers who book last minute. In many cases, the hotels sold out too early and were no longer taking bookings for last minute travelers, regardless of how much they would have paid.

These results were unexpected. The hotel industry is breaking the two most fundamental rules of revenue maximization and is doing exactly the reverse of what the airline industry has trained customers to do for the last 25 years. The implications for the industry are far reaching, as the industry spends millions of dollars on technology and people to ensure they are extracting the maximum possible price from their customers. For travelers, the implications are clear: those who value flexibility in their schedules can save some money by booking lodgings at the last minute.

Todd Montgomery
Lecturer / Executive in Residence
College of Business- Hospitality
Oregon State University-Cascades

profile: http://www.osucascades.edu/todd-montgomery
email: todd.montgomery(at)osucascades(dot)edu

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