Hotel prices are dropping: Good for travelers, bad for hotels?

While the global economy continues to remain dismal, business-makers and legislators are touting the beginning of the economy’s “upswing” – citing that the worst is over. However, it looks like the hospitality industry still has some convincing to do – luring travelers with heavily discounted rates and promotions that only a few months ago would have seemed nearly impossible.

According to online-booking website Hotels.com, world hotel prices have dropped significantly, with an average of a 17% decrease since last year. At the very top of this bell curve is Moscow, leading the way with a 33% decrease, while New York has seen one of the smallest changes with only a 6% decrease since 2008.

The Hotels.com Hotel Price Index (HPI) suggests that there has never been a better time to travel. Interestingly enough, for travelers out of Europe, prices actually have risen to top destinations in the Middle East – as much as 20% in Tel Aviv, by 15% in Istanbul and by 15% in Abu Dhabi.

“Despite the relative weakness of sterling to the euro and the dollar, the Hotels.com HPI has shown that Britons can still enjoy some tremendous bargains abroad,” said Alison Couper, communications director of Hotels.com. “Hotel rates are down year on year across most destinations in Europe, and typically expensive places such as New York and Moscow have never been more affordable.”

The HPI tracks the real prices paid per hotel room (rather than advertised rates) for 78,000 hotels across 13,000 locations around the world. The latest HPI looks at prices from January to June 2009, compared to the same period in 2008.

Bad for business, or smart tactics?

As the global tourism business strives to make a significant headway toward a financial “restoration” of sorts, it is clear that the hospitality industry is struggling the most. The economy, climate change, social/political upheavals and natural disasters are just a few factors that are negatively effecting its bottom line.

With all this, it is only natural for the industry to adjust its pricing structure in order to gain new and returning (loyal) customers. Every major brand has virtually doubled its “membership” incentives, stoking the travel-shoppers’ flames with decreased rates, free nights and other goodies. The question remains: will this buying shift hurt the industry in the long-run, or will it be its savior?

I tend to think on the brighter-side – as the hospitality industry is forced to adjust in these economic times, the consumer public will certainly buy into the great deals and foster a new and loyal relationship between buyers and the worthy properties.

However, it is perhaps too soon to tell what the price adjustment will have on the smaller, “mom and pop” establishments which have for years counted on the price gap to encourage travelers to shop their way. As this gap closes more and more, could these players be threatened as the “big names” of the industry gain more customers?