There’s no rationale for price gouging
There’s no rationale for price gouging
07 SEPTEMBER 2017 7:22 AM

A hotelier might call it revenue management, but it’s price gouging when those fleeing natural disasters must pay 200% or 300% above rack rates for hotel rooms.

As it is with any modern 68-year-old man, Twitter is one of my primary forms of communications—both benign and sometimes combative—with those I know and strangers I meet online. I recently engaged in an acrimonious exchange with someone in the hotel business who seemed to me to condone price gouging by hoteliers serving people escaping the effects of Hurricane Harvey.

While it’s hard to define what is a gouged price for a hotel room (100% over rack rate? 200%? More?), it’s something like the U.S. Supreme Court’s definition of pornography: I know it when I see it. Press reports coming from areas outside of southeast Texas shed light on a number of hotel operators who were charging exorbitant rates to those seeking refuge from the storm. 

As of the last week of August, the Texas Attorney General had received nearly 700 complaints of gouging by businesses in the state, including some hotels. Best Western International took the bold step of rescinding the membership of a property in Texas accused of charging guests up to three times normal rates.

I believe (and I’ve written on this subject many times over the years) that hotel owners and operators have a moral—if not legal—obligation to show mercy on guests seeking shelter in their hotels from disasters. The extra revenue might be tempting, but it’s wrong to take advantage of people just because you can.

The hotelier with whom I was engaged in my Twitter exchange argued the storm will create extra expenses for hotels in and even outside of the disaster area. He mentioned things like higher insurance premiums, extra labor costs and other unspecified items. That’s certainly true for hotels that were flooded or otherwise forced to close during and after the storm. Not so much for properties well out of the strike zone.

Here’s a little math to illuminate my point: Say a 100-room select-service property in small-town Texas has an average rate of $100 and average occupancy of 75%. For a typical week, that property garners $52,500 in gross room revenues.

If during a disaster, the operator moves the room rate to $300 a night and the hotel is full, weekly gross revenues jump to $210,000. Much of that extra revenue drops directly to the bottom line, yielding well over $150,000 in extra profits, which could pay for a lot of theoretical “extra expense” the hotel might encounter.

Others online have attributed these egregious rate hikes to simple yield management, just as hotels increase rates dramatically for special events such as the Super Bowl, Kentucky Derby, Indianapolis 500 or the eclipse. The difference is that guests willingly (and supposedly have the means) to pay highly inflated rates for special events. Unlike Harvey evacuees, these consumers attend these events by choice and also pay high hotel rates by their choice.

That’s much different for a middle-class family of four forced from their home and seeking shelter. They would probably expect to pay a premium for a hotel room, but it’s wrong to expect them to pay $300 a night for a room that on any other weeknight would be $100. A large swath of the working population doesn’t have the financial means to spend that kind of money over a period of four or five days or longer.

In the days after Harvey, the media was saturated with pleas for people to contribute to help those afflicted by the storm. The outlets for giving ranged from the Red Cross to football player J.J. Watt’s crowdfunded campaign. Not everyone—including some hotel owners, operators and workers—is able to donate in this way. But it seems to me the right, moral and hospitable thing for hotel owners to do is take mercy on anyone hurt by the storm who shows up at their front desks.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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