What’s the rack rate?

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Rack rate is a term used in the travel industry to describe the often inflated prices a person would pay for a room if dealing directly with a hotel, rather than a travel agent or one of the many online discount travel companies. It may also be called the retail price, rate of increase, or effective price. By simply walking into a hotel and asking for a room for the night, a traveler could pay two to three times the price he would pay if he booked in advance through a travel agency. The cost, however, can vary and may depend on whether you are willing to bargain or how late it is in the day. If a hotel sees an opportunity to rent a room that would otherwise be unoccupied for the night, it may be possible to bargain and get a substantial reduction.

The economy of hotel accommodation

Hotels must balance the rates they charge for rooms against the likelihood of them being occupied. Since an unoccupied room generates no revenue, it is often in the best interest of hotels to offer accommodation at discounted rates. This may mean offering a late night room for well below the regular rate, as even a significantly reduced income is better than nothing. Often, however, travel agencies negotiate deals where a large number of rooms are purchased for a specified period at a large discount. While the hotel makes less money from these than it would if they were sold at the rack rate, there is no guarantee that any of them will be occupied for the entire period.

By doing business of this kind, the hotel has a guaranteed income from these rooms in the specified period. The travel agent is able to offer budget accommodation as part of a package and the customer benefits from a cheaper holiday. Similar agreements are often made between travel agencies and airlines for seats on planes.

With so many people pre-booking travel, few actually pay the rack rate. Part of the skill in offering a price is to make consumers feel that they are getting excellent value for money by paying less than the advertised price. Hotels often list a price guide in their rooms and post high rates, making the guest feel like they got a good deal if they notice a big difference between the price that could have been charged and the price they actually paid.

How to beat the rack rate

It’s simple enough to avoid paying the rack rate, even for those looking for same-day accommodation. For example, a traveler who needs to stay overnight in a city can search the Internet for local hotel prices at various online travel agencies. He can choose the best price and, if possible, print it and present it at the reception. Many places have free wireless Internet access, so it may be possible to show a discounted price at reception on an Internet-enabled laptop or mobile device. Often times, the hotel will accept that price, rather than leave the room empty.

Alternatively, if you don’t have internet access, using a travel agency to book accommodation can still save you a significant amount of money, even factoring in a booking fee. If it’s too late at night to find a travel agency open, it’s a good idea to keep in mind that the hotel wants its empty rooms occupied and to bring in revenue, so it may be possible to haggle over the price. If a price below the rack rate that seems reasonable is offered, the hotel may be authorized to collect this amount, as the lower prices are charged to people who have pre-booked their room through a travel agency.

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