The price point of no return
Written by Robert Niles
I posted an update to my Monday blog entry with this link, but after thinking a bit about it, I wanted to give it its own entry.Tweet
I'm talking about the Orlando Sentinel story from Monday about hotel occupancy and room rates for the motels along U.S. 192 in Kissimmee, near the southern entrance to Walt Disney World.
The hotels and motels on Walt Disney World's doorstep are worse off now than during the 2001 recession and the travel slump that followed the Sept.11 terrorist attacks.
Even in the flush times of the recent bubble economy, 192 wasn't doing as well as it was in its 1970s heydey, when the Magic Kingdom was the only big theme park in Orlando and everyone entered Disney property from 192. But the numbers in the Sentinel story are chilling to any hotelier.
One might think that occupancy would go up as price goes down. And, to a certain extent, price breaks do help fill rooms. But there comes a price point below which price cuts actually hurt occupancy rates.
Think of it this way: Imagine a hotel where the room price was zero. You wouldn't find an infinite number of families clamoring the stay there. No, a hotel where every bed is free isn't a resort destination - it's a homeless shelter. Most folks won't want to stay there. (Indeed, the Sentinel story mentions that some hotels are now renting not to tourists, but to long-term boarders. That's not a good sign for the neighborhood's health as a tourist destination.)
When prices get too low, people stop thinking "bargain" and start thinking "sketchy neighborhood." Empty parking lots around cut-rate hotels reinforce the perception, leading to fewer bookings, then to lower prices, then to fewer bookings, then to lower prices... then to homeless shelters.
Simply, the Orlando area, including U.S. 192, has too many hotel rooms for current demand, in this economy. And this is the way that the market eliminates them, by pricing them into oblivion.
Still, if you don't care about the neighborhood and simply are looking to score a dirt-cheap room, there are many bargains to be had on the way down.
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