The rack rate is a term used in the travel industry to describe the often inflated prices that a person would pay for a room if he deals directly with a hotel, instead of with a travel agent or one of the many online discount travel companies. It may also be called the retail price, walk-up rate, or actual price. By simply walking into a hotel and asking for a room for the night, a traveler might pay two to three times the price she would pay if she pre-booked through a travel agent. The cost, however, can vary, and may depend on a willingness to bargain, or how late in the day it is. 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 obtain a sizeable reduction.
The Economics of Hotel Accommodation
Hotels must balance the rates they charge for rooms against the likelihood of them being occupied. Since an unoccupied room brings in no income, it is often in the hotels’ interest to make accommodation available at discount prices. This may mean offering a room late at night at well below the normal rate, since even a greatly reduced revenue is better than none at all. Often, however, travel agents will negotiate deals where a large number of rooms are bought for a specified period at a large discount. Although the hotel earns less revenue from these than would be the case if they were sold at the rack rate, there is no guarantee that each of them would be occupied over the entire period.
By doing deals of this type, the hotel has a guaranteed income from these rooms over the specified period. The travel agent is able to offer cheap accommodation as part of a package deal and the customer benefits from a cheaper vacation. Similar deals are often done between travel agents and airlines for airplane seats.
With so many people pre-booking trips, few actually pay the rack rate. Part of the skill in offering a price is to make consumers feel they are getting very good value for their money by paying a lower than rack rate price. Hotels will often list a pricing guide in their rooms, and post high rack rates, making the guest feel he has got a good deal if he notes a big difference between the price he could have been charged and the price he actually paid.
How to Beat the Rack Rate
It is fairly simple to avoid paying the rack rate, even for someone looking for same day accommodation. For example, a traveler needing to stay the night in a town can look up prices for local hotels at various online travel companies on the Internet. She can choose the best price and, if possible, print it out and present it to reception. Many places have free wireless Internet access, so it may be possible to show a discounted price at reception on a laptop or Internet-enabled mobile device. Often, the hotel will agree to that price, rather than have the room remain unoccupied.
Alternatively, if no Internet access is available, using a travel agent to book accommodation may still save a significant amount of money, even with a booking fee taken into account. If it is too late at night to find an open travel agency, it is a good idea to bear in mind that the hotel wants its empty rooms occupied and bringing in revenue, so it may be possible to haggle over the price. If offered a price below the rack rate that seems reasonable, the hotel may be authorized to take this amount, as lower prices are charged to people who have pre-booked their room through a travel company.