What is the Rack Rate?
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.
I've got to say that this definition is not wholly accurate. The implication is that the price is always higher if dealing directly with the hotel. But, that's not true. In fact the cost to a hotel, to get bookings via OTA's and GDS's is higher than a direct booking. It would be more fair to consider the Rack Rack to be the full "retail" or "list price", if you will. It is probably only paid when someone one books at the last moment, whether online or in person -- or anything in between
Can anyone tell me how I can find out what the rack rates are for a hotel? I would like to know what kind of discounts I may be getting.
So where does the wholesaler fit in this party? Are they allowed to offer rooms at a hotel's net rate to customers? Can they establish an in-house private subscribers list and offer them booking in naked rates?
Travel agent commission varies by what the travel agency is. TA's like Expedia (yes, they count as a travel agent) can make as much as 40 percent or more on a booking. "Typical" TA's (like your AAA agent) usually makes 10 percent on a booking.
The big brands can get the lowest TA commission rates, bringing the rate for the giants like Expedia down to a 15-20 percent commission. Don't blame the hotel chains, though--it's the online booking sites that often take independent hotels through the wash. When Expedia is your biggest source of advertising, as it can be for a mom-and-pop inn, Expedia knows it and charges a good deal more.
The typical TA rate of 10 percent is pretty standard, regardless of the size of the brand.
Does anyone know how much the travel agency makes on a hotel booking?
I work in the hotel field. The rack rate is the top rate correct, but the online travel agencies have to have the same rate as we offer at rack rate. Example: If the room is $69.00 if you walk into a hotel, if you book online, it is the same rate. The only time you get a discount is if you pair services together or use the "name your price" sites.
All the online rates have to match the hotel's website price. This is where you get the rates from for the online companies. The only companies charge the hotel a 20-30 percent commission to the hotel, so the hotel gets less. At the hotels I personally run, we will normally offer a lower rate than you can find online.
I work as a front desk receptionist and I'm free to deal with the prices. As long as they are reasonable with the reservation department (discount wise), I can go as high as I like.
I usually present a higher price than the actual price if we have few rooms left and I usually present a lower price if we have a lot of rooms left. And hey, if you're handsome, I may give you an even better price.
I think it's worth mentioning that when you book through Expedia, Travelocity and the like, you are often prepaying for that room, no cancellations, no refunds, which is why the rate is often lower than the standard rack rate.
I work at a hotel, i researched the travel sites and compared them to our rack rates and the rack rates of three other hotels in the area. There is no difference in price. Do some research of your own for hotel prices, including calling the hotel directly or searching their website. You could find out you're actually paying more by using a travel site and not the hotel directly.
I teach in the hospitality department at a university, and I think I can add a more thorough definition.
This rate is not strictly based on whether you book with a travel agent/online service versus directly with the hotel. It is more about the timing of when you book.
As you get closer to the date of your stay, the rate increases, regardless of who you book with. This is due to Yield Management, which dictates that people will pay more for a room when the supply is limited (e.g., when you book the day you need the room and there are only a limited number of vacancies left).
I always book beforehand when I am going to be staying in a hotel. I always had noticed that hotels will charge more when you simply deal with them directly but never had I thought that the practice actually had a term.
Maybe I can ask for something better then the "rack rate" next time I am stuck with an unexpected nights stay somewhere.
Thank you for the description of rack rate. It was very helpful.
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