Hi,

I've recently been negotiating rates with hotels in my area and have a quick question.

How are hotel rates determined?

Simple logic would assume that as long as the room is sold for more than the cost of upkeep of the room, then why not sell the room.

Recently, the hotel manager said that although revenue is something they're measured against, something else they're measured against is occupied rate per night.

So I asked, if there are three rooms in a hotel. Isn't it always better for the rates to be: 100, 100, 40 than 100, 100, 0 - given that the 40 exceeds the cost of the upkeep of the room.

Hotel manager replies "no." Because, 100, 100, 40 means that the average occupied rate is 80 as opposed to 100, 100, 0 would suggest average occupied rate is 100.

HE also spoke about displacement, but I'm not sure exactly what he meant.

Can someone shed some light about this?

Thanks