Hotel Price Deregulation Will Help Spur Growth

Hotel Price Deregulation Will Help Spur GrowthHotel Price Deregulation Will Help Spur Growth

It was only a matter of time before financial experts and economists were dragged into the public clash over hotel prices between the Iran Cultural Heritage, Handicrafts and Tourism Organization and hotel owners.

The drawn-out argument between the two culminated in the ICHHTO announcing last week that increasing room rates more than 12% in the next Iranian year (starts March 20) is illegal, to the dismay of hoteliers who lambasted the organization for its “meddling.”

Following the deregulation of airfares last December, which has reportedly led to an increase in domestic flights thanks to competitive prices, Jamshid Hamzehzadeh, the president of the Iran Hoteliers’ Society, called for room rates to also be deregulated.

However, ICHHTO chief Masoud Soltanifar rejected the idea, stating that so long as hotels in Iran “have not been standardized,” his organization will be the only entity that sets the prices. He argued that in this way, the ICHHTO can “protect people’s right to affordable travel.”

“If the government allows hotels to set their own prices, it will lead to more diverse services suited to people,” Jafar Kheirkhahan, an economist and academic, told the Persian daily Donya-e-Eqtesad. “This will lead to competitive, not inflated, prices.”

He warned that if the ICHHTO keeps its tight grip on hotel affairs it could well lead to the deterioration of service quality, and the resultant loss in revenues will keep away potential investors from the visibly growing hospitality industry.

“The ICHHTO’s responsibility is to monitor service quality; not decide room rates. There is no logical explanation why they would interfere with something that requires special training and technical knowledge,” Kheirkhahan said. “Their insistence on setting hotel prices will stymie creativity and hamper innovation.”

  Quality Services

Tourism officials fear that deregulating hotel rates will result in inflated prices; a concern that Kheirkhahan dismisses as baseless.

“People are willing to pay handsomely for quality services hotels will be able to offer if they are allowed to set their own prices,” he said.

The economist said offering good services will draw more people, which encourages suppliers (in this case, hoteliers) to diversify and expand their services, resulting in more revenue. Once the industry starts turning a profit, financiers will be encouraged to enter the market and build hotels.

When more hotels offer more services, they will eventually slash their prices in order to remain competitive.

“This helps encourage Iranians to travel domestically, instead of traveling to neighboring countries in search of a quality time and taking much-needed foreign currency with them out of Iran,” Kheirkhahan argued. According to official data, Iranians annually pay an estimated five billion dollars in fares to foreign airlines. It is believed that they spend several billion more for lodging and shopping in other countries.