Room Rate Saga Continues

Room Rate Saga ContinuesRoom Rate Saga Continues

The seemingly unending saga over hotel prices and which organization should set them has led to an increase in the cost of package holidays, the Persian daily Donya-e-Eqtesad reported.

It all began last year when Iran’s Cultural Heritage, Handicrafts and Tourism Organization and the Iran Hoteliers’ Society clashed over the annual increase in room rates, with the former saying any price hike above 12% (the inflation rate) would be illegal and hotel owners pushing and insisting on a 15% rise.

Initial reports suggested that the tourism officials and hoteliers had compromised on 12%. However, later it was said that no such agreement had been reached, with hoteliers accusing the ICHHTO of trying to impose full control over the hospitality industry and tourism officials fighting back by insisting that they are protecting the people’s right to affordable travel.

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, said room rates must also be deregulated.

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

According to Mostafa Shafi’ Shakib, a tour guide and a member of the Iranian Tour Operators’ Association, Tehran’s luxury hotels have increased prices by a staggering 40% to 60%, “and it won’t be long before hotels in other cities follow suit.”

The price hike automatically makes traveling more costly, but what has really made package tours offered by travel agencies pricy is that hoteliers have stopped offering discounts to tour operators – a practice that was in vogue for long and normally taken for granted.

A two-day package tour to Kish Island — including transportation, accommodation at a three-star hotel and breakfast — costs about 20 million rials ($580) for a family of four. That is about the same amount a four-member family would pay for a four-day tour of the island exactly a year ago.

A three-day tour of Shiraz cost 3.8 million rials ($110) per person last year, including breakfast and accommodation at a three-star hotel, while the same tour now costs 4.8 million rials ($140).

To boost business, hotels normally offer rooms to travel agencies at lower prices, but that does not seem to be the case anymore. Whereas previously tourists opting for package holidays would get hotel rooms at lower rates, they now have to pay the real cost.

“They have either reduced the discounts considerably or scrapped them altogether,” says Muhammad Ali Ashrafi Vaqefi, an ITOA member. “Because of this particular reason prices of package holidays have gone up.”

The tour operator said there is a misconception among hoteliers that tour operators “pocket the discounted amount” by charging tourists extra.

“That’s simply not the case. By offering us discounts, hoteliers allow us to lower the prices of package holidays. Essentially it is the vacationers who pay less; tour operators don’t get anything extra,” he said.

He called for “dialogue” between hotel owners and travel agencies, adding that a mutual understanding helps both sides.

  Disrupting the Market?

Tourism officials fear that deregulating hotel rates will result in inflated prices, but some economists say the ICHHTO’s insistence on setting prices will eventually disrupt the market and the hospitality and tourism sectors.

“People are willing to pay handsomely for quality services hotels will be able to offer if they are allowed to set their own prices,” says Jafar Kheirkhahan, an economist and academic.

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, investors and financiers will be encouraged to enter the market and build hotels.

When there are more hotels offering quality services, they will eventually have to cut prices in order to remain competitive.

“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 says. “Their insistence on setting hotel prices will stymie creativity and hamper innovation.”