Mixed Responses to Hotel Rate Deregulation

The immediate reaction to an announcement earlier this month by Masoud Soltanifar, head of Iran's Cultural Heritage, Handicrafts and Tourism Organization, about liberalizing hotel rates was optimism tinged with skepticism.

Two weeks have passed since the official told a tourism investment conference in Tehran that "the basis is there to deregulate room fees, which will soon lead to competitive prices", and industry insiders are starting to doubt not only the benefits of liberalizing prices, but also whether Soltanifar will deliver on his promise.

The issue of liberalization was first proposed in March by Jamshid Hamzehzadeh, president of Iran Hoteliers' Society, who called for deregulating hotel prices following the reported success of liberalizing airfares, which is said to have led to an increase in domestic flights, Mehr News Agency reported.

Following Soltanifar's announcement, Hamzehzadeh hoped that talks about deregulating prices are serious.

However, in spite of the announcement being made two weeks ago, the organization has failed to provide further details and tourism officials refuse to discuss the matter publicly.

A request for comment was rejected by Morteza Rahmani Movahed, tourism deputy at ICHHTO, who tersely said, "It is not appropriate to speak about [the organization's plans] at present!"

  Fuel for Growth?

Many, including Hamzezadeh and Jafar Kheirkhahan, an economist, say deregulating prices will help fuel growth.

“People are willing to pay handsomely for quality services that hotels can offer only if they are allowed to set their own prices,” Kheirkhahan said.

The economist said good services will attract 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 will be encouraged to enter the market and build hotels, which sector has now been incentivized since Iran offers up to 13 years of tax holidays to hoteliers.

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

“This will encourage Iranians to travel domestically, instead of traveling to neighboring countries in search of quality time and taking precious foreign currency with them out of Iran,” Kheirkhahan argued.

  Inflated Rates

While critics agree that liberalization of rates can help boost growth, they are skeptical about it working in Iran.

Despite claims by Hamzehzadeh that deregulating prices will not lead to an increase in rates, many disagree, citing examples in other sectors.

Ebrahim Pourfaraj, the head of Iranian Tour Operators' Society, says the move would only make sense when there are plenty of similarly-rated hotels in a city, which is not the case in Iran.

"Take Ahvaz [in Khuzestan Province] for example: It has only one five-star hotel. In the absence of competition, allowing the hotel to set its own prices could be problematic," he said.

"Tourists looking for quality accommodation will have no choice but to pay whatever the hotel charges, since there are no alternatives."

Eslam Yavari, an economist, agrees. Disputing notions that deregulating airfares has resulted in better service quality, he said, "The prices have without a doubt gone up, but have you noticed an improvement in service quality? The answer is no."

He said the only thing that the deregulation accomplished was allowing airlines to vary prices depending on the time of departure.

"In Iran, whenever we've deregulated prices, we've almost always seen an increase in prices without a visible change in quality, and the same thing applies to the hotel industry."

Echoing Pourfaraj's sentiments, Yavari stressed that hotel price deregulation will only be a viable option when the number of hotels in Iran increases substantially.

"Otherwise, we're just going to see inflated prices."

Visitor numbers have boomed in recent years, rising from 2.2 million annually in 2009 to 5.2 million in 2015, thanks to a partial thaw in Iran's relations with the world resulting from the landmark nuclear deal signed last year with the six world powers.

By 2025, they are hoping to reach 20 million visitors a year.

The government hopes to see the construction of 300 new hotels over the next five years, as it seeks radical improvements to its low-quality tourist accommodation.

A rejuvenated tourism sector can create 140,000 new jobs, with around half coming from Iran's handicraft sector.

Projects to build some 170 four- and five-star hotels are already underway.