The Malaysian Budget and Business Hotel Association recently called for a two-tier system for room rates, with foreigners paying more for accommodation than locals.
The mechanism is expected to help Malaysia’s hotel sector generate higher income while remaining competitive in the region.
As Thailand plans to raise hotel rates to pre-pandemic levels to ensure survival and faster recovery of the hotel industry, there had been reports that the country’s tourism ministry had also asked hotel operators to implement a dual-tariff structure under which foreign visitors may be charged new rates while locals could enjoy discounted rates.
However, the two-tier price system in hospitality is not a new phenomenon, and is quite common in many countries.
But while it may be effective in the short run to help the hotel industry bounce back after two years of Covid by making most of those “revenge travelers,” stakeholders have their doubts about it being an effective long-term strategy.
“This could give rise to way too many tiers for each source market making it more difficult for travelers to decide or determine which product or service is right for them. With the choice now between destinations first then the hotels, travelers could lose interest in even considering the destination,” said Kamesh Shukla, executive vice president, Asia Pacific, Middle East and Africa for RateGain.
There are dual tariffs not only in the budget segment, but also in the luxury segment with seasonal or permanent promotions for “local prices” applicable also for permanent residents or those with a valid working visa, said Rocco Bova, a hospitality expert currently based in Mexico.
“Having worked in 10 countries so far, I have seen dual tariffs in all these places. In a luxury hotel that I was working earlier we had two rates, one for Mexican residents and another for foreigners with a difference of approximately 10 percent,” said Bova.
Having experienced two-tier pricing in a few countries while traveling in Latin America in the 90s as a backpacker, Kevin Tatem, managing director, Southeast Asia at STAAH Hospitality Solutions, said, “It annoyed me greatly although I understood why locals got lower accommodation and travel fees — which were generally not promoted and were low-key.”
However, this was pre-internet and rates weren’t online. “How will OTAs adapt rate disparity into their everyday workings in countries that decide on two-tier pricing?” asked Tatem.
Will Dual Rates Make Destinations Too Expensive?
With dual rates coming in there are also concerns of destinations being rendered more expensive. However, stakeholders still lack clarity on whether the rates would be officially implemented and once decided, it would also depend on the way in which pricing is fixed.
The policy’s success would also depend on its seamless implementation and distribution on different channels.
Even if the average hotel room rate would increase by $50 per room, it would still not make Thailand a costly destination, said Deepak Ohri, CEO of Lebua Hotels and Resorts.
“Right now, after Covid, for example, in the US, many hotels demand a 40 percent increase in the average room charge, and it is challenging to book the room because the demand is very high,” Ohri said.
Domestic travelers often get a more generous rate than tourists any way currently, pointed out Tatem. “It could just expose this in a more transparent way — it may drive up domestic pricing. Demand will drive price regardless.”
Thailand is becoming a more expensive country due to a strong Thai baht, Tatem added. “The question is if other countries that are better value follow suit.”
If implemented, Ohri said the Thai government would be able to achieve something that the hospitality industry has been unable to accomplish in the last 100 years — increasing the average room rate of hotels in Bangkok.
“I will be pleased to see this happen because the riverside locations are mostly tourism locations, and the average room rate will go up, and we will be able to justify this price increase,” he added.
While Ohri acknowledged that some foreign tourists may not be thrilled to know that they are treated differently than locals, but most will understand why it is implemented.
However, he, too, agreed that over a period when the rate increase happens, the dual tariff should be removed by the government.
With every hotel company trying to make the most of “revenge travelers,” Bova, too, said this may be a temporary phenomenon, “I am not sure this is sustainable for the long term and for how long will tourists hold to accept it.”
With Thailand vying to consider itself as a more exclusive destination, the dual pricing may also seem to be one step in that direction.
However, Tatem said this may not be a smart way to make Thailand more exclusive, “A good mix of demographics generates greater volumes which produces economic activity that powers the Thai tourism economy. Tourism money gets spread more equitably. People want value, Vietnam offers that as well, so Thailand needs to be careful.”
Price War Between Budget and Luxury Hotels
Ohri, however, doesn’t foresee any concerns with the dual tariff rate and thinks that through this the government is considering reducing the price war between budget and luxury hotels and bringing luxury hotels to the level that the guest is happy to pay a much higher room rate.
“The government would not have to consider the dual tariff room rate system had the hospitality industry increased the luxury room average rate instead of competing with budget hotels. Higher pricing also means better employment conditions for our people working in Southeast Asia,” he added.
Price war has and will continue to exist, however, this may give an opportunity to tourists to shop around and get the best deal, said Bova.
However, the price war between budget and luxury properties would only be reduced in the short term, said RateGain’s Shukla. “In the mid to long term it could increase the price-war, if more inclusions are added by budget hotels for same source traveler, or if market dynamics continue to change and more destinations open up as a choice for both domestic and international travelers, I said
STAAH’s Tatem has an interesting take as he questioned, “What price war? These are different products for different demographics — both can be terrible and overpriced or excellent and under-priced, but what it comes down to is perceived value, expectation setting, the type of holiday and budget the traveler is looking for, it’s always a personal choice.”
The price points may be relative, but as Tatem pointed out, “With all the economic pressures in the world right now, why interfere with the free market and put undue real or perceived pressure on hoteliers or tourists for these destinations? Inflation is already a problem and worth keeping in mind.”