On Wed, 24 Mar 2010, Andrew Sullivan wrote:
When you book a hotel as part of a large group like this, you are
effectively participating in a futures market. What you're asking for
is not to participate in a futures market, but for Hilton (or whatever
hotel) to agree to take all the risks and for you to get all the
benefit. I think it would be insane for a hotel manager to agree to
that.
I very much like this analysis, and I think it's reasonably accurate
as far as the group booking goes.
But individual bookings are more like participating in an options
market: up until N hours before check-in (the cancellation deadline),
you're buying zero-cost options on hotel room prices[1]. Only at N
hours do those convert to something resembling futures. Even then,
there's still typically an easy out. And hotel managers agree to that
as a matter of course all of the time. It's so ingrained in the
marketplace that even the individual room rates as part of the group
booking behave this way.
The rate you get, therefore, when booking as part of a group well in
advance, includes a certain amount of money that amounts to an
insurance premium: you pay more in order to get the stable rate,
betting in effect that the hotel will fill up and you'd have to pay
rack rate to get a room. If you don't want to take that bet, don't:
wait until near the meeting time and see whether you can do better.
With zero-cost options available, that seems like a needlessly risky
strategy.
-- Sam
[1] There is some overhead in managing those options and making sure
they don't convert to futures when you're not watching. Which could
be expressed as a cost.
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