Something’s in the Air

I read with great interest a number of news stories over the past few days concerning the volcano erupting in Iceland, and how the disruption of air travel over half of the world has led a number of hotels to jack up the prices they are charging stranded travelers. All in all, I’m not sure what I find more appalling: the lack of long-term customer relations strategy I’m seeing, or all of the comments you tend to find on such stories by people who don’t appear to have the whole “supply and demand” thing down yet. Although I suppose we should probably start by admitting that the whole situation is going to end up making somebody look bad, no matter what you do…

First of all, there have been a number of stories online about hotels raising their prices by as much as 400%, since they know the stranded tourists can’t just leave. I’m always a bit skeptical of such stories, because unless the city in which they are happening is alleged to have more transient passengers than hotel rooms in it, such things are pure nonsense. If a given hotel were to raise their nightly rate by 400% it’s much more likely that some competitor would take advantage of the situation by only raising its rates by 300%, or perhaps 200%, than it would be to follow suit; within a matter of hours the entire market would be competitive again. Unless we are talking about relatively small cities, places unaccustomed to high volumes of passenger traffic, or places where a monopoly on hotel rooms by one firm or owner exists (all of which are problematic for other reasons, too), this situation is unlikely at best…

But for the sake of argument, let’s suppose that there is a place somewhere in the world affected by the volcano where every guest room in town is already rented, and the hotels are all charging everything they can get away with charging. Let us further suppose that you own a hotel there, and you know that you can rent the room that just opened up for $400 USD per night this week. Why would you offer that room for $200 USD? Are you supposed to take a 33% cut in your profits just because somebody’s flight was cancelled? If so, should you make less money on your rooms EVERY time somebody has a flight cancelled? What about people who were just late getting up and/or too hung over to clear security in time, and wound up missing their flights; should you subsidize them, too? What about weeks when there’s a convention in town? Should you intentionally cut profits just because demand for your rooms is high?

Granted that in the case of an extraordinary situation, where tens of thousands of people are being affected in dozens of countries, it’s probably worth it in long-term goodwill to avoid gouging your customers for every dime you can get from them; it’s probably better not to hand your competition the opportunity to double their normal prices and still undercut you by 200%, if it comes to that. But all of the people out there in cyberspace who are wailing and gnashing about the cruel, heartless capitalists who are making money on a scarce resource by selling it for whatever the market is willing to pay for it need to take a moment and ask themselves if strict governmental control, international treaties, armed vigilante justice, or whatever other measures they’re advocating would really result in better travel experiences from the ones they’re having right now…

Large-scale experiments in Russia and certain other countries suggest that we’re better off the way we are. But that’s probably cold comfort when you find yourself with the choice of paying for another night in an expensive hotel or sleeping at the airport…