UNIT V - Room Rates

5.1. Types of Room Rates,

5.2. Factors affecting room tariff - Basis of Charging Room Rates

5.3. Meal Plans

5.4. Types of guests – FIT, GIT, Business Travelers, Domestic and Foreign guests, Special Interest
Tours

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5.1. TYPES OF ROOM RATES / ROOM RATE DESIGNATION

In general, a hotel designates a standard rate for each category of rooms offered to guests. Apart from
the standard rates, hotels also offer discounted rates to attract additional business from multiple market
segments. Hotels have various room rates as illustrated here.

Rack rate
Hotels generally fix a standard rate for each category of rooms offered for accommodation to the guest.
The standard rate of a particular type of room before any discount is called rack rate. Traditionally, a
rate board was placed near the room rack, and hence the name rack rate. The tariff card of the hotel
should mention the taxes applicable on room rates. For example, the rack rate for a standard room may
be Rs.5000 ++ (‘++’ means exclusive of taxes or taxes extra).

Corporate rate
This is a promotional rate to attract the corporate market segment. The corporate rate in general is 10 -
20% lower than the rack rate. For Example, the corporate rate for standard room may be Rs.4000 ++.

Seasonal rate
Depending on the desirability of a location at a particular time of this year, destinations have high, low,
and shoulder seasons. Destinations such as hill stations or beaches receive heavy tourist traffic in
particular periods of the year, the rest of the year is a lean period in terms of tourism. The duration when
the tourist traffic at a particular place is high, is known as the peak season. When the demand for hotel
rooms drops down, it is known as the off-season. During peak season, hotels do not offer any discount,
rather they may charge a higher room rate, known as the seasonal rate. In order to attract guests during a
low-demand period, hotels offer a discounted rate known as the off-season rate. Hotels in these locations
mention their seasonal and off-season rates clearly on the tariff card. For example, rainy season is off
season in Shimla, whereas winters and summers are season time, as visitors go there to see snow in
winters and to escape the heat during summers.
 Room rate designations

Corporate rate
Rack rate

Advance purchase rate

Seasonal rate

Day/Half-day rate
Weekday/weekend rate

Tour group wholesale rate

Group rate

Volume guarantee rate

Travel agent rate

Government rate
Airlines/crew rate

Membership rate
Educational rate

Complimentary rate
Introductory rate

Package rate
Crib rate

Meeting package Meal package Marriage package Holiday package

Advance purchase rate
Though popular in the airlines industry, advance purchase rate is a relatively new concept in the
hospitality industry. It entails heavy discounts on room rates when room bookings are done in advance.
The rate of discount depends on the advance period and the number of rooms available at the time of
booking, that is, a hotel may offer more discount for a room that is booked two months in advance
compared to a room that is booked 15 days in advance. The advance booking of rooms ensures a certain
amount of revenue at a given time and thus helps the management and planning a revenue management
strategy.

Weekday/ Weekend rate

Some of the hotels observe a fluctuation in their occupancy levels with regard to the days of the week.
The demand for rooms in the hotel is perhaps more on certain days in a week. Hotels analyse their
demand levels over a period of time and fix a higher rate during high demand periods and lower room
rate during low demand periods. In vacation/resort hotels, at hotels, the weekend rate would be higher
than weekday rate as the demand for rooms is higher during weekends. It would be vice versa in case of
a commercial hotel.

Day and a half-day rate

The day rate, charged from the guests not staying overnight at a hotel, is lower than the rack rate. For
instance, if a guest checks in at 10 AM and checks out the same evening at around 5 PM he/she may be
charged the day rate. However, all hotels may not have day rates. Sometimes guests might wish to stay
for a very short duration of time, not exceeding five hours. For example, a transit traveller who has to
catch a flight in few hours, might want to take a rest in your hotel, or a person might want to rent a room
for a short business meeting. In these cases, the half day rate, which is a bit higher than the numerical
half of the rack rate, is charged from the guests.

Group rate
Since a large group (more than 15 persons) provides bulk business to the hotel, it offers discounted rates
to groups. The group rate depends on the number of persons in the group and the frequency of their visit.
The rates are negotiated by the sales team of the hotel and the representatives of the group.

Tour group (series group) wholesale rate

These are heavily discounted rates for the wholesalers who operate a series of tours for groups arriving
and departing together. For Example, a tour operator may conduct a week’s tour of Golden Triangle
(Delhi - Agra - Jaipur - Delhi) on the 2nd, 12th and the 22nd of every month for groups of 20 people.
The tour operator guarantees the hotel that it would provide this series of business every month for a
period of one year. In return, the hotel offers a heavy discount to the operator and allocates or ‘blocks’
rooms for the series for the entire year.

Travel agent rate

Travel agents sell travel products such as hotel rooms or airlines bookings on a commission basis to the
end users (guests). They provide substantial volume of business to hotels;hence, hotels offer them
special discounts and commissions. Some of the major travel agencies are Cox and Kings, Thomas
Cook, etc.

Volume Guarantee rate

Hotels offer a special rate (lower than the rack rate) to attract a high volume of business from special
market segments.A hotel may have contractual agreement with the company, according to which the
company's representatives are entitled to a special discounted rate when they reserve a room in the hotel.
The percentage of discount will depend on the volume of business promised and the mutual
understanding between the hotel and the company at the time of making the agreement. A frequent
business customer might be offered a CP (Continental plan) at the standard room rate.

Airlines/Crew rat
It is a special discounted rate for the crew of one or more airlines that offer a certain volume of business
throughout the year on a consistent and continuous basis.

Government rate
When Government officials travel for official work, they are given a travel allowance to cover their
hotel, meals, and other out-of-pocket expenses. Based on the designation, this amount is fixed and given
in advance. A hotel interested in catering to this segment may quote room rates that match their travel
allowance. The hotel may ask for proof of identity from guests before they can avail the government
rate.

Educational rate
Educational rates are special rates offered by hotels to the students and educationists who have a limited
travel budget. They are a significant source of business because of their large numbers and frequency of
visits. They provide a large chunk of repeat business to hotels.

Membership rate
Membership rates are offered to guests who are members of influential organisations that provide high
volumes of business to hotels. The membership rates are much lower than the rack rates and may also
include the discount on food and beverage. Special discounted rates are given to FHRAI members, UN
employees, travel writers, etc.

Introductory rate
The introductory rate is offered by a hotel on the opening of a new property in town. It is a part of a new
hotel's marketing strategy to make inroads into the existing market by offering a price lower than what is
offered by competitors with the same standards. In general, the introductory rate is offered till the hotel
is established, or it may be revoked as per the management's decision.

Complimentary rate
When a hotel does not charge the room rent from a guest, it is known as complimentary rate. Hotels
generally offered complimentary rooms (also called comp rooms) to the tour/ group leader. They also
offer comp rooms to tour operators, travel agencies, and local dignitaries who are vital to the public
relations programme of the hotel. Hotels also provide complimentary rooms along with the marriage
packages and bulk bookings.

Crib rate
This is the rate charged for children above five years and below 12 years of age accompanying their
parents. The hotel provides a crib bed in the room for infants.

Package rate
A package rate is quoted for a bouquet of products or services. The rate is generally lower than the sum
of the prices of individual products or services offered in the bouquet. These rates are tailor-made for
specific guest requirements. A package rate may include room rent, meals, special arrangements (such
as marriage setups, banquet halls and meeting room) and may also include products and services
offered by other service providers such as transportation rail, road, and air, and sightseeing.
A package rate is more economical than the individual purchase of each of the products and services. It
is a marketing strategy to sell the slow-moving items along with the hot selling products. Moreover,
when the products and services are sold in a bunch, the cost of individual advertisements is cut down.
The money that is saved by the hotels is thus passed to the guest in the form of lower prices.

Meeting package
A complete meeting package includes the residential arrangement of the delegates, meeting room, food
and beverage requirements (meals, tea/coffee, snacks) along with the transportation facility, audiovisual
equipment like projectors to the meeting delegates.
Meal package
A meal package is the combination of room rent and meals, which may cover all major meals or a
combination of breakfast and lunch/dinner. The hotel offers more packages based on the requirement of
guests at the suitability of the hotel's operations.
Marriage package
A marriage package includes all the necessary arrangements for marriage, such as mandap, priest, party
hall/lawn, accommodation for the marriage party, arrangement of reception buffet, and even a
complimentary room/suite for the newly wedded couple.
Holiday package
A holiday package includes transportation, accommodation, meals, guide, and sightseeing at the
destination. In general, this package includes non-hotel products from other service providers like
airlines.
5.2. FACTORS AFFECTING ROOM TARIFF

The room tariff of a hotel must generate optimum revenue for the hotel and provide the hotel proprietor
a return on their investment. The rate of hotel room is decided by several factors which are illustrated
below;

Factors affecting room

tariff

Cost
Level of
services
Competition
Target market

Location

Cost
The total expenditure that is incurred in providing services and products to the ultimate consumer of the
hotel services is the cost. The total cost can be divided into fixed cost, material cost, and labour cost.
The higher the investment that has been made in the hotel property, the higher would be the room rent.

Level of services
The level of services offered by a hotel determines the room rent to a large extent. Hotels offering
services such as Spa, gymnasium, banquet halls and Speciality restaurants will charge a higher room
rent in comparison with other hotels offering limited services. As the star classification of hotels is based
on the level of services, the hotels that are classified as five star or above have better services and higher
room rates compared to those classified as four star or below. The guest and staff ratio would be higher
in five star hotels as they provide more personalised to guest services.

Competition
The competition between similar hotels (i.e., hotels with similar locations of the city) in the market also
plays an important role in determining the rack rate of the hotel. The higher the competition, the lower
will be the room rent. Hotels with similar standards have competitive rates.
Target market
The target market also governs the rack rate of a hotel room. Hotels, while selecting their room rates,
find out the disposable income of the target segment.Thus, a budget or limited-service hotel quotes
lower prices to attract guests with less disposable income, and an upper market hotel quotes higher
prices for its products.

Location
Location of the hotel also plays an important role in determining the room tariff. Hotels in the city centre
or business centre, near places of tourist interest or on scenic locales would have a higher tariff. The
location of the room also determines the room rate. Rooms with a better view (sea view/ mountain view/
pool view) would have higher charges compared to the two rooms facing a parking lot or a noisy
commercial street.
We have seen that the room rate of a hotel is based on the above factors, Once the room tariff has been
decided, every hotel has to decide about the criteria for establishing the ‘ end of the day’ to post the
room charges into the guest accounts. The end of the day is an arbitrary time that is supposed to be the
end of the financial transactions for a particular day. This topic has been discussed in detail in the 4th
unit.

5.3. MEAL PLANS / FOOD PLANS

The room tariff of a hotel may be based on the choice of meal/food plans offered to the guests.
Depending on the needs of their target audience, hotels offer a variety of meal plans as shown in the
table.

Name of The Plan Inclusions Alternate Name

European Plan Room charges Only EP / Room only Plan

Continental Plan Room charges+ Continental Breakfast CP

American Plan Room charges+ Continental Breakfast AP/ En-pension (Fr. )/

Full Board
+ Lunch AND Dinner
Modified American Room charges+ Continental Breakfast MAP / Demi- Pension(Fr.) /
Half board
Plan + Lunch OR Dinner

Bermuda Plan Room charges + American Breakfast B&B / Bed and Breakfast
plan
1. European Plan (EP) :
This plan includes only the room charges and morning tea in some cases. All other expenses by the
guest are charged on actuals. Most commercial hotels run on this plan.

2. Continental Plan (CP.) :

This plan includes room charges and a continental breakfast. All incidental charges (additional
charges)are considered extra. A continental breakfast generally includes most or all of the following;
sliced bread with butter/jam/honey/, cheese, meat, croissants and adnish pastries, rolls, fruit juice,
and coffee/tea/hot chocolate/milk.

3. American Plan (AP) :

This plan includes all major meals. It includes room charges with optional morning tea, breakfast, lunch,
afternoon tea and dinner. It is mostly found in resort hotels and in commercial hotels catering to
groups sent by airlines and companies or travel agents. This plan is also known as 'all inclusive plan'
or 'full board' or 'en pension'.

4. Modified American Plan (MAP) :

This plan has evolved out of the American plan. It includes room charges with optional morning tea,
breakfast and an option of lunch or dinner. It is also called as 'demi pension' or 'half board'. This
facilitates the guests to eat out for one meal. It is usually used for groups where meal coupons are
provided to the guests (coupon is valid only for a day ) and the coupon cost is included in the room
rent.

5. Bermuda Plan (BP) :

This plan includes room charges optional early morning tea and an American breakfast. An American
breakfast generally includes most or all of the following; fried/poached eggs/ sliced bacon, sausages,
sliced bread, toast with jam/jelly /butter, pancakes with syrup, cornflakes or other cereal, coffee/tea,
and orange/grape fruit juice.

The need and use of meal plans

Commercial hotels prefer EP because:

Commercial hotels are situated in the urban areas, they are bound to be numerous restaurants in the
vicinity. Hence the guest will prefer to keep his option open as far as meals are concerned. Moreover the
hotel may not have a particular cuisine which the guest likes.
On the other hand hotel situated in an urban area would get plenty of chance guests in their restaurants.
Thus their F&B income is not restricted to only hotel residents. They do offer meal inclusive plans but
only to groups sent by travel agents and company bookings for conventions, seminars, etc.
Resort hotels prefer AP/ MAP because they may be situated in an isolated area with hardly any
restaurant in the vicinity. Guests therefore prefer to have meals in the hotel. For the tourists wishing to
go site seeing during the day, an MAP will be more appropriate.
The hotel itself benefits from this plan since the hotel relies only on the resident guests for their food and
beverage income.

The CP& BP lie between EP & AP so they can be offered by any hotel.

'GO PLAN'
It is not a food plan. It is an adjustment made in the settlement of accounts. If a guest stays in different
hotels of the same chain in the course of his tour, his bills will be forwarded to his next destination every
time he changes the place of stay. The guest can make the payment at the last hotel he visits belonging
to the same chain.

5.4. TYPES OF GUESTS

A Hotel guest generally refers to a person availing the services and facilities of hotel in return of
payment.
The hotel market can be classified into many segments based on the clientele and the need of the hotel.
There are different ways of classifying hotel guests based on:
• The purpose of their visit
• Size of the group
• Origin

➢ Purpose - Depending on the purpose of their visit, they could be classified as:
Business travellers: these guests travel to conduct business, attend business meetings or workshops, and
engage in selling or purchasing products. These are not as price sensitive as tourists and may be willing
to pay more for the convenience and location of the hotel. The business traveler is also concerned about
how well the hotel handles messages, conferences or meetings. Internet speed, computers, free Wi-Fi are
some of the features that the business traveler will look for.

MICEW- MEETING, INCENTIVES, and CONVENTIONS AND EXHIBITION: not the main
stream business travel but it is the subset of the business travel. It includes small meeting, training
courses, seminars, workshops. MICE traveller expects a high level of comfort, hassle free movement
and value for money.

Delegates and conventioneers: These guests travel to attend seminars, trade fairs, conferences,
delegates and conventioneers. The guest’s accommodation is usually reserved by themselves or by their
company or a conference organiser before their arrival. Conventioneers can be in groups or could
include a solo traveler.

Pleasure travellers: They are individuals who travel to engage in leisure activities, outdoor recreation,
relaxation, visiting friends and relatives or attending sports or cultural events. Corporate business
travellers: They are individuals whose frequent bookings are usually made by companies with reduced
room rates.

➢ Size - Depending on the size of the group, they could be classified into:
Free independent travellers (FITs): . FIT stands for Free Independent Travelers (or Tourists). FITs
are tourists who purchase their own accommodation and make their own travel arrangements. FIT’S
are small number of tourists (usually fewer than 5 persons or couples) who take packaged tours at a time
of their own choice. They avoid mass tourism and the holiday package concept promoted by Travel
operators, in favor of a more individualistic approach to travel.

Group inclusive tours (GITs): Tourists who travel together on package tours with accommodation and
sometimes meals which are booked through travel agencies. Group tourists tend to spend less and
budget their spending allowance. .It is a travel program with a special fare and specific requirements
(usually a minimum numberof persons often more than 5 persons traveling as a group throughout the
tour).

Vacation by Family and friends: Families and friends could be looking for a short break with a
weekend getaway or could be in for a long and relaxed summer vacation. More often than not, the
families include kids of all age groups and child friendly facilities are what they are looking for.

➢ Origin – Depending on geographic and demographic characteristics of individuals.

Domestic guest – A guest who stays in the hotel and is travelling within his/her own country for
business, leisure or pleasure is a domestic guest. This guest does not require formal travel documents,
foreign exchange, health insurance etc. Accommodation is provided to the guest on showing a govt.
issued photo id such as Aadhar card and PAN card.

Foreign guest - A guest who is not an Indian national staying in the hotel is considered a foreign guest. .
A foreign guest must provide the details of his/her passport and visa at the time of check-in. The hotel
is liable to send the information of foreigner staying in the hotel in a format known as Form C,
furnishing the details of the guest’s passport and visa to the Foreigner’s regional registration office
(FRRO).

Special interest tourism: special interest tourism can be defined as people travelling to a particular
destination with the purpose of fulfilling a particular interest, which can be pursued only at that
destination. Product ranges from historical, culinary, archaeological, and other interest such as golf,
fishing, and underwater adventure e.g. Tal Mahal, Red Fort, Special interest tourism in India can include
visiting Mughal architecture, gardens of India, textile centres of India, gourmet tours, tribal areas, safari,
car racing, common wealth games, world cup etc.