Hotels to Raise Prices Amidst Lower Demand to Protect Profit Margins

Hotels: fewer customers and higher prices to protect margins

A weekend in October, on the coast, out of season. A decent, no-frills three-star hotel is already asking no less than 100 euros per night; in summer, the bill goes up to 200 or 250. And what's coming is not a price cut: hotels will raise prices further as demand falters to protect margins. Fewer customers, higher rates. The squaring of the circle, told by those in control.

The logic of raising prices when fewer customers arrive

The sector's argument is that demand is not falling as much as it seems. Outside the most touristy areas, reasonable hostels can still be found, but some claim that in coastal areas and big cities, rooms sell out every weekend and that the alternative offer, tourist accommodation, is being restricted by municipal regulations. Translated: less competition and more profit.

Some argue that demand should be quite elastic — if the price goes up, the customer disappears — and that foreign tourism and domestic buyers who won't give up their getaway maintain the floor. The opposing thesis is basic economics: the good burns before the price drops. When a product is truly scarce, it is sold at a higher price and in smaller quantities.

The calculation described by a forum user is simple: having the hotel half-full at high prices can yield a similar margin to filling it almost entirely at low prices, and on top of that, it saves on staff and consumables. They even point to the tactic of reducing the number of available rooms and announcing that there is no space left, to justify the price increase without lowering revenue.

The Booking trick: book with free cancellation and check again

Against this strategy, there's a home-grown method circulating that's worth knowing. You book with free cancellation until shortly before check-in — usually one, two, or at most three days before — without paying anything. It doesn't matter what price they show, as it's not paid. One day before the deadline, search again for the same hotel, the same dates, and the same type of room. If it's cheaper, book and pay, and cancel the first reservation.

The average saving attributed to this maneuver is 30%, and the maximum reaches 50%. The exact deadlines and conditions of each rate are more complex than can be explained here, but the summary is that the dynamic pricing system can be played in both directions. The hotel doesn't always win.

Prohibited tourist flats and hotels with a clear path

The other ingredient in the cocktail is regulatory. The Palma City Council has prohibited new tourist rentals, a measure that hotel owners have applauded, according to the local press. Each restriction on holiday rentals reduces competition for hotels and strengthens their ability to set prices.

As a message in the thread points out, when an area is dominated by three or four investment funds, setting prices upwards ceases to be competition and becomes something else: oligopoly. There's no need for an explicit agreement; it's enough that everyone looks in the same direction and no one has an incentive to lower prices first. The corollary is uncomfortable for the traveler: some see the rules protecting the apartment block neighbor as indirect protection for the hotelier's bottom line.

How much does it cost to sleep in Spain out of season?

There are no cheap hotel nights on the coast anymore. A standard three-star hotel doesn't go below 100 euros even in low season, and in summer it reaches 200. Before, those same rooms cost between 100 and 120 euros and already seemed expensive. Today, with 200 or 250 euros per night on the table, many have stopped considering it.

The lower tier has narrowed. Hostels with private rooms and bathrooms range from 90 to 120 euros, hotel prices, and shared dormitories cost around 30 euros per night. Between the luxury hotel and the dormitory bed, the gap where the middle class used to live has been left empty.

The one-euro coffee as a thermometer

The hotel price increase is not an isolated case, but the tourist version of a model extended to everything. Selling less and at a higher price works in hospitality, in supermarkets, in travel, in appliances, and in subscriptions. It's the luxury model applied even to the corner cafe, and it only holds as long as the buyer tolerates it.

The domestic thermometer confirms it: when coffee went from one euro, more than one person cut their daily consumption from three or four to none, and the cafe owner didn't notice the loss because it was more than compensated by the price. The hospitality sector does the same calculation with hotel rooms.

And there's a figure that repeats in the thread: so far this year, hotel prices have increased by 25%. At that rate and with an offer that is shrinking by decree, the question is no longer whether foreign tourists will pay. It's how many Spaniards have stopped being tourists in their own country.