Saving Money on Hotels
Use Reputable "Opaque" Hotel Booking Websites. Potential Savings: Hundreds of Dollars or More. Difficulty Level: Moderate
Welcome to Saving Money with Andrew!
A key feature of many products that often translates to money-saving opportunity is high fixed cost and low marginal cost.[1] For these products, the seller must make a large upfront investment but the cost of each incremental user or audience member is very low.[2] As a result, it’s in the seller’s interest to selectively offer additional customers significant discounts as long as it does not affect the (much higher) prices paid by the bulk of its customers.
Hotels are another great example. The costs of operating a hotel are often largely fixed, while the marginal costs of accommodating another guest are relatively low. The maid service is cleaning each floor anyway, and the incremental cost of cleaning one more room is low. So, hotel owners almost always have a strong interest in keeping their properties as full as possible.
Hotels pursue this goal by dividing customers into two groups, charging their normal rates to the first group, and offering much lower rates to entice the second group. You want to be in the second group.
Group 1 - Travelers who book their rooms through traditional methods (calling the hotel, the hotel brand’s website, even an online travel agent like Kayak or Expedia). These travelers generally pay a relatively high rate.
Group 2 - Travelers who book their rooms through a discount travel site in which the hotel’s name is not revealed (such as the Hot Rates hotels on Hotwire, or the Express Deals hotels on Priceline). These travelers generally pay a much lower rate. This practice is referred to as “opaque” booking, and is one of the best-kept secrets in the travel industry. A fascinating working paper from the University of British Columbia and Charles River Associates (an economic consulting firm) found that on average, travelers using opaque booking saved an average of 44%.
Here’s a good example based on a trip we booked a few weeks ago. Let’s say you wanted to stay at a fancy 5-star hotel in Miami Beach for three nights, from Thursday, April 16 until Sunday, April 19.
Expedia yielded several pricey options, with the cheapest option being the COMO Metropolitan for $408/night.
Searching Hotwire for Miami Beach yielded a “5-star Hotel in Mid-Beach area” for $190/night.
Clicking through to the next page reveals that the last customer who booked this hotel received the COMO as well, and separately searching TripAdvisor reviews for the COMO reveals that the COMO has the exact same TripAdvisor reviews as the mystery hotel on the Hotwire page:
(hmm, I wonder what hotel this is)
Meaning that the hotel is almost definitely the COMO, but significantly cheaper than the already discounted rate offered on Expedia.
So, what’s the catch? Well, there are a few:
There is no guarantee that you will receive a specific hotel when you book using Hotwire’s Hot Rates or Priceline’s Express Deals. If you do your homework by (i) checking the TripAdvisor reviews to make sure they match, (ii) seeing the last hotel that a customer received, and (iii) potentially using a site like BetterBidding to look at their hotel lists for Hotwire and Priceline to confirm, you usually will be able to make sure that you are receiving the hotel you want. But there is no guarantee. I’d say out of 30 times using Hotwire, I’ve received my desired hotel 28 times, with the other two times being a nearby hotel I was satisfied with (remember, they guarantee it’ll have the same number of stars).
Hotwire Hot Rate/Priceline Express Deal reservations are nonrefundable. This is by far the biggest downside in opaque booking, and something you must very carefully keep in mind when using these sites. In practice, there are some fine print exceptions that may allow you to get a refund,[3] but be very sure that you’ve double-checked your travel dates and that this is a trip you are unlikely to cancel.
You are likely to receive lower room priority than a guest who has booked directly with the hotel. I’ve never ended up with a bad room this way (and once you are at the hotel you can ask for a change), but it’s possible.
It is also possible the hotel will be overbooked, which has happened to us once in our many years of using Hotwire. Generally, in those cases Hotwire will offer you a substitute hotel of similar star rating, or a full refund (potentially with an additional credit for a future booking for your inconvenience).
Finally, like with traditional bookings, you may be charged an additional “resort fee” at the hotel itself. These fees are very annoying and usually (though not always) unavoidable.
For me, these tradeoffs are well worth it, and we’ve saved many thousands of dollars over time by carefully booking hotels through Hotwire.
Why do hotels do this? They are trying to reach a more price-sensitive/deal-seeking group of customers who shop around. And they are trying to maximize occupancy, filling rooms that would otherwise go unsold.
And why the secrecy about the hotel name? Naturally, hotels do not want to advertise that they are routinely giving a fairly narrow group of customers extremely discounted rates. The risk to the hotel is giving too many deals to people in Group 2 (savvy savers like you) that it becomes readily apparent they are discounting, cannibalizing the rates they can charge Group 1 (everyone else). Keeping the hotel’s name (somewhat) secret helps prevent this.
Any other tips or tricks? As if these discounts were not good enough already, you can also get cashback (see my prior post on this) on these purchases, often up to 4% through a site like Mr. Rebates. On a high-dollar purchase like this, that’s a lot of money. And occasionally these sites even have coupon codes that you can use. For example, the Wall Street Journal currently has several promotions for Hotwire Hot Rate bookings.
And finally, although using an opaque booking site like Hotwire will usually save you a lot of money, that is not always the case. Sometimes the discount is not as large and occasionally, especially during off-peak times, you may find an even better deal on a traditional booking site. Always make sure to comparison shop.
I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories.
And again, full disclosure - this post is not an advertisement! I don’t make money from this newsletter via ads, affiliate links, or anything else, and I am not paid by any of these sites. These are sites that I use.
[1] See earlier posts on TV/internet, wireless phone service, and concerts and sporting events.
[2] That is, it costs a sports arena almost nothing to have another person attend, Verizon Wireless very little for another user to use their network, etc. Cable TV is trickier because cable providers pay per-subscriber “carriage” fees to the cable channels. But for the most part, costs are largely fixed for most of these products.
[3] For example, we recently received a courtesy refund from Hotwire when an impending winter storm led us to cancel a booking.
Thank you for this post! I consider myself a savvy hotel shopper but I always forget about checking sites like Priceline and Hotwire because I have gotten used to my beloved google flights/hotels search. Today I booked an amazing deal on a boutique hotel on Hotwire that would have been $50 more on hotels.com!
We typically use AIRBNB but I may check hot wire when I am need of a hotel. I've never really looked at it and didn't know they call our the star rating