Unit 1: The price of hotel rooms

The tutor2u blog had an article based on this article from the Independent about UK hotel rooms which are now the 5th most expensive in the world

The following is an extract from the article by Martin Hickman, Consumer Affairs Correspondent (The full article can be found at http://www.independent.co.uk/travel/news-and-advice/the-big-question-why-are-british-hotels-so-expensive-and-do-they-justify-their-high-prices-794925.html)

The UK has the most expensive hotels in Europe, according to a new report. Staying a night here cost an average of £106 in 2007, up 12 per cent on the previous year. In the table of 64 major worldwide destinations, London is the fifth costliest, behind Moscow (£194 a night); New York (£143); Dubai (£125) and Venice (£125).

And London isn't the most expensive in Britain – that dubious distinction goes to the Georgian jewel that is Bath, which, at £117 a night, is £2 more expensive than the capital. Oxford and Aberdeen are also more expensive than the British average at £106. Staying in Edinburgh costs £103 a night. "It's quite interesting that Bath is higher than London but I think that is down to the number of five-star, luxury country house-type properties," said Dan Thomas, news editor of Caterer and Hotelkeeper magazine. "It also attracts quite a few American tourists." But Bath may not stay the most expensive for ever – Oxford and London are fast closing the gap.
So where are thecheapest places tostay in the UK?

The Midlands is the area to head to. Coventry comes out cheapest in the Hotels.com survey, with rooms costing just £57 a night. Nottingham (£66) and Birmingham (£79) were also relatively cheap. Similarly priced are Bournemouth (£77), and Glasgow (£79).

So why are Britishhotels so expensive?
Three factors – tax, costs and supply and demand – according to the British Hospitality Association, the hotel industry's body. At 17.5 per cent, British VAT is, it says, more expensive than tax on accommodation in many Continental countries, such as Italy where it is 10 per cent, the Netherlands (6 per cent) and France (5 per cent), though Germany levies 20 per cent VAT on hotels.

Costs here are higher too, but the biggest factor, says the BHA (and independent experts), is supply and demand. With daily changes in room rates possible, hotel prices are very elastic.

Britain is a very strong draw for tourists and for business people, the sixth most visited nation on earth, behind France, Spain, the US, China, and Italy (with 32 million foreign visits).

A booming economy and a shortage of land also push up prices. So room rates in the crowded, still economically buoyant south of England are high – because hoteliers can charge the rates and still fill the rooms.

According to research by TRI Hospitality Consulting, room occupancy in London in January was 73.4 per cent, the highest of 10 European cities, while chain hotels in Berlin and Budapest could fill only half their accommodation. London is an all-year round destination.

a) Using Supply and Demand analysis, explain why the price of UK hotels is so high
b) Using Supply and Demand analysis, explain the regional variation in hotel prices
c) Explain the significance for hoteliers of the statement "hotel prices are very elastic"