Why Are Hotel 'Rack Rates' So Exorbitantly High?

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A rack rate is the official price that a hotel charges for a typical room. Sometimes called the "walk-in price," the rack rate may be posted inside a hotel room (often on the back of the door). Hotel employees may also quote the rack rate to customers who call the hotel or show up at the front desk without reservations. But why is the rack rate seriously high, often several hundreds of dollars more than you would likely actually pay for the room?

In the hotel industry, the rack rate is the maximum amount the hotel usually charges for a room, when demand for rooms in the area is highest. The rack rate is akin to the asking price of a house or car, and hotels expect that guests will request and use discounts.

Although the federal government doesn’t regulate rack rates in the U.S., some states and counties require hotels to post the rack rate in a conspicuous place. For example, California’s Civil Code Section 1863 requires all hotels to post the nightly rate (or range of rates) in every bedroom, and it prohibits hotels from charging more than the posted price. Having the rack rate posted actually helps customers by preventing price gouging, fraud, and discrimination. If a customer knows the “ceiling,” he won’t overpay for the room, and hotel clerks can’t discriminate by charging some people more than others based on their race, religion, or gender, for example.

But because most travelers now use websites to find the lowest hotel prices (rather than walking up to the front desk without a reservation), rack rates are becoming outdated. Jeff Doane, the Vice President of Sales & Marketing, Americas, for FRHI Hotels & Resorts tells mental_floss that Fairmont Hotel's “rate structure has become much more dynamic over the years—setting daily rates based on demand rather than setting static rates that stay intact over time.”

Some hotel chains now use the phrase “Best Available Rate” instead of rack rate to discourage customers from asking for discounts. Doane says that, for his hotel, the best place to find the best deal is on the hotel’s website, which offers a “daily rate” as well as a “Best Rate Guarantee,” so guests “cannot find a better rate anywhere else.” So while the rack rate is the most inflated rate, you’ll most likely pay much less for your room.