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Ethical issues in revenue management

Imagine you are the General Manager of a hotel in the middle of the affected area of an ocean tsunami. This is what happened in 2004 to the Luxury Resort Hotel on the Thai island Phuket. Luckily the hotel did not have physical damage and also the guests and the staff were not injured fatally. But, the management still had to deal with unexpected matters and nobody had experience with this situation either. On top of that, the stable tourism industry fell still. Impossible ethical decisions had to be made and challenges appeared for the management (Hederson, 2005). One of the ethical decisions the management probably had to think of was the room rate they were going to maintain towards the humanitarian aid services. So what would be a good decision in such a situation? Even though ethical seen it would be better to maintain low prices in the event of a natural disaster, hotels should be free to respond to the demand and maintain higher prices.

One argument put forward in favor of keeping normal room rates is that the extra demand is due to the humanitarian aid providers who need a place to sleep. Emergency services are after all in the area to help the affected population, therefore hotels should not abuse the fact that all those people need somewhere to stay. This argument may be true to some extent, but emergency services choose to stay in a hotel for themselves. The emergency services could also choose for a less expensive stay, for example, a tent camp, a bed & breakfast or a hostel. Besides that, mostly the guests who stay in hotels during those kinds of events are not even humanitarian care providers, but journalists, directors, and representatives. Those people have not come to the area to provide help to the affected population, instead, they stay in the area for bureaucratic matters, statements of support, to make reports of the situation or to manage projects. In other words, the increase in room rate will not affect the emergency services directly.

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Leaning & Guha-Sapir (2013) are claiming that the main needs after an act of God are water, food, sanitation, and shelter. Therefore, some people think that room rates should not be increased, because then there will be less money available for the main needs of the population. So, as a result, the local population maybe cannot receive the help and main needs they need to survive this event. This is a good point, however, humanitarian services include accommodation costs in their budget. Equally important is that responding to demand is a normal reaction from businesses. This is also what Talluri & Van Ryzin (2006) demonstrate, no matter which industry, the business always have to decide when to sell, what price to ask and when to decrease or increase the price. They conclude that this all depends on demand and that you have to react on those changes to ensure the health of your company. Hereby this increase in price will happen with every act of god, so actually, humanitarian services should include this increase in their budget for accommodation. Secondly, by increasing the room rate hotels have the possibility to help their own employees and business partners who are affected by the event. For example, they can offer them meals, water, housing or just grant them some money. This way they are not only thinking about the hotel, but they are also helping the affected population and at the same time they are able to go back to business sooner.

Another argument against could be that hotels already make a profit with their average room rate, so it is not necessary to increase the room rates when a natural disaster appears. Hotels even can decrease their room rates and still make a profit. Actually, the hotels will need the extra profit, maybe not direct but during the aftermath of the event. The result of a natural disaster is that the regional businesses and economy suffer almost straightaway of losses of wealth, this is because the area will be turned upside down for a while. The infrastructure needs to be recovered, the electrics will be broken and the area will not be mentioned good through the media etc. etc. and to make matters worse this impact could last more than two years (Guimaraes, Hefner & Woodward, 1993). So by increasing the room rates, hotels already have the possibility to save extra money. This way they prevent that they consume all their reserves, also the hotel can deal better with the economic crisis who will follow and contribute to a healthy economy.

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It has been argued that hotels should not increase the room rates because, first of all, hotels should not abuse the fact that all care providers need somewhere to stay, secondly there will be less money to spend on the main needs of the affected population and finally hotels do not need to increase the room rates because they already make profit. However, there are a number of arguments in favor of increasing room rates. To begin with, the most guest of the hotels are not even from the emergency services and when they are they made this choice for themselves. In addition, it has been shown that responding to increasing demand is a normal business reacting. Finally, by increasing room rates hotels have the opportunity to save extra money, so they can handle better with the coming economic crisis. To sum up, there is sufficient evidence to demonstrate that increasing the room rate based on demand when a natural disaster appears has many benefits and sometimes is necessary. Therefore, Hotels should be free to respond to the demand and maintain higher prices in the event of a natural disaster.

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