Hotels are cutting room rates to lure customers and beat the credit crunch, writes Paul Edwards.

Luxury-Hotel-Doorman-420x0 Australian luxury hotel chiefs broke into a cold sweat when they read that luxury hotels in London had slashed accommodation prices, with room rates for some five-star establishments below those of the budget chain Travelodge.

Five-star prices in Britain are 24 per cent lower than a year ago and there are signs that hotels are locked in a fierce price war.

Could it happen here? Already global giant Accor has cut room rates to $79 in its latest showpiece, the five-star Olympic Park Pullman in Sydney, and there are rooms at Melbourne's venerable Windsor for $150 a night.

Industry insiders say two of Sydney's largest hotels have slashed their rates to lock in major corporate accounts.

Accor spokesman Peter Hook says the top end of the hospitality market is in the hands of company accountants who control corporate travel budgets.

"A firm which last year had good profit figures might have been happy for employees to book into five-star hotels. Now, they can still stay there - but only if the rates are attractive enough," he says.

Accor, which has a raft of brands including Sofitel, Novotel, Grande Mercure and Ibis, recently announced price cuts in more than 100 of its Australian properties from April to the end of July.

"This decision was most definitely influenced by the projected market softness in the first half of the year across Australia and the Asia Pacific region," Hook says.

In Melbourne, David Perry, general manager of the Windsor Hotel, says the outlook is by no means gloomy despite decisions to postpone a planned $45 million refurbishment and to cut room rates, made necessary by the tough economic conditions.

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"Hotels need to be exceptionally creative and if that means value-adding or tariff-discounting, that's what will happen," he says. "It's certainly happening at the Windsor - as an example we're selling rooms for $150 a night over Easter. That's one-third of the going rate.

"But the future is bright. If there is one place in the world where one can feel confident about five-star hotels, that place is Melbourne.

"Unlike London's grand hotels, which rely on international business, Melbourne's luxury establishments make most of their income from Australians. And with airfares at record lows it makes sense for executives based in other capitals to visit Melbourne to meet their customers. For Sydney visitors the flight could cost less than the taxi to and from the airports."

Megan Magill, the brand manager of online booking agency Wotif, says unlike London, the price-cutting trend here is across the board.

"We've seen that while the five-star hotels are lowering their prices, so too are the three-star places, so they still have the edge on our website," she says. "The credit crunch is seeing cuts in market segments such as corporate, inbound and wholesale. In general, rates have decreased this year but not as drastically as in the UK - there is still differentiation between star-rating categories."