Old Faithful Inn

Yellowstone hotels like Old Faithful Inn, seen here in 2014, have been experimenting with market-based rate hikes this year.

Price hikes have come to three of Yellowstone National Park’s most iconic hotels as park and concession officials experiment with allowing room prices to rise and fall with demand.

As part of a pilot project, Xanterra is charging market-based room rates at Old Faithful Inn, the Lake Yellowstone Hotel and Canyon Village. The experiment began with rooms reserved for this year and will continue through at least 2022.

The change loosened price controls on the three hotels, where rates are typically held at levels similar to room prices outside of the park. Instead, prices will rise and fall with demand, though they’ll still be capped at 33 percent higher than comparable rates outside the park.

Zach Allely, Yellowstone’s director of business and commercial services, said the idea was driven by a nationwide change in the National Park Service’s rate setting policies that allowed more market-based pricing.

It will give park officials a chance to see how visitors react to increased prices for its marquee properties and to see how the concession company responds to having slightly more pricing freedom.

“We want to see if we see improvements in visitor services,” Allely said.

If it went well, the change would bring in more money for both Xanterra and Yellowstone, which collects franchise fees from the concession company. Last year, the park collected about $6.5 million in franchise fees from the company, Allely said.

The experiment is occurring alongside a need for more cash, though Allely dismissed any talk of a direct connection. An amendment to Yellowstone’s contract with Xanterra increased by nearly $40 million the company’s spending authority for facilities improvements around the park.

A 2013 contract between Yellowstone and Xanterra underestimated the amount of money needed for a suite of projects around the park, including upgrades to the historic hotels and employee housing. The original contract gave Xanterra authority to spend up to $134.5 million — the amendment boosts it to $173.8 million.

Allely said the advent of market-based pricing for rooms was not directly an effort to fund the rest of that program, saying how Xanterra spends its money is up to Xanterra. Xanterra did not provide an answer before deadline.

The construction projects are part of the Concessions Facilities Improvement Program, which was agreed to in the 2013 contract with Xanterra. It directed the company to work on about a dozen projects, including upgrades to hotels and employee housing.

Several of the projects ended up costing significantly more than park officials expected, quickly erasing Xanterra’s spending authority. Redevelopment at the Canyon Area cost more than $96.3 million — well beyond the 2013 estimate of $70.5 million. Upgrades to employee housing at Old Faithful cost nearly $9 million more than expected.

Work on the Mammoth Hot Springs Hotel cost about $1 million more than expected. The work included some remodeling and seismic reinforcements. Secretary of the Interior Ryan Zinke announced Wednesday that the Interior Department was granting Yellowstone another $21.2 million for work on the hotel.

Allely said there are just two projects in the program that are unfinished — the rehabilitation of cabins at the Lake Lodge and the redevelopment of the Fishing Bridge RV Park.

Michael Wright can be reached at mwright@dailychronicle.com or at 582-2638. Follow him on Twitter @mj_wright1.