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When you save money on a new car, you don't think that you are getting a cut-rate car, right? The same idea applies to discount travel. Discounts can be achieved by a variety of methods.
By bundling airfare, hotel, and bus transfers, travel agents are usually able to secure a lower rate for those packages. In a similar fashion, most online booking agencies will purchase the right to a number of rooms to sell out. If you pre-book, the companies are willing to take less of a profit for the security of knowing the room is sold-out in advance and provide you a cheap hotel.
*There are some cases where deals are too good to be true, but those should be easy to spot (such as rooms for $25 per night, etc). Avoid those deals at all costs.