Increasing premiums for last-room availability combined with
tighter inventory controls by hotels should prompt buyers to consider pursuing
LRA agreements in certain high-volume markets this year, according to Carlson
Wagonlit Travel's Hotel Solutions Group.
LRA, which guarantees buyers can book a room at their
negotiated rate even if there is only one room left of that type, in seller's
markets often comes at an additional cost. Buyers today see as much as a $60 to
$70 difference between LRA and non-LRA rates in such high-occupancy cities as
New York and San Francisco, said Yon Abad, director of CWT's Hotel Solutions
Group in the Americas.
Other cities have smaller premiums. In Paris, the LRA
premium is more typically about $10, and in Shanghai, it's only a few dollars,
he said.
At the same time, hotels are becoming more sophisticated in their
inventory management and increasingly are employing a practice known as "fencing,"
Abad said. Since LRA applies only to certain room types, hotels segregate
inventory to close out that room type for specific nights, leaving buyers
unable to get their rates.
"Hotels are clearly not explaining what is the real LRA
they are providing in a contract, so the question is, is it really worth going
for that knowing they lack transparency?" Abad said. "When it's 15
percent of your room rate, do you really want to go with that?"
As a result, Abad said he sees clients employing alternative
strategies in high-occupancy cities. Some, in lieu of LRA, are supplementing
negotiated rates with dynamically priced chainwide agreements, allowing for
discounted spot buys when negotiated rates are not available. He also sees an
increase in buyers pursuing room block agreements, though that comes with its
own set of challenges.
"The standard thing is to book through the GDS, so how
do I manage the allocation of that?" Abad said. "It's a strategy we
see for the biggest companies, but it's really a case-by-case discussion with
the hotel."