Hotel operators may have had to pull some punches to retain their footing during the recession of 2009, but industry professionals--anticipating a strengthening in the market this year--expect hoteliers to reinvigorate revenue management, potentially preventing business travelers from booking their organizations' negotiated rates. Buyers can counter revenue management technologies, however, by carefully considering contractual terms on preferred rate availability, resisting minimum-stay clauses, employing auditing and rate-checking services available from travel agencies and other third parties, and relying on long-term relationships with their preferred hoteliers.
Characterized by record-low occupancies and steep drops in average daily room rates, punctuated by "panic pricing," last year was "the worst in modern hotel history," according to Smith Travel Research.
"If you look at 2009, revenue management for the bulk of the year was out the window and hotels had a lot of empty rooms to fill," said Hogg Robinson Group director of global hotel Margaret Bowler. "In the last quarter, we were starting to see in certain cities across the world yielding and revenue management starting to take shape again."
As the strength of the buyer's market wanes, Bowler expects active revenue management this year to hinder the ability of some travelers to book their corporate negotiated rates. Instead, as they close out lower-rate room categories (namely the standard room category), hoteliers will attempt to up-sell business travelers who wish to stay at the property by offering an upgraded room at a premium price.[PULL_1]
Meant to improve profitability, such tactics are not new to the travel industry. Ask 100 people on an airplane what they paid for their ticket, and you'll hear an astounding number of different prices. In the hotel industry, as in the airline industry, pricing transparency brought by Internet shopping forced hoteliers to become more sophisticated. "Your price is only good for a moment in time, and, depending on what is happening at your hotel, you are going to fluctuate your prices to adapt to your environ- ment," said Jean Francois Mourier, co-founder of RevPar Guru, a tech firm that helps hotels set rates based on market conditions.
Hotel revenue management technology recently became "substantially cheaper" for hotel properties to install, thus allowing more properties to benefit from automation, according to John Burns, president of Hospitality Technology Consulting. By developing an Internet-based system, hoteliers can implement a fully automated program without the properties having to incur the cost of installing new hardware.
A typical revenue management system will suggest "recommended rates" based on past occupancies and rates, and current market conditions. The property's revenue manager can decide to add those rates to the property management system, thereby pushing the rates through various distribution channels and ultimately closing out other rates, Burns explained. This happens "every day, if not more often," he added.[PULL_2]
"Revenue managers attempt to finesse the situation in order to maximize revenue," noted Burns. "Their job is to have the highest occupancy and, even more so, the highest possible revenue per available room. Sometimes corporate negotiated rates will be closed out unless there is a last room availability condition. But they will close out all the corporate rates when they are down to 5 percent of the rooms left."
By tinkering with rate availability in pursuit of property-by-property profits, hotels frustrate travel buyers. "There's no telling what revenue management does behind the scenes on a daily basis in closing out the categories," said Pamela Witherspoon, Universal Music Group senior director of travel services. "If I see there is a pattern of not being able to secure the rate that I negotiated, then I am going to have a conversation with the hotel and I probably would not take them next year because they are doing something I cannot control."
Booz & Co. global sourcing manager Doug Weeks agreed. "Revenue management tricks by the hotels are always a concern," he said, noting that his company's travelers in New York City last year "almost never" had the option to book negotiated rates and instead settled for rooms “at a couple of hundred dollars more per night."
Not all hoteliers expect aggressive revenue management this year. "In today's market, the bottom line is that the customer sets the price. You don't practice revenue management; in fact, don't even talk to the revenue manager," said John Russell, CEO of boutique hotel chain Nylo. "In 2011, revenue management will come back and we will be out to make money. Whatever way you can make the most money is how you will do it. But today, I can't agree with revenue management [practices]."
Last Room Availability
Because many contracted rates apply to only a certain percentage of standard rooms at a given property, there are "absolutely no guarantees" as to whether a corporate client can book those rates, Russell explained, even if that client has negotiated last room availability into the contract. "Read the fine print. Don't assume that a term like LRA comes without any qualifications or restrictions, and understand that rate and rooms are made available not solely by the sales and marketing staff as it used to be," warned HTC's Burns. "Now, there is a new player whose priorities are different," and who may not understand longstanding relationships between corporations and hotels. "This is a numbers person," Burns added, "and rate negotiations have changed to be much more analytical."
The National Business Travel Association defines last room availability as an agreement "whereby all client negotiated rates associated with a room category are available at a negotiated rate up to and including the last room at the property to be sold in that room category." But oftentimes, hoteliers may insert contract clauses that nullify LRA during high-demand periods.
"Most travel managers believe that LRA is what they want and need; however, I am not convinced that it works to our advantage," said Universal's Witherspoon. "Most people don't know really what it means. Hotel revenue management can close out a category at any time, so it is important to know how many rooms are in that particular category and how often you obtain that rate. We need to use our relationships with our hotel reps to gain further understanding of LRA, how it works with their particular hotels and why, at certain times, we are not able to obtain our negotiated rates."
Partnership Travel Consulting CEO Andy Menkes suggested corporations negotiate contracts that ensure preferred rates are consistently made available to their travelers. The larger accounts particularly should craft contract language "that provides accountability for the hotel," he said. "The corporate account is being asked to commit market share or X number of room nights for listing that property as a preferred hotel, and there has to be some reciprocity of obligation on the side of the hotel."
Partnerships Are Key
Perhaps the most effective approach for buyers to counteract revenue management strategies is to maintain lasting relationships with hotel chains and/or individual properties. To benefit from such relationships, hoteliers must recognize travel purchasers' challenges.
"If we have difficulty getting the rate, in all likelihood that hotel is going to be dropped from the program. You are going to move that business to make sure that you have availability," said Bob Brindley, vice president of business solutions for BCD Travel consultancy Advito. "Obviously, we need to make some consideration for our customers who have been with us for a long time," said Jesse Suglia, director of sales and marketing for the Omni Berkshire in New York City. "It's kind of a balancing act, depending on the individual situation." For example, when the property's basic rooms (the majority of the types of rooms for which the Berkshire provides negotiated rates) sell out and corporate travelers must choose between a premium-priced suite or another hotel, "we generally work with customers on an individual basis to give them a discount," Suglia said.
"Once normalcy returns, people can afford to be a little bit more long term in their thinking, and that is what a smart revenue manager will do," said Dr. Gabor Forgacs, author of "Revenue Management: Maximizing Revenue in Hospitality Operations" and a professor at the Ted Rogers School of Hospitality and Tourism Management at Toronto-based Ryerson University. "Be strategic and try to figure out who is your bread and butter and which segment you desperately want to keep."
"I wouldn't shut a corporate out," said Tim Anctil, general manager of New York's Hotel Le Bleu. Instead, he would offer for his last five rooms the "best available rate minus $20 or 10 percent. I would make sure I had a room for them and meet them somewhere in the middle."
That approach essentially is dynamic pricing, the de facto standard in airline contracting but not lodging. By offering floating rates based on a discount off the published best available rate, hotels can maintain the competitive pricing needed for preferential display on travel agents' screens and in traveler self-booking tools.
Corporations "by and large now are open to the idea [of dynamic pricing]," according to HTC's Burns. "They are not happy with it necessarily, but it has become a component with hotel pricing that isn't going to go away. Will it become universal? That is doubtful."[PULL_3]Others agreed, saying some corporations--especially given the current instability of published hotel rates--have accepted dynamic pricing.
"It makes it easier to do business in an environment where everything is shifting so fast and things can turn on a dime," said Forgacs.
In addition to furnishing technology to hotels for comparing market rates by geography and category, RevPar Guru provides hotels with dynamic pricing models, including rate caps used in many corporate programs. "Most of these corporate deals are done months in advance, so it is almost impossible to get the forecast of the rates correct," said RevPar Guru’s Mourier.
"Our system is automated and it takes into consideration all the parameters that a hotel puts into place [during corporate contracting]," added RevPar Guru co-founder Bruno Perez.
RevPar Guru updates room rates and allows revenue managers to update Amadeus, Galileo, Sabre and Worldspan global
distribution systems regularly in order to "provide real-time parity and rate integrity," according to its Web site.
InterContinental Hotels Group performs similar actions through its in-house revenue management system, known as Perform. The Web-based system forecasts demand and recommends rates.
IHG offers Perform for a fee to its hoteliers. Properties must have an approved property management system for seamless integration; about 3,200 properties worldwide currently use it, according to IHG revenue director Matt Bush. Perform "compares rates to what the expectation of demand is, so it will place a restriction on a rate or it will allow that sale to occur," said Bush. "We are required to open some availability to a corporate rate, except if it is an LRA, then we can’t restrict it."
Bush added that during contracting, corporate clients are made aware that IHG "has the right to restrict access to [corporate] rates based on demand and market conditions" and "if there are customers out there who are more preferred at that hotel."
Hyatt Hotels Corp., Hilton Worldwide, Marriott International and Starwood Hotels & Resorts did not comment for this article. However, Starwood CEO Frits van Paasschen, speaking in February with analysts, noted: "For revenue management, we rolled out our analytical tools to 80 new properties. The tool improves forecasting so we can better manage our mix and push for higher rates. In properties where this is implemented, we typically see a marketshare jump of about 2 percent."
Arming The Travel Buyer
Challenging market conditions that force hoteliers' hands, rate loading delays and errors, and other obstacles can jeopardize a corporate hotel program's rate integrity. To help plug the holes, travel management companies and other technology providers offer products and services to determine when and why corporate travelers are not booking contract rates.
Lanyon, for example, recently launched a product that scans room rates several months in advance and informs travel managers on whether preferred rates have been closed out.
Travel management companies, including American Express Business Travel, BCD Travel, Carlson Wagonlit Travel, Hogg Robinson Group and Travelocity for Business, provide clients with detailed reporting on negotiated rate availability, thereby arming buyers with the data they need to prove rate deficiencies to their preferred hotels. Some TMCs also can run tests to determine whether contract rates will be bookable in the future.
Online booking tools also have been programmed to notify buyers when rates are not available.