Travel buyers still actively are pursuing last-room availability in negotiations with hoteliers, even though they are prepared to face higher premiums or limited availability in high-demand markets.
Although several hotels have put forward ambitious growth plans—Hilton Hotels Corp. has 110,000 rooms in its pipeline, and Marriott International is adding up to 100,000 rooms worldwide in the next three years—demand continues to outpace supply in the hotel industry, and analysts expect little change until late next year. This demand pressure has maintained LRA as a must-have for many travel managers, but analysts warn that it will be a difficult item to negotiate this year.
"If travel managers insist on maintaining a last-room availability status, they're going to be asking for those hotel rates at a premium," Priscilla Campbell, American Express' practice leader for hotels and advisory services, said in a conference call accompanying Amex's 2007 industry forecast in October. "Travel managers can expect that those rates are actually going to be costing them more this year than in past years, and that's even if they can secure them."
Hoteliers confirmed that prediction. "Companies are certainly looking to limit LRA," said Fred Shea, vice president of sales operations for Hyatt. "It's certainly a point of contention in negotiations."
Denise Lodridge-Kover, vice president of business travel sales and strategic partnership accounts for Hilton, said hotels are taking a hard look at how many clients they can accommodate with LRA. It's less likely Hilton will offer it to lower-volume accounts, she said.
Even so, this has not deterred travel managers from asking for LRA in negotiations. Some industry experts said they remain as prominent in requests for proposals as in years past, defying some RFP providers' expectations.
"Overall, what I expected to see was a significant shift, but we don't really see any difference thus far," said Chris Wichers, COO of Arlington, Texas-based hotel RFP provider Lanyon. "It's as sought today as it was a couple of years ago."
Buyer expectations for actually obtaining LRA, however, are not as optimistic. Most at this point are waiting to hear back from hotels after their initial requests. Knowing the situation with demand, they are bracing to pay higher premiums to secure LRA, even though such contracts were available at no extra charge a few years ago
(BTN, Nov. 14, 2005). Still, buyers know that it is not optional in high-demand cities.
"In almost all situations, I almost have to have LRA," said Colleen Guhin, strategic sourcing manager at Phoenix-based ON Semiconductor. "Anything has a price. If you're willing to pay more for the room, that's when the negotiations go in."
Yasuo Sonoda, global travel manager at Business Objects in San Jose, Calif., said that he expected to see LRA rates in less-saturated markets, such as Atlanta, increase at levels between 4 percent and 10 percent. In higher-traffic areas, New York being the most extreme example, the premiums might be such that they are not even worth pursuing for some companies, he said.
Cheryl Davis-West, assistant travel manager for Boise, Idaho-based Washington Group International and a member of the National Business Travel Association's hotel committee, said her company did not have LRA in New York last year and would not be pursuing it this year. However, the company would be seeking it in other high-demand markets.
"New York, starting last year, was a nightmare," Davis-West said. "I'm going to try to go for LRA in Washington, D.C. You have to. You can't get a room."
While hoteliers say LRA is not off the table anywhere, they certainly will offer it to fewer accounts than years ago, Hilton's Lodridge-Kover said. Even though the hoteliers have the upper hand, customers with established relationships still have some negotiating leverage.
"All of us recognize that the business is cyclical," Lodridge-Kover said. "That's not something we take lightly."
Because last-room availability is such a high-premium item, buyers need to take extra care when negotiating for it this season, said Maria Chevalier, vice president of global business intelligence for BCD Travel's Advito consulting division. In past years, buyers have been able to negotiate across levels of rooms for LRA, but hotels now define LRA by room type. Buyers need to ask how much inventory is tied to that classification, Chevalier said.
For example, if a hotel has 30 classes of rooms, and LRA was tied to only one, a travel manager might want to shift that around to ensure that there is a sellable difference, she said. Amex also indicated this negotiating point would factor into discussions this year.
"Many hotels are limiting access to last-room-available rates, for example, offering a very limited number of standard rooms when offering LRA rates, effectively making the LRA rate ineffective," said Mike Streit, vice president and global leader of American Express Business Travel's consultancy. "In turn, travel managers and buyers will try to persuade suppliers to open additional room types within their inventory to increase that LRA availability."
When last-room availability is not feasible, buyers will have choices this year. Lodridge-Kover said hotels are prepared to put forward other pricing options if they cannot offer LRA.
It's also a good time for buyers to back away from being completely rate-focused in negotiations, Chevalier said. Buyers also should be wary of other outside costs that are rising, she said, and there's also the opportunity to negotiate for other amenities when LRA is not possible. Washington Group International's Davis-West, for example, said she would be putting more emphasis on bargaining for high-speed Internet access this year.
"It's as much about the economics of getting as much for what they're paying as possible. Last-room availability is just one of the many facets that you have to consider when you're negotiating," according to Chevalier. "In some markets or tiers, one lever could be more important than others."