Despite forecasts for U.S. hotel rates to edge up in 2011,
buyers who must abide by per diem rates issued by the U.S. Government Services
Administration will have less room to financially maneuver in most major
cities.
In its annual update of per diem rates—the standard for
reimbursement for all government and related travel, including allowances for
lodging before taxes, meals and incidental expenses— GSA bumped up its standard
per diem rate by $7 to $77 for lodging. Out of the 378 nonstandard areas in the
United States, however—areas such as major cities with costs different than the
standard rate—GSA decreased rates in 310 areas, increased rates in 50 and kept
the remaining 18 the same. Food costs remained largely the same in most major
cities.
The rates apply to the fiscal year 2011, which began this
month.
"Per diems are set by law, and we look at the actual
hotel data that federal travelers submit to the contractor, which is from Smith
Travel Research," GSA per diem manager Jill Denning said. "So, our
rates are a direct reflection of what's actually going on in the market."
Per diem rates for many major cities change seasonally, but
for most, rates were down across the seasons. Of the major U.S. cities, 2011
average hotel per diem rates decreased the most in New York, down 23.7 percent
compared with the 2010 per diem rates. Chicago had the second-highest drop,
down 16.4 percent. Rates decreased by more than 10 percent in several other cities,
including Baltimore, Boston, Denver, Minneapolis, Philadelphia, Phoenix, San
Francisco and Seattle.
Additionally, rates decreased more than 5 percent in
Atlanta, Dallas, Detroit, Houston, Los Angeles, Milwaukee, Portland, Ore., and
Washington, D.C.
Forecasts, on the other hand call for rates to do the
opposite. In its 2011 Global Travel Outlook, for example, Egencia said
corporate rates would increase in most of those cities, including a 6 percent
increase in Minneapolis and an 8 percent increase in Boston.
Marriott International executive vice president and chief
financial officer Carl Berquist said in his company's third-quarter earnings
call that government per diem rates tend to lag the overall market because the
government usually uses a two-year average instead of a one-year average. As a
result, buyers who use government rates will have a tougher time negotiating
with upper upscale hotels in major cities.
"Inevitably, we will see our government business get
squeezed out of the hotels that are in the highest demand," Berquist said.
"We will see government travelers that are pushed to more suburban, more
moderate hotels."
Per diem usage is not limited solely to government
travelers. Businesses that do any form of contract work for the federal
government also must abide by the rates.
National Business Travel Association hotel committee member
Hillary Dallas, global travel manager for consulting firm Booz Allen Hamilton,
a contractor that must use government per diem rates in its hotel program, said
companies such as hers also will have to take strategic approaches to
negotiations this year, though they might have an easier time in markets with
steady supply growth.
"Major markets continue to be tough," Dallas said.
"You do have more supply in New York, which is favorable to working with
hotels there."
New York, in fact, currently has a pipeline of hotels under
construction and in development that will boost the city's room supply by 7.4
percent once they open, according to data released this month by Smith Travel
Research. Hotel construction pipelines also have increased over the past year
in Boston and Denver. Overall U.S. construction was down by 21.9 percent in
September 2010 compared with September 2009.
How companies handle government contract per diems varies.
Some strictly limit travelers to those rates. Aerospace manufacturing company
Moog, on the other hand, reimburses its travelers for their expenses within
reason and then charges the per diem cost out of those expenses back to the
government, said manager of travel services Kathy Hall-Zientek.
For companies that stick tightly to the per diem rates,
hotels might have to change their approach, said Bob Brindley, vice president
of BCD Travel consulting unit Advito.
"They won't be able to get an increase from government
clients, but some of those might not have had to lower their rates as much,"
Brindley said. "If they truly want the business, they may take a hit this
year and make up for it next year."
On the buyer side, Dallas said that travel managers using
those rates would have to maintain a diversified portfolio in key cities.
Midprice hotels, for example, usually include such major amenities as breakfast
and Internet access in their room rate, making it easier for travelers to stay
within limits.
"You need to look across brands and different service
levels," Dallas said. "I don't think it's wise to exclude anything.
The key is communication with your hotel partners because if they understand
your business criteria, it helps them find ways to help you meet the per diem
requirements."
GSA occasionally does adjust per diem rates midyear, Denning
said. "We do recognize that travel patterns do change," she said. "We
really just look for feedback from the agencies to let us know where their
travelers are staying so we can set the necessary expense reimbursements in the
areas where the travelers do need to go."
Most requests concern areas that get the standard rate, she
said. For example, GSA adjusted rates seasonally in Moab, Utah, because the
data determined that hotels there were harder to find at the standard rate
during fire-fighting season, she said.
"Those are the kinds of patterns we see changing over
time," Denning said. "Federal travelers have different needs to go to
different places, and we are happy to take a look at it."
Requests for midyear changes must be submitted by the end of
the year, and GSA considers any other requests when it sets the regular fiscal
year per diems, Denning said. Since adjusting its methodology to use actual
hotel data for fiscal 2006, GSA gets few midyear requests. Last year, the
agency received only six such requests. Five requests came for changes after
that for this fiscal year, totaling 11 requests for the entire year, she said.
Analysts said the decreased per diem rates this year might
change that.
"The government has a robust hotel program, and it's
really tough to fit in a static per diem," said Tom Wilkinson, president
of TRW Travel & Expense Management in Pennington, N.J. "I would not be
surprised to see the government go to an interim adjustment."
Lauren Darson also
contributed to this report, which appeared in the Oct. 25 issue of Business
Travel News.