Floating Room Rates Stymie Buyers

Travel managers this summer reported yet another twist to the persistent room rate loading problem: Hotels are not loading "floating rates" into the global distribution systems. These are the rates suppliers began offering earlier this year when they lowered consortia rates in key markets. Buyers whose negotiated rates were higher received the benefit of the new rates, but the hotels' stated intentions backfired when the rates were not loaded accurately.

Fed up, buyers this year are confronting hotels by adding stipulations on rate loading to their bid agreements, instead of reacting after rates are final in December. Some also are auditing monthly, rather than annually or quarterly. One buyer even has started collecting refunds when the discrepancy between the rates loaded and the accepted rates proves great enough.

"Rate floating has become a really big issue for us," said Jo Ann Gallardo, hotel/meeting coordinator at Dell Computer Corp. in Round Rock, Texas. "After our initial audits for 2003 rates, we noticed some of our negotiated rates appeared higher than consortia. When we went back to our major chains to inquire, they explained they had begun to adjust a lot of the consortia rates downward in response to market conditions in particular cities." She noted that rates in such major cities as New York were the ones most affected. Although it should have fallen accordingly, the negotiated rate for unexplained reasons remained unchanged in the system.

As with rate loading problems generally, online booking tools are the most vulnerable. "When travelers book through the agency, the agents will know to compare the negotiated rate with the floating rate. Travelers using the online tool, however, won't know this, nor should they," Gallardo said. "They'll look for our discounted Dell rate and, as soon as they see it, they'll make the booking."

Experiencing similar difficulties, Jim Haddow, chief of global procurement for A.T. Kearney in Alexandria, Va., said, "Hotels say they're going to adjust the negotiated rate in relation to the consortia, but they have trouble, so travelers can't book the right rate." Complicating the matter further, many of A.T. Kearney's rates are seasonal. "We already have to go into the system and check every season to make sure X hotel chain put in the correct rate for the coming season," Haddow said. "With the online tool, travelers understandably get frustrated and sometimes call the travel agency and say, 'I'm seeing multiple rates out there, what should I do?' "

Haddow and his team have alerted the agency to double-check the rates when they're booking, "just to scan down to see if there's a lower consortia rate and, if there is, to make sure we get it," he said. "But you can't easily do that on the online product, where the lower rate may not even make it."

Like Gallardo, Haddow hardly faults the traveler. "Some of our travelers just book the first rate they see at a preferred hotel on the assumption they're doing what they're supposed to do," he said.

Hotels tend to change rates too frequently, according to Wendy Nathan, manager of travel services at Johnson & Johnson in New Brunswick, N.J. "They act more reactively than proactively," she said. Yet, Nathan also expressed empathy for the predicament they find themselves in. "While rate loading is clearly their responsibility, at times they don't even realize what's going on because they believe the rates are loaded correctly," she said, speaking at last month's National Business Travel Association convention in Dallas. "Rates at a hotel could fall by $30 a night, but the GDS still might not be showing the decrease. This is because of a stagnant database that sits on top of the GDS. Changing the database only can be done manually."

Through this year, Johnson & Johnson has conducted rate audits annually, but the problem has gotten so serious that, starting in 2004, Nathan will step up the frequency. "We'll continue to do our standard audit when rates are due to be loaded, but we're also going to do monthly audits in different cities worldwide," she said.

To save time and maximize the monthly audits' effectiveness, Nathan will require that hotels' national sales representatives audit rates at the same hotels and at the same time that she and her team are auditing them. "This way, we can be sure we're all looking at the same thing," she said. "It also means inaccuracies can be addressed right away, instead of having to wait for the national sales reps to first verify the results of the audit."

Given hotels' poor history with rate loading overall, not all buyers share Nathan's empathy. "The hotels create their own monsters, and they continue to create monsters with things like floating rates," said Jo Ann Baynes, co-founder of Uversa International, which processes requests for proposals for more than 50 corporate programs and hotels. "I don't think right now they have an answer available why some rates drop out and others don't."

Increasingly, buyers understand rate loading isn't just an issue they need to deal with each January and February after the rates are loaded. "Rather, it's become an issue in October, November and December that's built into the bid process," said managing partner for hotel solutions delivery at Eclipse Advisors Karen Richard, who consults on more than 20 hotel programs. "Buyers see that their only real leverage to create standards and ensure compliance is during the bidding season. Then, there's at least a chance they'll get more accurate rates in the system come the first of the year."

For 2004, Dell has told its hotel partners that it expects the company's negotiated rate always to be lower than the consortia rate. "If they're going to float any rate downward, it has to be the rate identified as the negotiated rate," Gallardo said.

At A.T. Kearney, one of the travel department's focuses for next year will be to steer clear of floating and/or seasonal rates entirely. "We're telling our hotel partners we want a rate that's fixed for the entire year. Otherwise, it makes forecasting and reporting very difficult," Haddow said. As for rates not appearing in the online booking tool, A.T. Kearney is telling its hotel vendor to figure out the problem and resolve it. "When we load 2004 rates, we want them all accessible on the tool, so we don't have to worry about any dropping out," he said.

J&J in the past has demanded payment from hotels when audits revealed a significant discrepancy and will do so in 2004. "We ask hotels to make up the difference between what rates should have been and what actually was collected," Nathan said.