Hilton Hotels Corp. and InterContinental Hotels Group on Jan. 1 will eliminate fixed consortia rates available through travel management companies in favor of more fluid pricing. Hilton also will begin testing dynamic pricing as an alternative to fixed negotiated rates with a limited number of mostly small corporate accounts.
The moves by the two multi-brand companies are the latest evidence that the transparency of Internet rates is turning fixed consortia pricing into a dinosaur. Marriott International and American Express changed from fixed to dynamic pricing last year for 2004 rates
(BTN, Dec. 8, 2003)."We've eliminated static pricing, what used to be known as consortia rates, in favor of providing our best available rate, which is dynamic and can change daily and sometimes more than once a day," said Greg Cross, Hilton vice president for revenue management and strategies. Hilton piloted a dynamic pricing test with certain brands in 2004, but is introducing the concept across all its brands for 2005. "If you're offering a static price that's not attached to market forces, the price won't be demand-driven," he said. "In the same way, if retail rates dropped below the fixed rate on a given day, the client was paying too much."
The best available rate is the market-appropriate rate for that day. If a discount off that rate is involved, the system computes it automatically. "Hotels always had the ability to lower rates for the mega agencies, but had to do it manually and monitor it for themselves," said Doug Abbott, IHG director of sales operations and planning for the Americas. "Now we've linked it to the best available unrestricted rate, so that the system makes the change for them." IHG has no plans to extend dynamic pricing to corporate accounts.
Starwood Hotels & Resorts Worldwide for 2005 will continue to provide fixed rates, with a possible exception. "If the fixed rate at the hotel is $250, for example, that would be the rate the agent sees in the global distribution system," said Jim Kilroy, Starwood vice president of global agency sales. "However, if the hotel was selling a lower best available rate in the GDS, that would be returned as well. If we committed to $250, that in effect would be the ceiling rate. The best available rate would not float above the published TMC rate." Some companies' dynamic pricing programs have no ceiling or cap.
Travel buyers typically used consortia rates as a tool to benchmark negotiated rates. Fixed consortia rates allowed them to budget and forecast more effectively. Small and midsize buyers especially relied on the consortia for a discounted rate in markets where they did not have sufficient volume to warrant a negotiated rate.
A year since the start of dynamic consortia pricing, Rick Wakida, global travel manager for Openwave in San Francisco, a midsize travel account, still has concerns about the degree rates fluctuate. "We've been told that the variance in rate wouldn't be that great in the course of the year," he said. "Rather, the rate might change based on seasonal factors or projected demand, not so much daily, but on a longer horizon, whether that's monthly or even quarterly. We're looking to see if that's the case." Wakida compared the new approach to an adjustable rate mortgage, where in theory the rate could change all the time, but in reality only changes when external factors intervene.
Donna McGovern, hotel program manager for Interpublic Group of Companies in New York, regrets the loss of fixed rates for benchmarking. "Buyers new to the business especially need to be able to compare the negotiated rates they're getting with the consortia. It puts your rates in perspective, which is valuable, particularly this year when it looks like rates are going up," she said.
American Express in 2005 will expand the use of dynamic pricing. "The program in 2004 was in effect in the United States and Canada for point of sale in those markets," said Andrew Winterton, vice president of the global supplier relations group for American Express Business Travel. "We are now taking it globally on the structure we have in place. If it's a U.S. corporation that has point of sale in Europe, for example, they now will access the same rates."
Rate trends during the program's first year varied, depending on city and the demand it was experiencing. "Our objective is to have the most cost-efficient rooms available at all times," Winterton said. "These are rates designed to be used outside the corporation's own hotel programs. This is complementary to that."
Under the former system, fixed consortia rates would be set in the summer and apply for the entire next year. That approach now strikes many as unrealistic in today's Internet pricing environment. "It never really has been practical to set consortia pricing in August or September for the following year because pricing in the business today is so dynamic that it needs to be an ongoing process," John Marriott III, executive vice president of Marriott Lodging, told Business Travel News in explaining Marriott's decision last year
(BTN, Jan. 19). This month he said Marriott was pleased with the way the dynamic pricing had been accepted by its clients and does not plan any changes for 2005.
Negotiated rates should remain the most cost-effective. "Negotiated rates tend to be lower than the consortia because they're linked to volume commitments from clients," Abbott said. "They get to take advantage of lower rates in markets where they don't have enough volume to negotiate a deep discount."
The move toward dynamic pricing industrywide reflects the transparency the Internet has brought. "The Internet made it possible for all different rates to be visible," Cross said, "but it's also potentially confusing, so it's preferable to have one price available across all channels, including the consortia, and for that price to be the best available rate."
Technology improvements are driving the change. "Going strictly to floating rates is a technology issue," Starwood's Kilroy said. "Once a hotel company has the technology in place, it can automatically trigger the return of the lower rate in the GDS."