J&J Requires Last Room In RFP

<B>J&J Requires Last Room In RFP</B>
<I>Tight Availability Drives Johnson & Johnson's Tough Stance</I>

By Bruce Serlen

<I>Brunswick, N.J. - </I>As negotiations for 2001 hotel rates get underway this month, Johnson & Johnson is taking an unusually aggressive position on one of the hotel industry's hottest booking issues: last room availability.

Other large travel buyers have tried to pressure hotel companies to provide last room availability, but Johnson & Johnson refuses to allow a hotel company to bid on any part of its $140 million annual hotel spend unless LRA is included.

"LRA is a mandatory requirement for Johnson & Johnson this year," said Wendy Nathan, travel services manager for the global health products company. In the list of prerequisites Nathan includes in her RFP, a failure to provide last room availability is denoted as a refusal to bid. "So it's not even like they've bid and not met a requirement," she said. "It just shows they've refused to bid on my business altogether because they didn't even meet one of the very primary requirements."

Why having LRA included is such a high priority for travel buyers is symptomatic of the healthy state of the hotel industry today. Particularly in key gateway cities, demand midweek for hotel rooms frequently outstrips supply. New York and Silicon Valley often are cited as U.S. examples of this room crunch, but it applies in other cities as well.

Travel buyers consequently find it increasingly difficult to book the rooms they need. In many cases, hotel companies will negotiate LRA, typically at a premium in rates, to assure buyers their travelers will have access to available rooms. But buyers then find they're closed out regardless by such issues as minimum length of stay requirements and no arrival/no departure and blackout provisions, adding further to their dismay.

"The reason LRA is mandatory for us is because we have 98,000 employees around the world," Nathan said. "For us, there's just no way to run a hotel program this large and not know when the hotel is going to turn off LRA and when they're going to turn it on."

LRA monopolized the hotel sessions at last month's NBTA annual meeting in Los Angeles. Nathan, who's a member of the NBTA hotel committee, shared her frustration as a panelist in two of the sessions.

Like other buyers, Nathan is prepared to pay the premium that is usually required for LRA. "We will pay the going rate in the city, whatever the proper threshold is in the city." But Johnson & Johnson will not pay more than what the hotel should be getting. "If LRA at your property is $125, for example, and LRA at a competing property, which is really part of your competitive set, is $99, no, I won't pay $125, apples to apples." Johnson & Johnson, which ranked 17th in U.S. booked air volume for 1999 (BTN, Aug. 28), also benchmarks rates against the American Express corporate rate, which includes LRA.

When Laura Thompson, hotel consultant at Sabre, said hotels don't necessarily load LRA into the GDS and make it available at all times, Nathan said that electronic accessibility is an issue for Johnson & Johnson. "Sometimes, hotels honor LRA only for phone bookings," Nathan said. "I would much rather see them do it through the GDS because we don't want our agents making the telephone calls. Very honestly, if a hotel is not showing it in the GDS, the agent is going to move on to the next hotel that is showing it in the system."

Nathan can accept hotels imposing blackout dates. She has no patience, however, for the provisions that stipulate minimum length of stay or no arrivals/no departures. "I'm more than happy to accept blackout dates," she said. "In fact, on my bid solicitation this year I put in a number of sets because I understand there are times where there are national conventions or special events. But if my travelers are going to Silicon Valley and every Tuesday night there's a no arrival provision and a two night minimum length of stay, that is not LRA to me."

Complicating the situation is that hotels have begun to negotiate LRA for different classes of rooms. Buyers will think they have LRA only to learn it applies to just one room type in the hotel and, thereby, a smaller number of rooms.

Rick Wakida, chairman of the NBTA hotel committee, said the standard NBTA RFP form addresses only two types of room categories that can be offered. "But they can be defined any way the hotel wishes," said Wakida, who is also travel analyst and technology manager for AirTouch Communications. "So what is offered as standard can include standard, superior and deluxe rooms. Or just standard rooms. If the standard room is offered with LRA, it would apply to all those rooms."

Nathan said underlying the room type confusion is overbooking. "We're very aware that the GDS is live inventory and hotels are willing to sell 120 percent of their inventory," she said. "Sometimes, we're taking the room that's 110 percent of inventory. Forget about being in a different rate category, the room doesn't even exist."

Hotel national sales managers respond that their hands often are tied when it comes to LRA because too few corporate travel programs are mandated and, consequently, there are no assurances travel managers will deliver on the volume commitments they make.

Definitions vary, however, as to what constitutes a truly mandated program. At one extreme, mandated means the company won't reimburse travelers who stay at a nonpreferred hotel. Johnson & Johnson is not one of these. "In our company, mandate is a four letter word," Nathan said. We highly recommend it. We expect our people, who are responsible for a billion-dollar drug, to be able to make a $200 decision. We expect them to do the right thing."

But, she maintained, mandating is a smoke screen the hotels use in not honoring LRA. "About 78 percent of the time, people make the right choice at Johnson & Johnson," said Nathan, who earlier in her career was the director of revenue management and sales manager at a hotel.

Compliance is achievable without a mandate, she said: "If you put out enough information and if you market properly and positively to your travelers, you can do it."

At the heart of Nathan's frustration with last room availability--and the reason that she has been tightening her bidding procedure this year--is what she sees as a lack of good faith on the hotels' part.

"It's their corporate accounts that give hotels business year round, good times and bad. I'd rather have a hotel that truly wants to work with me in the spirit of last room availability and be my partner," she said. "Why should I take the business away from a hotel that is really willing to work with me and give it to a hotel that says, 'yeah, I'm going to give you LRA,' but then doesn't put anywhere in that RFP that we're going to play with it? I'd rather have a hotel be up-front and honest with me and I'll make the right decision.