<B> Lost Room Availability?</B>
By Maria P. Vallejo
Guaranteed last-room availablity of negotiated corporate rates, once the most prized of all corporate amenities, is rapidly becoming another victim of revenue management systems and a healthy economy. As a result, travel buyers are being forced to search for other services and amenities to offer their travelers.
While no chains have officially banned the much-cherished guarantee--at least not yet--many are shying away from offering the service in 1999. As a result, travel managers and agencies are consolidating their business and documenting their room nights in an effort to be eligible for those last few hotel rooms set aside for top customers. But those with smaller volumes have learned to focus on other amenities instead.
"We have greatly reduced the number of accounts with last room availibility as a perk, both locally and nationally," said Kevin Kelly, managing director of worldwide business travel sales for Hilton Hotels. "It is our strategy to severely limit which customers get it. It is not completely taken away as of yet, but that's a future goal of ours."
And Hilton is not alone--Cendant, Hyatt and Marriott officials all said they plan to offer last-room guarantees less frequently to corporate customers.
"The hotels are willing to negotiate last room availibility only with accounts that are very large in the top ten markets," said Erin Lee, global hotel consultant for Rosenbluth International of Philadelphia. "It really comes down to what the client can bring to a hotel chain as a whole. More and more hotels want to deal with a select group of accounts."
Rosenbluth is telling customers that they will need a minimum of $3 million in annual hotel spend to approach the negotiating table for a company-preferred rate in 1999. Companies with lower budgets are encouraged to use the Rosenbluth International Program, which includes a negotiated hotel rate and three to five blocked rooms in preferred hotels worldwide, said Marissa Duffy, a Rosenbluth global hotel consultant.
Some hotel companies are placing caps on the number of preferred corporate accounts they are signing and requiring a higher number of room nights in first-tier cities to be considered for a preferred contract, Lee said. Others are asking for a minimum of 5,000 or more room nights in major business cities.
Hoteliers, meanwhile, said that consolidation of transient and group travel and a history of meeting the terms of past hotel contracts can help sway a hotel company to consider offering last-room guarantees. Hotel chains also tend to consider long-standing preferred relationships over new customers, they said.
During the negotiating process, corporations offer hotels an estimated number of room nights in return for a preferred program. That estimate is based on their historical travel patterns and the company's expectations for changes. But hotel companies said that many corporations simply do not deliver the business they promise.
"I think a guaranteed rate is important to them, and they're trying to control travel costs," said Joan Lowell, vice president of individual travel at Chicago-based Hyatt. "We have no objection to doing that as long as we get the commitment of the company to put more rooms in Hyatt. Unfortunately, the commitment is not on the company or agency side. They never commit a number of rooms that they give us a year, while we commit a rate."
Hyatt offers last room availability on a national level to a select number of mega agencies and travel agency consortia, but individual hotels can decide whether they want to offer the guarantee when negotiating with preferred corporate accounts. But this may change for the 1999 negotiating season, because of the high demand for rooms in major convention hotels. Hyatt officials now plan to allow each hotel, even when involved with national contracts, the choice of offering last-room availability or not.
Hilton Hotels Corp. reviewed its 1998 preferred contracts in May, and encountered a similar problem with unfulfilled room night quotas. As a result, it has discontinued guaranteeing last room availability to those companies that were not living up to their end of the bargain.
"As we go into 1999, each hotel is going to be scrutinized as to the number of accounts given last room availability, if any at all are," said Kelly.
In the early 1990s, when the hospitality industry was trying to increase room nights and revenue from all its customers, guaranteed last room availability was much more prevalent, industry insiders said. Since then, occupancy has increased and supply decreased--meaning hoteliers now are far less willing to hold onto their last few rooms for corporate travelers paying lower rates.
"Hotels know they can get a higher rate for those rooms and they're going to pass that onto the people who can pay for it," said Robert Mandelbaum, research director and vice president of PKF Consulting in New York. "They will not let rooms sit without generating revenue."
Corporations dealing with Marriott International have two choices in negotiations: last room availibility or a negotiated rate. If they take the preferred rate, the hotel closes off the rates when properties are near full capacity. And as with most other hotel companies, Marriott's guaranteed LRA contracts only pertain to "run-of-the-house rooms," which exclude club or concierge floors.
"The hotels can only grow by increasing their rates and maximizing the limited number of rooms they have," said Fred Miller, Marriott's vice president of intermediary sales and marketing. "When customers push for last room availability they should not expect as attractive a rate. They can't have both."
Hoteliers expect the short-term economy to hold its strength and real estate is scarce in major gateway and business cities, where hotels are running almost at capacity on three to four nights a week. But there is a little more room for last room negotiations in secondary and tertiary cities, hoteliers said.
"It all has to do with the market for each hotel and mix of business," Lowell said. "Some hotels are high convention and less likely to commit inventory at last room availiblity rate. Others that don't have a high convention mix are easier to negotiate with."
Along with the strong economy, travel buyers can blame technology for the trend as well. When revenue management systems first entered the industry, hoteliers still followed their basic instincts of slashing prices and negotiating last room availability to build occupancy. But yield management systems allowed themto pinpoint peaks and valleys in occupancy and rate--and suggested tactics that were often counter-intuitive. Hotels using the systems sometimes found that maintaining high rates and leaving some rooms empty can be the best boost to their bottom lines.
The systems also tell hotels when they are close to full capacity and should be closing off preferred rates. "We have enough revenue management expertise on property and regionally to know when to close off those rates," Miller said. "It's very difficult for hotels to offer last room availability during these strong market conditions."
Yet Cendant executive vice president of sales and marketing Scott Anderson noted that even while "yield management is causing last room availibility to be revisited, as long as there is a hotel that needs business in the system there will be a percentage offering it. It will be a push-pull discussion within brands."
In the meantime, travel managers are searching for alternative items for negotiations--and turning to block rooms, tiered pricing and soft-item packages. Some suggested that seasonal pricing and day-of-week pricing may well become the newest trend in hotel negotiations. Although this is not the cheapest way to find rooms for their travelers, buyers also may be able to negotiate for blocked rooms, which guarantee room availibility usually until 48 hours prior to stay. Free health club membership, continental breakfast and local telephone calls are other negotiable items.
Conversely, Choice and Starwood Hotels & Resorts are promoting last room availability during negotiations, helping them steal customers away from competitors, company officials said. Both companies automatically offer it to customers meeting the criteria of their preferred customer groups, Choice's VIP program and Sheraton's Club Gold.
"That has brought a lot of business," according to Choice vice president of sales Bill Todd. "There are new customers out there, and to grow your business, you have to be able to shift market share. One way we think you can do that is to steal business from our competitors."
Choice is banking on the limited room availibility in most major gateway cities to help shift customers to its midpriced hotel brands, such as Clarion, Comfort and Quality. Unlike other brands, most of the properties do not have suites or concierge floors that are excluded. Guests are guaranteed last room availability in any hotel room.
The company attributes much of the 37.7 percent increase in revenue it saw from VIP accounts in the first six months of 1998 to its guarantee of corporate rates until the very last room is sold. In 1997, the company saw a 49 percent increase in VIP account revenue over 1996 revenue, which was about $42.2 million.