Marriott Offers Buyers Yieldable Hotel Rates

<B>Marriott Offers Buyers Yieldable Hotel Rates</B>

By Bruce Serlen

Marriott International earlier this month revealed it is offering yieldable rates to its corporate accounts as an option for 2001 contracts.

"These rates are seen as an alternative by travel buyers who presently pay a premium to negotiate last room availability," said Bruce Wolff, senior vice president for distribution sales and marketing, who spoke at BTN's Travel Technology World.

The strength of the lodging industry today, where travel managers frequently have trouble securing the room availability they need, has spurred this interest in last room availability (BTN, Oct 2). "Buyers who want to pay a premium for LRA could still choose to do so. Others, however, could choose not to pay the premium, in effect managing their costs downward," Wolff said.

He described the new system as follows: "If there is any room for sale on a given night at the negotiated LRA rate, that rate would apply. A room negotiated at a yieldable rate, however, might not be available when the traveler tries to book a reservation, even if there were rooms available for sale at the hotel."

Depending on the expected supply and demand in that city on that night, Marriott's policy is to start to close out the lowest yielding rate as the time draws closer. "We work our way up until we've reached the last category of rooms to sell out," Wolff said.

"Under the yield management system now in place, it's not simply a question of how many rooms might be available, but how many rooms are projected to be available," he said. "If a yieldable rate is not available, the traveler then could book a room at a higher rate that was still available or find another hotel that has an available reservation."

Wolff said he understood that buyers are used to having hotel rates locked in. "In exchange for the negotiated rate sometimes not being available," he said, "we would come up with a lower rate, thereby creating savings for the travel manager." The yieldable rate invariably would be lower than the LRA rate.

Much of the current interest in LRA has been a reaction to the extremely tight availability of rooms on peak nights and in peak seasons in such high-demand markets as New York, San Francisco, Chicago and Boston. Many buyers, however, have been negotiating LRA across the board.

"We recognize that in such key cities as New York and San Francisco it can be very hard to find a reservation," Wolff said. "In these cities, the yieldable rates would be less desirable because rooms tend to be so scarce there generally."

Wolff said that such travel management companies as American Express, Carlson Wagonlit and Rosenbluth are implementing the yieldable rate concept "on a significant scale" and that Marriott will be offering it to its corporate accounts as well. Wolff projected that, as with the travel management companies, it will take corporations "some time to accept the concept of yieldable rates, but that we'll then see rapid adoption."

Marriott's Wolff acknowledged that the new approach might create further uncertainty on the part of buyers looking to book rooms, particularly on those peak nights of the week and in those peak seasons. The need to seek additional coverage in these cities also would cause buyers to enter into agreements with other hotel companies, thereby affecting Marriott's market share in that city.

Executives from other hotel companies viewed the idea of yieldable rates skeptically. One ascribed it simply to "semantics" and said it resembled the non-LRA negotiated rates many hotel companies already offer to corporate customers. "Hotels already can decide when they want to close out different rates and, in the process, insist on higher rates for rooms remaining," said one national accounts director.

Nobody in the industry contests that yield management has become highly sophisticated in the past few years. "It's something that had to happen to make sure hotel companies continue to do well," said David Ogilvie, vice president of global corporate travel for Starwood Hotels & Resorts Worldwide. "We feel it's necessary and it's here to stay. At the same time, we try to make yield management as fair as we can for our best customers. In fact, it's why we offer them LRA. After all, the last thing we want is to have these customers get yielded out of the hotel."

Travel managers need to understand that the situation can be very fluid and differs in each city. "We're trying our best to listen to our customers' needs in a particular destination on a particular night of the week," said Kevin Kelly, vice president of business travel for Wyndham International. "Sometimes, LRA might be the way to go, but other times not. Many customers could do further analysis in markets other than the New Yorks and San Franciscos and learn that demand is not consistently as high as they imagine."

When the concept of last room availability is truly understood by both parties in the negotiation, the discussion gets simplified.

"LRA is very much connected to anything that happens with rack in our hotels," Ogilvie said. "Consequently, if rack is open at the property, meaning the property is not physically sold out, then we apply LRA to the room types involved."

Education is crucial. "We wish Marriott luck with this," Kelly said. "The more success they have educating customers to choose preferred vendors with the pressure of LRA removed from the discussion, the better the industry will be.