Room Availability Concerns Return

Last room availability has resurfaced as a point of contention in this year's hotel negotiations, as midweek room demand in key markets begins approaching 2000 levels.

Availability has not been a pressing issue amid the widespread occupancy decline, but for the first time in three years travel buyers again want assurance that their travelers will have the benefits of having access to any available room, though they do not necessarily want to pay a premium for it. Hotels, however, are offering no such guarantees, as they see the market swinging in their favor and LRA premiums a source of additional revenue.

Colleen Guhin, global travel manager for On Semiconductor in Phoenix, acknowledged the situation has changed going into 2005. "With the upturn in the market, it might well be harder to get LRA included this coming year than in recent years," Guhin said. "The idea of paying a premium rankles me. Depending on the market and the individual property, I've had to pay a premium before, but that doesn't mean I like it."

When a corporate account has an LRA rate, the hotel is obliged to provide travelers with a room at that rate until every room in that room category is sold. The issue always has been a negotiating point and the majority of customers ask for it, according to vice president of Hilton Hotels Corp. Denise Lodrige-Kover, who oversees corporate accounts. "LRA typically has been treated as a premium, though we don't have a formal position on it. It's decided on a case-by-case basis," she said. "We're seeing more sell-out situations in cities around the country and that just fuels the LRA discussion. Whether in a buyer or seller's market, however, including LRA is really a business decision—deciding what you can offer the customer and what the customer can bring to you."

Lodrige-Kover said the ability to move marketshare will play a crucial role in decision making for 2005. "Marketshare and revenue are still big drivers. In 2000, many of our good customers paid for LRA and continued with it in the more troubling times," she said.

As with other aspects of rate negotiations, Richard Mackenzie, travel manager at OneBeacon Insurance in Boston, has used volume and relationship as leverage when it comes to LRA. "The hotels where we have LRA are the ones where we have long-term relationships," he said. "They don't charge because they know us and want to continue getting our business."

Buyers' ability to drive marketshare affects LRA charges as it does rates generally. "We've cut back on the number of hotels we work with in key markets in order to deliver greater marketshare, cutting the number in some cases by half. It allows us to deliver more business to those that are left," said Boston-based Thomson Corp. manager of travel services Sharon Fogarty, who plans to continue the strategy in 2005. "Hotels see the value. One of the benefits is that we've gotten LRA. A few came back and said they couldn't provide it, but even the most adamant turned around."

Doris Schultz, assistant vice president and travel services manager at Alliance Capital in White Plains, N.Y., is counting on hotels not wanting to risk losing the greater marketshare for the sake of an extra fee. "Yet, for hotels to withhold an extra fee it has to be a win-win situation for them. In our major cities, we give hotels enough volume so that the relationship is significant for them. They'd be foolish to jeopardize it. The last thing they want is us adding more hotels in their market."

By adding an LRA premium, the same room ends up costing the buyer more. "At the end of the day, if there's no room available, there's no room, though we expect them to bend over backward for our travelers until it gets to that point," Schultz said.

Patricia Carlin, travel manager for Sybase in Dublin, Calif., prefers that LRA be built into the rate, "but I'm not always successful. In my primary properties, the rate has included LRA because we have enough room nights to be able to negotiate it." Carlin's preference is not to pay a premium at any property. "That's my initial response," she said. "The reality is that when the negotiation process starts for 2005, I may be forced to change my mind."

For Guhin, it is not the high or low end of her program but the midrange that poses the most frustrating challenge. "It will be hotels where I don't have enough room nights to get a lot of say, but need a preferred hotel in that market," she said. "That's where it can be a real struggle."

During the downturn, some buyers may have been tempted to take for granted getting LRA at no additional cost. "It's been the way to do business the past few years. Most buyers hope they'll continue to get it, but many know it's going to be a little tougher to negotiate this year," said John Hackett, corporate director of sales for Omni Hotels.

Hackett said that several clients in 2004 negotiated both a non-LRA and a more expensive LRA rate for the same hotel. He expects the trend to accelerate in 2005. "The non-LRA was probably more to their liking, but you want to do the best for each client based on their specific needs and booking patterns, as well as the mandates in their travel policy and success in compliance," he said.

In the same way, the amount of the differential between the LRA and non-LRA is hard to generalize because it's too market by market and customer by customer, depending on these same factors.

Andrew Menkes, chairman and CEO of Partnership Travel Consulting in Princeton, N.J., envisions potential marketshare gains as an even more potent bargaining chip in this year's negotiations. "In exchange for giving LRA without a price differential, the hotel might request increased marketshare from the buyer," Menkes said. "That's a deliverable." He described the premium as a subtle price increase. However, the opposite scenario also would hold true. "To make up for not getting LRA, buyers would be forced to add—or threaten to add—competing hotels to their program to ensure they'll have the availability they need," he said.

As it has for two years, the National Business Travel Association electronic request for proposals format for 2005 allows buyers to request both LRA and non-LRA rates from hotels they are considering for their programs.

"This year, however, it is included in the new client-specific module along with all other pricing fields," said hotel committee member Ruth Philpott, who is also manager of hotel programs for American Express Consulting in New York. "The new module is designed for flexibility, so more buyers may be inclined to request both rates for comparative purposes."