<B>Room Squeeze</B>
<I>Last Room Pulls Against Minimum Stay</I>
By Bruce Serlen
A tug-of-war is underway between corporate buyers and hoteliers over the limited availability of rooms, especially midweek in key cities where demand and occupancies are at historic highs.
At one end of the rope is last room availability. Buyers are eager to have it, often at a premium in rates, because they want assurances they'll have the coverage they need in those cities. Suppliers, meanwhile, are hesitant to negotiate LRA because they believe they'll be able to generate greater revenue if they keep this limited inventory open.
At the other end of the rope are minimum length of stay and other requirements. Buyers charge that the hotels are building these restrictions into the GDS, making it difficult to book rooms, even with LRA.
BTN last month conducted a survey on LRA with 10 hotel companies which revealed a wide range of variation--not so much on how the basic concept is defined, but on how hotels apply it to corporate accounts. Accounts of a certain size or scope, for example, may be offered LRA, while other accounts are not. In addition, hotel companies were split on charging a premium for LRA.
For travel buyers putting together a hotel program that includes coverage in high-demand cities, LRA can seem like a must-have. Without it, they are less able to guarantee that travelers will get a reservation, especially midweek during peak times of the year.
Complicating matters is the practice of building in minimum length of stay requirements, often without the travel buyer's knowledge. Similarly, no arrival/no departure provisions and blackout dates can be included in the GDS.
The BTN survey revealed inconsistent policies here as well. Travel buyers, unable to get sufficient rooms for their travelers through LRA, then have no choice but to add more hotels to their programs to get the coverage they need in those cities.
"There's no question that LRA is the hot button between travel managers and the hotels going into 2001 negotiations," said Bjorn Hanson, Ph.D., global industry partner for the hospitality and leisure practice at PricewaterhouseCoopers. At times, the two sides can be very far apart, first on being invited to negotiate LRA and then on gaining assurances it will be honored.
Respondents to the survey included global hotel chains, which have brands at various price points, such as Hilton Hotels Corp., Starwood Hotels & Resorts Worldwide and Wyndham International. Upscale chains, such as Hyatt Hotels Corp., Omni Hotels, Radisson Hotels & Resorts and Swissôtel Hotels & Resorts, participated as did deluxe brands, such as Fairmont Hotels & Resorts and Ritz-Carlton Hotel Co. Midprice hotels were represented by Ramada Franchise Systems.
<B>Desperately Seeking LRA</B>
"In recent customer feedback sessions, we were told LRA is very important as occupancies continue to rise in major cities," said Scott Fischburg, senior director of sales for Radisson. "If room inventory is really tight in a city, guests can end up paying double the rate if they go to a hotel where they're not a key account."
LRA is clearly today's hot button. "The request for LRA is prevalent," said Steve Armitage, senior vice president of sales at Hilton. "Granting it is more the exception than the rule."
Some hoteliers question buyers' emphasis on LRA. "Too many buyers think they need LRA in every location and far too often end up paying a premium for it," said Kevin Kelly, vice president of business travel for Wyndham. "There are some secondary cities where a corporation could include a few more hotels in their program, not receive LRA, and have plenty of inventory to handle their needs. Most likely, they would also receive lower rates for these locations."
Kelly acknowledged that the exception would be the gateway cities. "Now if we're talking New York or Boston, where demand is high, then I understand their need for LRA," he said.
Some suspect the subject has been overplayed. "It's being touted throughout the trades and by the various 'hotel program consultants' as a 'must-have,' " said Ty Helms, vice president of sales for Hyatt. "For us, it is an average issue as we have traditionally limited offering LRA as a company."
In the survey, there was a general consensus around the basic definition of LRA. There's some question, however, about how clearly this definition has been communicated to travel buyers. "LRA means that a negotiated discounted rate is available for all regular room types and is not available for specialty inventory including such categories as suites, club level or deluxe," said Tom Chevins, vice president of sales and distribution for Omni.
"LRA rates are maintained in our system with the same status as rack rates," said David Ogilvie, vice president of global corporate travel at Starwood.
For travel buyers, confusion often comes from not fully understanding that special classes of rooms, such as suites and concierge floor rooms, are not necessarily included in LRA. Also, hotels aren't always clear as to how many classes of rooms there are, nor what the actual inventory is. The electronic standard RFP form promoted by the National Business Travel Association can accommodate two classes of rooms, but many hotels feature more.
Disconcerting as well, hotel companies customize their definition of last room availability to suit their particular profiles. "Because club rooms and suites make up 25 percent of our inventory, our approach is slightly different from most hotel companies," said Mark Ferland, vice president of sales and business development at Ritz-Carlton.
"In all our LRA negotiations, we offer 'specialty rooms' to the customer as an option or upon request," he said. "For customers that have qualified for LRA, when a run-of-house room is available, customers will have access to their rates through all distribution channels. When club rooms and/or one-bedroom executive suites are available, customers will have access to their negotiated club or suite rates through all distribution channels." Similarly, Fairmont makes a distinction between regular LRA and what it terms "enhanced" LRA. Only the midprice Ramada reported not negotiating for more than one class of rooms.
All hotel companies surveyed said they apply LRA consistently across their various brands and/or individual properties. "In order to maintain rate integrity, all hotels must adhere to this," Hyatt's Helms said. Hyatt runs periodic audits to confirm hotel compliance.
One sales vice president said the confusion is on the part of travel buyers. "Within our company, LRA is clear," he said. "But our customers interpret it in a number of different ways."
Definitions aside, not all hotels are eager to negotiate it. "If it is requested by the customer, we will negotiate," said Chris Riga, senior vice president of sales and marketing at Swissôtel.
Access can be restricted. "LRA is negotiated with our top-producing accounts where we have an in-depth relationship that is mutually beneficial," Radisson's Fischburg said.
Hilton's Armitage explained some of this resistance. "We are not supportive of LRA unless it is clear that business volume from this same account during non-sellout periods merits losing revenues during high-demand periods as a result of LRA," he said. Armitage cited many factors, including a customer's travel policy and its ability to control business travel in determining whether to negotiate LRA.
Overall, the hotel chains reported that LRA is not only open to their national, global or preferred accounts. "Local accounts also can receive it," Wyndham's Kelly said. "It's up to the bidding hotel."
Yet, it mostly appears it's the larger accounts that qualify. "Typically, our global partners request LRA," said Ritz-Carlton's Ferland. "Through our partnership, both sides then determine if the needs of the hotel company and the customer are being met. Occasionally, a hotel also will negotiate LRA for a property-specific account based on volume to a specific destination."
While a few of the hotel chains said they didn't charge a premium for LRA, the majority do. "Generally, in most markets, there is a premium to pay for LRA over non-LRA," Starwood's Ogilvie said, explaining that "pricing is very much based on competitive market conditions."
Frequently, travel buyers said they are prepared to pay a premium. "Customers are willing to pay higher rates for LRA, so it's a point of negotiation," Swissôtel's Riga said.
For Hilton, charging a premium is always an option. "It's a discussion point," Armitage said, "brought up by many accounts in environments where availability is the primary concern. Yet a premium over the contracted rate may actually be a win/win situation."
Likewise, a few hotel companies said that they didn't build such things as minimum length of stay requirements into the global distribution systems, but the majority said that they do. In the classic example, a Tuesday night reservation won't be available, but a room for a Monday-to-Thursday night reservation will.
"As yield management becomes more sophisticated, you'll find these practices becoming more widespread and a bigger issue for everyone," said Hyatt's Helms, noting that Hyatt doesn't do this.
Wyndham's Kelly agreed the practices were widespread. "To my knowledge, every hotel chain that practices revenue maximization uses this to help the shoulder days of the week," he said.
Starwood's Ogilvie said that restrictions already in the system apply to LRA as well. "LRA status is maintained the same as rack rate. If there are any restrictions on rack at a property, then they also will apply to an LRA rate," he said.
At Fairmont, these practices are called "stay control" applications. "They're increasing in use," said Abe Avraamides, executive director of revenue management. "At least one or two are in use in our city center hotels throughout the week."
Their official policy notwithstanding, hotels admit that travelers whose companies have negotiated LRA at a property still occasionally are denied reservations, especially midweek.
Said Hilton's Armitage: "When LRA is granted, the intent is to provide available inventory at that rate. When the hotel is sold out, it is sold out for everybody. Do I believe all chains and hotels in the industry honor that commitment? No.