Strong Market Leads To Tiered Hotel Rates

<H1> Strong Market Leads To Tiered Hotel Rates</H1>By Linda Humphrey

Reveling in a seller's market for at least another two to three years, hotels are adding tiered and seasonal rates to corporate contracts and are even taking in less negotiated business. Next year also might usher in day-of-the-week prices-where a Tuesday will cost more than a Friday. The space crunch also has hotels pulling in the reins on last-room availability, granting the privilege only to top accounts.

"Hotels may give travel managers a choice of last-room availability at a higher rate, or a lower rate without the last-room availability," said Radisson's vice president of sales, Dave Hartvigsen.

"Pick your key point: Is it availability or price?" Westin's director of business travel sales and marketing Marsha Massey told NBTA attendees last month.

PKF Consulting is projecting a 4.8 percent room rate jump in 1997 over 1996, according to vice president and director of research Robert Mandelbaum. This year's rates so far are up 6.9 percent over '95.

"It's astounding us," Mandelbaum said. "We had thought it might taper off a bit this year, but travel demand is still very high, and supply is still growing less than 2 percent nationwide."

Occupancy could climb as high as 66.4 percent this year, compared with last year's 65.5 percent, said Chuck Ross, vice president of Smith Travel Research. Average daily rates should reach about $71 this year. While "occupancy appears to be plateauing in the 66 percent range," Ross said, "rates are continuing to hold their upward track."

As demand pours in, year-long negotiated rates are giving way to seasonal or tiered rates. "The pricing structure is going to get more complicated as business gets better," said Wyndham's executive vice president, Mack Koonce. "It's going to get more complex before it gets simpler."

"We'll see more multitiered pricing instead of just one straight rate year-round, not just in places like Phoenix or Florida but in convention cities like New York and Chicago," said Mary Mahar, travel and fleet manager for Boston Scientific Corp. and chair of the NBTA hotel committee. To dodge a jagged rate structure, corporations will have to offer barrels of volume-"and that means being able to fill the slow periods as well as the high periods," she said.

Lou Togneri, director of travel management for Mariner Health in New London, Conn., also has seen tiered rates "creeping in." Renewing contracts this year, Togneri found that the New London Radisson as well as a hotel in tourist-oriented Mystic, Conn., have recently introduced seasonal negotiated rates.

San Francisco's Grand Hyatt added a two-tiered rate to consortia contracts last year: one rate beginning in January with an option for a higher rate beginning in May. "Last year we didn't exercise the May 1 option, but this year we did," said director of sales and marketing David Lewin.

Tiered rates have taken off over the past two years, said Janis Cannon, Swiss&ocirc;tel's senior vice president of global sales. "Our customers appreciate it because they get a further discounted rate in low season. And in a high-demand period, we're protecting them by assuring them that they're going to have rooms when they need them."

Seasonal prices eventually will branch into day-of-the-week pricing, which could start cropping up late next year, said Koonce. Like the airlines, "hotels will say, 'let me tell you what the price will be on that day,' " Koonce said. Tuesdays and Wednesdays will command the highest rates, he said, while Fridays and Sundays will offer the bargains.

Favoring Top Accounts

Hotels also have begun to cut back on last-room availability, reserving the privilege for their top corporate accounts. Radisson, which previously had extended the last-room policy to all chainwide accounts, next year will no longer mandate that its properties extend the policy to companies other than its key chainwide accounts, which number fewer than 100.

"With occupancy climbing 10 points, we're passing some control back to the hotels next year," Hartvigsen said. "Now they can make up their own minds about whether to extend last-room availability."

The Grand Hyatt San Francisco, whose clients include AT&T, Bank of America and IBM, has clipped its last-room availability accounts from 15 last year to five this year-and expects to keep just two next year. Of the 10 accounts that lost last-room availability, however, only three parted ways with the hotel.

"Unlike five years ago, when hotels gave everyone last-room availability, now you have to pay for it," said Lewin. "To be able to call a hotel that has two rooms left and buy it at a discount is a luxury. So if you want that luxury, you'll need to pay for it throughout the year."

Swiss&ocirc;tel grants last-room availability only to two or three top accounts, reserving room blocks for its 200 other key accounts, Cannon said.

How the hotel defines last-room availability, however, often differs from what the travel manager expects, Mahar said. "Corporations define it as: If there is a room available, the hotel will honor their negotiated rate. A hotel will view it as: If there is a room in the category that has been negotiated, that rate will be honored. We need to define what the term means to different parties."

Some companies could even find themselves out of the game altogether as hotels cut down on negotiated business. "More business at lower rates during peak times is not necessarily better," said Westin's Massey.

Wyndham raised rates 3 to 4 percent this year but took in less negotiated business, Koonce said, "so average rates went up higher, so far to 7 or 8 percent."

Hotels also are more apt to bar negotiated business during citywide events. "In New Orleans, the hotels would not give an exception for special events," Togneri said. "They're just not available, period."

To combat the space crunch, travel managers might try shifting meetings to the off season or weekends, which could earn the company lower rates in season, PKF's Mandelbaum said. Sending transient travelers to the suburbs or to corporate apartments can rein in costs as well, Mandelbaum said.