Cendant Hotel Group chairman and CEO Steven Rudnitsky last month met with BTN hotel editor Bruce Serlen to explain CHG's buyer initiatives, including its new pricing strategy for 2004 targeting the top hotels across nine midprice and economy brands.BTN: What is the strategy behind the Corporate Select program?
Steven Rudnitsky: Corporate Select offers a fixed percentage off the rack rate at 2,300 of Cendant's 6,000-plus properties. It is a preferred corporate rate—rather than a negotiated rate—and is meant to provide rates across the board for large corporate customers that might have thousands of people traveling to a wide range of locations, using hundreds of hotels. With this program, buyers lock in a published rate for the year and then use the hotels at random.
BTN: Didn't the hotels already offer corporate rates, and don't you also promote negotiated rates?
Rudnitsky: Corporate rates weren't available in all cases. We're a franchise model, so we can't force load any rates. If buyers come to us and say, "We need these 60 locations across the country because we're putting volume into those areas and want a specially negotiated rate," we go and solicit our hotels to see which want to bid. Then we present those hotels back to the corporation. Because buyers are putting volume there, they have additional leverage.
BTN: How are hotels chosen for Corporate Select?
Rudnitsky: We've gone into our system and used our quality ratings to select the "A" quality properties across all nine brands. They are the best suited—from a quality assurance, service and location standpoint—for business travelers.
BTN: Have Cendant's brands seen significant benefit in the past year or two from the trend toward buyers trading down from full service?
Rudnitsky: Absolutely, but there's been a fair amount of rate compression at the higher price points with upscale and upper upscale chains bringing their prices down. As a result, midprice and economy brands have had to differentiate themselves with various value propositions. Consequently, it's important that a brand has the right value proposition out there for the buyer, as well as the franchisee, in terms of how we position it to our guests.
BTN: Ensuring quality at these price points has been a chronic problem industrywide. With trading down, it's even more of an issue for buyers. What are you doing that's new on this front?
Rudnitsky: If you took our entire portfolio and charted it, you'd see a classic bell-shape curve with your worst performing properties on the left side of the curve and best performing properties on the right. The remaining good properties would be in the middle. Furthermore, if you drew a dotted line down the center of the curve that would be your average revenue per available room. We took our worst performing properties, whether it was a Ramada, Days Inn, Super 8 or any other of our brands, and told them either to clean up or get out.
BTN: In other words, RevPAR reflected the quality of the hotel?
Rudnitsky: Absolutely, there was a direct correlation. The lower RevPAR properties were the worst performing from both a quality and a revenue standpoint. The market was telling us something, so we essentially took 10 percent of the bottom part of the curve, contacting roughly 600 properties across all brands, and put them on notice. Work-out plans are in place and they're actually correcting the problems. Surprisingly, over 240 have cured, while several hundred have left the system. But that's only part of the plan. By taking out the worst performing properties and keeping the best performing, while bringing on higher RevPAR properties moving forward, we start to shift the entire curve to the right. Hopefully, increased RevPAR should follow.
BTN: With such programs as Corporate Select and the new systemwide frequent guest program, Trip Rewards
(see story), Cendant seems to be seeking ways for the brands to work together. Is this an intentional change in strategy, and where is it heading?
Rudnitsky: In the old model, brands were separate and didn't want to work closely together because they were competitors. It still is important that we maintain the integrity and individuality of our brands—it's what our franchisees are looking for us to do—and each brand has its separate marketing initiatives, for example. But there still will be opportunities to leverage the scale of the nine brands, which account for roughly 90 million room nights a year. There's more than enough room in the market for us to fully leverage initiatives like these across all the brands.
BTN: Is it your sense that the buyer's market of recent years continues?
Rudnitsky: Probably; price compression continues. It's still a very competitive market, given the supply and demand curves out there. Yet, we've had some fairly consistent growth in average daily rate. Right now, ADR is a far greater challenge to the upscale segment of the market and above than it is to the midscale segment. By and large, the strengthening is across the country, though there still are some pockets that are weaker than others, Orlando, for example.
BTN: Another hot button for buyers this year has been the widespread availability of discount rates on the Internet, particularly at midprice and economy hotels, undercutting negotiated rates. Do you see the concept of negotiated rates potentially being in jeopardy?
Rudnitsky: Hopefully, managed travel initiatives will prevail. Not only are there fences around Web rates, but also they're usually one-off prices as opposed to a managed travel price. The challenge is education, making sure corporations clearly communicate their travel policies to the people who are traveling. The negotiated rate might not be the best rate at this point in time, but it is the consistent rate 365 days a year. Are you going to log on at times and find a better rate than the rate we've secured? Probably, in some instances, but it won't be something you can count on.
BTN: How would you describe Cendant Hotel Group's Internet strategy?
Rudnitsky: There's no question the Web is an important business proposition for the industry. Our branded sites have become our single greatest room night contributor on the Web, representing double-digit growth. It's something we focus on deliberately. We feel the need to be out there, fostering relationships with the Travelocities and the Orbitzes, as well as our own Lodging.com, but only to add to our first priority, which is our branded Web sites.
BTN: In addition to Lodging.com, your parent organization, Cendant Corp., owns Cheaptickets.com. Both offer discount hotel rates. Do you see any conflict operating in so many channels?
Rudnitsky: I wouldn't use the word conflict. I would say they hopefully augment one another; it's not an either or. Travelers are out there, surfing a host of different avenues on the Web these days. Hopefully, they go to one of our branded Web sites first, but to the extent they go to a different Web site model, that's fine too because we need to be there. Hotel companies need to have Web strategies in place, not just for their own brands, but for the various models out there, whether merchant or net rate models.
BTN: Like other hoteliers, Cendant recently established a best rate guarantee program to drive Web bookings to its own sites. Are these programs understood, and is yours proving successful?
Rudnitsky: The premise is that there not be any rate on the Web lower than the rate (same night, same hotel) at Cendant.com, Wingateinns.com, etc. If you find such a rate online within 24 hours of the booking, we'll match it and give you a 10 percent discount. We've had less than 1 percent in claims. We also had a significant increase in our own conversion rate on our Web sites, the look-to-book measure everybody uses on Web sites.