Hotel Rate Types Every Travel Manager Should Understand

Not all travel programs negotiate a hotel program. Small and midsize programs—or sometimes programs that are just getting started with managing travel—will simply rely on their travel agency partner for what is called a consortia rate or a commissionable rate. But if you are going to put together a lodging program, you need to understand what rate types you are working with and how best to use them to optimize your program. Hotels use a fairly standard set of rate types within corporate deals.

Commissionable rate. Also called a “consortia” rate or “agency” rate, a commissionable rate is one that is a discounted rate negotiated by the travel management company to offer to its corporate clients. While this rate is discounted, it includes a premium that returns a percentage (the standard is 10 percent) of the room rate to the agency. Depending upon the corporate’s agreement structure with their agency partner, the revenue stream that comes from booking commissionable rates may be fully returned to the corporate, split with the corporate or completely flow to the agency. A caution on commissionable rates in an age of hotel price assurance and re-shopping tools: Be sure your agency’s re-shopping services include all hotels in its re-shopping search and not just the hotels with which the agency has negotiated commissionable rates.

Noncommissionable rates. Also called “net” rates, these are the standard among hotels for corporate negotiated rates. They are commonly 5 percent to 10 percent lower than commissionable rates. That said, hotels may offer a discount deeper than the 10 percent they save not paying commission, because they will also save on processing costs. Companies going out to hotels to bid directly for the first time for a fixed rate (see below), however, can expect noncommissionable rates to be somewhere in that 5 percent to 10 percent range lower than what they were receiving through their agency.

Fixed rate. Also called “static” rates, these are generally negotiated for a single year. They are most commonly established with the program’s highest volume hotels in top business destinations, often around corporate or division offices. Buyers leverage significant volume to negotiate a fixed rate at a discount for the individual hotel. These rates are often 15 percent to 20 percent reduced from a “rack rate.” Fixed rate contracts will also can identify the room categories required, each with its own rate. It’s important to understand how much of that inventory will be included in the negotiated program. Few hotels would subject all their inventory to a reduced rate, especially when leisure travel can command a much higher price tag.

Dynamic rate. The hotel industry has been pushing dynamic rate for a number of years. In this structure, the buyer leverages their market volume to negotiate a percent discount at a given hotel or a number of hotels in a chain. This discount is taken off the best market rate available at the time of booking. When demand is high, a hotel that uses dynamic pricing will charge higher rates. And when demand slows down, rates will drop. The strategy can be highly situational and it is more difficult to budget around. Those who use it say it can deliver significant savings—even in some properties that traditionally would have been targeted for fixed rates—but also across markets that may not have high volumes. Dynamic rates should be audited against available market rates to ensure they are delivering value. One way to do this is through hotel re-shopping tools.

Last room availability rates. Know for short as an LRA rate, last room availability rates command a premium with the hotelier, as LRA can displace higher-paying business. In down cycles, buyers were once able to get it at no additional charge, but that is increasingly rare. LRA should be requested only when there is either low inventory or very high demand with few alternatives in the market. The buyer wants to be as certain as possible that their business travelers will have rooms available to them (sometimes this still fails, in spite of safeguards). The rate will apply to every room booked at the property, not only the instance that the last room is used. Take note: LRA rarely means the last room in the hotel will be available to the corporate. Rather it will apply to the last room of the percentage of rooms included in the program—likely around 60 percent of the property’s inventory. That said, it can apply to even fewer rooms, depending on whether exact room types are involved, so buyers should exercise precision in the case of LRA to ensure the overall rate premium is worth it.

Chainwide discount rate. Most hotel chains will extend a small chainwide discount to companies with large negotiated contracts. The chainwide discount would come into play underneath negotiated fixed rates and underneath dynamic rates at properties throughout a hotel chain where the given corporate may not have a large volume but the hotel partner values their business and wants to keep the company’s travelers within their hotel brands even if those travelers only stay in certain hotels rarely.