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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.