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Each year, it is my responsibility to solicit all four thousand plus of our hotels for each agency or third party we have relationships with, who have government lodging contracts. The rates must be at or below per diem, must be contracted January 1 through December 31 of program year, are preferably both commissionable and last room available. Also, the hotels offer their own non-contracted government rate that may or may not be at per diem. Although these are pretty simple requirements and standard for all participating properties, they do have challenges that corporatization may improve.
First, per diems are issued in early August to be effective October of that year through September of the following year. Since we currently contract January to December, all the hotels are given the opportunity to change their rates for October through December. In most cases, one of two things happens. Either in areas where the per diem went up hotel potentially loses that revenue if they do not amend the rate, or the properties are suspended from the program if they do not amend rates that were bid at the previous years per diem in areas where the per diem went down. As we already make exceptions and concessions for this entire market, why do we not solicit rates based on the government calendar year? It could not be harder for us or the travel agencies than managing and loading for the same program year twice.
Next, we need to address the issue of soliciting all hotels worldwide versus utilizing production and market data to develop a more sensible and manageable program. Understanding that there is some amount of government business everywhere, and acknowledging that hotels base rates on their best business information and potential revenues, the government rates could be solicited much like any other large lodging consumer. Hotels should be made aware of the total government lodging credit card spend for the specified program or government agency (i.e. FedRooms, CW|Sato Government Travel; Navy Elite; Army Lodging) in their city or area based on the two previous years. They should be made aware of any base construction or closings as well as agency headquarter relocations planned within the program year. The government or its representative should commit to authorizing only a certain number of hotels per hundred or per thousand room nights, and only accept that many hotels into the specified program for the year in that location. This will create competition for the revenues between hotel companies and that is when we can examine concessions.
The first concession we could look at is commissions. I understand that the very hard working agents should be paid and paid fairly for their work. I have wonderful relationships with the agency travel managers I work with on the government accounts and do not wish to take anything away from them. However, when the rate offer requirements dictate that the rate must be at or below per diem, must be commissionable at 10%, plus there are participation fees or pay for performance models, it severely reduces the number of hotel and quality of service the lodging industry can provide. When a rate that is already, in many cases, unattractive to the hotel, is then reduced further by fees, they cannot make government business fit into their business needs. Say, for instance, the CONUS rate is $70.
|Initial Rate (per diem)||$70|
|Pay for Performance (3% base)||$2.33||$60.67|
We are now looking at the hotel receiving only $60.67, in effect, as they cannot use the $70 as the actual value from which to pay operating and staffing costs and see a profit. It is my understanding that the airline industry no longer pays commissions on the CPP or other government rates, so maybe we should have discussions with them industry leaders to industry leaders about how that is working for them and how it has affected their relationships with the various government program managers, and of course the bottom line revenues. Hopefully, together, we could find a system that would benefit budgeting for all parties involved; the government as a whole, the lodging industry; and the agencies.
Following commissions, last room availability is a concern. Most hotels have complicated yielding plans that optimize revenues while still being able to offer rates to lower rated business client and the government. Although during some times during the year, the property may be able to offer these more discounted rates readily, the majority of the year, in my experience, the hotels must be very careful with their thresholds. If the government agency and its travel agency want to guarantee that there are always rooms available at their contracted rates, then they should accept the limited hotels per area as discussed, and not only mandate per diem rates, but that the travelers must stay in program hotels. Although when working with the corporate market transient programs we see a high level of leakage, there are programs which are very well mandated and will not pay a traveler back for stays in properties not listed on their program directory. Hoteliers are more willing to offer last room availability when they are aware they are one of a select few getting the business and are aware of how much they can expect to receive.
Once we get these more critical items addressed, we can look at the competitive edge and value added type concessions. Some hotels already include breakfast or other meal functions in the rates for all guests and that allows the traveler more freed up funds for other meals and incidentals. Some hotels which do not have inclusive items for all guests, will include items such as continental breakfast and/or afternoon hors d’oeuvres to their executive level guests and frequency program members. These could be value add items for the government and contracted into the program rates. If you have one hotel who would offer per diem and no concessions and one hotel that would offer a meal or other amenity at the same rate in order to be guaranteed the business, then the government gets a choice as they can then counter-offer or negotiate a lower rate or amenity with the first hotel as many of our corporate customers often do. As developing technologies emerge and thinking outside of the box, unconventional items we could look into as we move forward would be expanding electronic folios to include “government ready” receipts, divided folios, or TDY travel claim voucher style itemized cost savings reports, as well as, some in-house items like laundry/pressing services for our military travelers including military service style uniform and shoe shine care.
Although there are more questions than answers at this part of the game, there is a better way out there. We as the travel industry cannot just require changes on the government’s side of the equation. There are things the hoteliers and the lodging industry need to consider as well before agreeing to this type of arrangement. Some of the other questions I have as challenges to the change but do not have answers to are:
- If a hotel cannot offer the contractual government rates, or a rate at per diem, should they offer a rate at the hotel that is labeled government? I know currently most do.
- Once this more corporatized process is in place, are government travel managers at the agencies still going to audit to see what other federal government rates are available and insist on the same rates or benefits? If rates are offered on a production driven basis, knowing each travel agency manages different departments and agencies within the government with different travel needs, they should not be allowed (at that point) to demand equalization. We don’t offer our corporate clients producing 10000 room nights a year at a property to offer the same rate packages to clients consuming 300.
- Are technologies in place that could manage a October to December program versus a January to December program on both the industry and the government travel agency sides? What would it take to create or update that use? Could they be made compatible to ETS?
We have made a lot of progress in how we work with the government. But I think with all the new technologies we have access to, it is time to look at how to make it better; both more cost effective for the government and more profitable for the hotels.
by Crystal Wright