Negotiated rates aren't much to brag about these days
In general, hotel group rates should be lower than transient rates, right? Well, for the first time since Smith Travel Research began segmenting its average daily rate tracking, allowing it to compare group rates and transient rates, that isn't the case. Through the first half of 2009, hotels' group customers are paying a higher ADR in the top 25 markets than transient guests, according to STR.
“We've seen it in spots over the last six months, but now it's basically happening in every city,” says Jan Freitag, vice president, STR, Hendersonville, Ky. With total occupancy rates down 12 percent year-to-date in the top 25 markets, hotels are lowering rates to attract leisure and business travelers. The ADR for transients in the top 25 markets through June is $150 — down 16 percent from the first half of 2008.
For groups, the ADR in the largest 25 markets is $154, which is down just 4 percent from the same period in 2008. In many cases, these group rates were negotiated several years out — before the economic downturn.
Freitag warns hoteliers to monitor their online rate strategy so they don't create ill will. If hotels keep group rates high and attendees find cheaper rates outside the block, planners will be faced with attrition penalties. On the other hand, hoteliers are simply enforcing their contracts. It creates a prickly situation for both sides, says Freitag.
The truth is, hotels are willing to negotiate lower rates for groups on a case-by-case basis, experts say. “If you looked at this six months from now, the rates would be more closely aligned because of all the renegotiation and threats of cancellation,” says David Brudney, president, David Brudney and Associates, a hospitality marketing consultant based in Carlsbad, Calif.
To hang on to higher rates, hotels are being more flexible in other areas, Brudney adds, such as offering more comp rooms, preferred tee times, and later checkouts.
However, hotels are not as flexible on future bookings, Brudney says. With fewer rooms coming on the market and an expectation of an economic turnaround, hotels are holding firm on rates for 2010, and beyond. “They are getting pressure from owners and asset managers who do not want to give away the store because they know the market is going to turn.”