HENDERSONVILLE, Tennesee--Examining the performance of group and transient rates through February 2009, rate interplay significantly impacts future rates because groups normally are negotiated based on the prevailing transient rate at the time of negotiation.
In a market with increasing rates, negotiation circles around the factor by which that rate is increased to establish the group rate in the future. The hotel and meeting planner assume the transient rate at the future date is much higher than the current transient rate. Given group rooms are booked in advance in bulk, the future group rate should be a bit lower than the future transient rate. So, taking the current transient rate as a starting point for group-rate discussions makes sense.
Unfortunately, the idea that transient rates are higher than group rates isn’t true all the time. It’s the prevalent idea in an up-market. But the hotel industry is in a down market experiencing negative pressure on rates and discounting the prevalent yield-management technique.
In this environment of rapid price cuts, it’s not surprising transient rates can fall below a group rate. We observed this phenomenon post-9/11 and are watching it again currently.
Below are data for five cities that show the interplay between group and transient rates. In all cases, the transient room premium is a discount now, so group rooms are more expensive than transient rooms. This could result in the dreaded cancel-rebook pattern we observed post-9/11. In other words, conference attendees will look at the group rate they booked months out and then find the same hotel room for a cheaper rate online, even using the hotel’s own Web site. The attendee likely will cancel the group room and rebook the room as an individual traveler. This can cause the group organizer to miss the group minimum room block, with potential penalties levied by the hotel. The organizer likely will argue the guests ultimately stayed at the hotel, but the hotel will point to the lack of group room pick-up and demand damages, as agreed to in the group contract.
One way for the hotel to avoid the dreaded cancel-rebook cycle is to monitor the online and group prices carefully. I’ve heard from business-travel managers who were approached by their group hotel with an offer to lower the negotiated group rate to make sure the rate matched the lowest available transient room rate. It’ll be interesting to see if other hotels follow this tactic. We’ll continue to monitor the group rates in these cities and report on new developments as they emerge.