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require differing management approaches.
Many hotels rely on old displacement models or even something as nebulous as intuition in making large revenue-generating sales decisions. Some hotels fail to participate in the annual Request for Proposal (RFP) process initiated by the large consortia travel agencies. Some hotels, with large corporate volume business in their own backyard, fail to take advantage of the opportunity to drive room nights into their hotel through a valuable Preferred Customer program. Some hotels take too much Base business at very low rates that displace more profitable business trying to stay at your hotel.
Let’s see if we can’t help sort it all out. Volume Accounts fall into four main categories, Base business, Locally Negotiated Rate (LNR) accounts, Preferred accounts sometimes referred to as Secretary’s Club or Business Travel Club and Consortia business.
Base business, sometimes referred to as the Contract segment, is any large volume account with flat-pattern arrival and a specific number of guaranteed room blocks. The most common of this type of business is aircrew stay-overs. Displacement models in general use today to compute the profitability of this business are often flawed and fail to take into account the correct variable and opportunity costs associated with commitments of this magnitude. Many hotels are also guilty of relying on this base business while market upswings in transient demand would suggest otherwise. The "bird in the hand" metaphor may be stopping hotels from shedding base business when it is appropriate to do so after market conditions have changed.
Locally Negotiated Rates
LNR accounts are big business, high volume accounts and unless carefully reviewed and priced, they can cost the hotel money in reduced profit margins and lost revenue opportunities. Some hotel managers make the mistake of getting caught up in "doing the deal,” rather than determining the practicalities of accepting or denying the account. It may sound sexy to hear a director of sales say, "We booked a million dollar account today!" But if that account cost you $1.4MM in other incremental sales and drove your gross operating profit down two points, was it worth it? Old displacement models are floating around the industry, largely unchanged since the 1980's when this practice grew in popularity. The most recurring problem with these models is that they look at the account in the aggregate, without determining the account's arrival/departure pattern. Pattern of business - not just volume - is a key factor in correctly determining whether a LNR account is right for your hotel's strategic plan.
Preferred accounts aren't necessarily discount accounts. LNR accounts are given a special discount rate in exchange for volume business. A hotel maintaining that discount is predicated on the account delivering the anticipated volume. Preferred accounts, on the other hand, might receive a preferred rate (typically at or near the hotel's corporate rate), but the rate is not predicated on volume. Preferred accounts are for those accounts that produce less than a specific strategic number of room nights. That specific strategic number depends on the hotel's available rooms, market conditions and overall strategic plan.
There are other distinctions between LNR accounts and Preferred accounts.
A well-run Preferred account program needs the following attributes to be successful:
Neither LNR nor Preferred business should be confused with Consortia accounts, even though these rooms are booked through the GDS like LNR accounts tend to be. Consortia accounts are those accounts represented by the large consortia travel agencies that annually send hotels a Request For Proposal (RFP). These largest of these agencies are: American Express, ABC Travel, Carlson, Radius, Rosenbluth, Travelsavers/WIN TQ3 (Formerly Maritz), Thor, Cendant Travel (Formerly CUC), CCRA, Sustom Travel Systems, Sato Travel and BTI Custom Travel Systems.
Hotel rates are not negotiated, per se. They are either accepted or rejected by the agency representing their corporate client. The hotel gives that rate regardless of volume and rates are available and booked exclusively through the GDS. Many hotels are unaware that they can quote season rates during the RFP process or even that they can reduce this rate at any time during the year. However, they cannot charge more than the published rate. We have seen the unfortunate consequences of hotels that made poor rate decisions during the RFP process that impacted RevPAR penetrations through the whole year! Don't allow your hotel operators to make this mistake.
Turn Key Hotel Advisors is a Dallas based consulting group with roots in hotel management and operations. It offers consulting services and essential business tools for all aspects of hotel operations, lodging asset management, hotel product repositioning, and re-branding. The Dallas group is experienced in hotel operations, revenue management, market positioning and profit engineering.
Specializing in diagnostics of under-performing assets, Turn Key Hotel Advisors will quickly and accurately assess a hotel's competitive environment and strategic positioning. Their consultants then provide action plans for both owner and manager that will improve the hotel's RevPAR yield, increasing revenue and drive both profitability and owner cash return. Turn Key Hotel Advisors guarantees their results.
For hotels undergoing refurbishment, repositioning or re-branding, Turn Key Hotel Advisors created the Delta Process™, which has been successfully used in assets, to date, undergoing $200 million in redevelopment dollars. The Delta Process™ ensures the hotel's sales and service delivery teams have specific, concrete action plans to deliver on an owner's or lender's return-on-investment expectations.
The company also conducts due diligence exercises for
assets undergoing ownership change, market assessment studies for new lodging
development, as well as hotel sales training, account management tools
and hotel marketing products. It is affiliated with The Consortium
- An Alliance of Hospitality Companies. Turn Key Hotel Advisors also
operates a subsidiary company, Integrated Selling Systems with innovative
technologies for the lodging industry, including CD Business Cards, Web
Designs and On-Line Customer Reservations Booking Engines. Turn Key
Hotel Advisors is an allied member of the American Hotel and Lodging Association.