REPORT FROM THE U.S.— When it comes to loyalty-reward reimbursement, brands increase their franchisees’ compensation for higher occupancies and average daily rates. While the logistics of reimbursement differ from brand to brand, some revenue managers are turning to online travel agencies to boost their hotels’ numbers in an effort to reach reimbursement goals.
Hilton Worldwide, for example, reimburses 90% of a hotel’s ADR for each redeemed reward night if the hotel reaches 96% occupancy on that particular day, according to Katherine Steed, director of marketing for The Hotel Group.
There also is a volume reimbursement in place, she said. For example, if a hotel hits 70% occupancy for a particular day, but only had one reward night, the reimbursement would be 20% of the ADR. If there were 55 reward nights, the reimbursement would be higher.
Room revenue is the main goal, and the bottom line is that it takes occupancy and a certain rate to get to that room revenue, Steed said. “The reward stays are a revenue source, and they are a higher revenue source when you hit higher occupancies,” she said.
“From our past experience, you don’t want to reach 95% (occupancy) and not 96%,” Steed said.
Hitting higher occupancies in a short period of time is no easy task, and opaque channels offer an easy solution for some revenue managers to do just that.
“The difference in one roomnight sold could take us over the threshold, so it makes sense to open up channels such as Hotwire, Priceline, etc., to get us over that threshold,” Robert Morse, senior director of corporate revenue strategy for White Lodging, told HotelNewsNow.com.
But is it a justifiable practice—placing hotel inventory on opaque channels to boost occupancy levels for higher reward-night reimbursement?
It depends, Steed said. In certain smaller markets it wouldn’t make sense for The Hotel Group to participate on opaque channels as it could be extremely transparent to the consumer which property is offering the given rate. In larger markets, however, where there is no risk of transparency to the consumer, the company turns to opaque channels. “If we know we’re not going to sell out, and we know we will not displace any revenue by placing those rooms, that’s how we’re going to do it,” she said.
Steed said her colleagues at The Hotel Group agree consumers shopping on opaque sites are not loyal and are mainly interested in the lower rates.
The ADR for bookings on opaque channels in the U.S. remained at US$55 in 2010, according to data from the “Distribution Channel Analysis.” This ADR for opaque channels was lower than the ADRs reported for other channels, including GDS (US$128), brand.com (US$111) and OTA—retail (US$96).
Despite the lower revenue from opaque channels, Steed said executives at her company feel they are not losing by placing inventory on those sites as they would not have been able to sell those rooms to those price-sensitive customers in the first place.
Erich Jankowski, director of corporate revenue management for Host Hotels & Resorts, said the practice of placing rooms on OTAs simply for the increase in occupancy toward the reward reimbursement could be deemed unethical.
“The first requirement for a revenue manager is that they are yielding rooms to make the most profit for the hotel,” Jankowski said.
Jon Galloway, regional revenue manager for The Hotel Group, said it is important for revenue managers to make informed decisions about using opaque channels to fill rooms. “You don’t want to build a base with opaque where you’re teaching people that … (they are) paying their loyalty to a price not to a brand,” he said.
Galloway said he has seen a reduction in the reliance of opaque rooms in hotels during the last five years, and a lot of it has to do with loyalty programs improving. Reward nights now are not subject to blackout dates and can be used on high-demand nights, allowing hotels to be reimbursed for nights they expect high occupancies.
Host’s Jankowski said he believes brands need to weigh the costs of loyalty programs to ownership groups and ensure what they are doing with the programs make sense for the customers, owners and brands. “The real challenge becomes, ‘how do you have a win-win in all three groups?’”
Christine Blank contributed to this story.
