Hotel Yielding

When hotel contracting took off as a concept in revenue management, it was simpler. The components would be room and breakfast + tax. With the advent of technology, hotels started yielding on internet now better known High Speed Internet Access. (HSIA). This gave them some respite because breakfast was now considered a standard inclusion in the rate offer to multinational/corporations. Then as time passed by, internet, Last room Availability, same day 6 pm cancellation, complimentary Airport Transfers and Or Office Transfers (for some customers) made it to the “standard requirement” by customers or their well polished Travel Management Conpanies – whose sole objective is to cut costs for these MNCs. That is why they are hired right? Of course they also help MNCs with negotiations, facilitation and regulation of company travel policies on an everyday basis. Since all these add-ons are part of the offer, some times a mandate; where does the hotelier make money? We all know how airlines are now yielding on ancillary services like mobile check in, meals and extra baggage. There are four key areas where hotels have the potential to yield.

1. Product – Have a fancy product? Charge a premium over the market. Drive the city ADR. Example – Palace hotels and exquisite decor. Boutique hotels with significance.

2. Service – If you know service is your armour and you constantly receive a 10/10 via customer feedback, you charge a premium. TripAdvisor or Guest Feedback ratings.

3. Location – While there was a time when location was sold at a premium, those days are fading away. Blame it to the supply in the market. However, it can still be a talking point specially for large project business, CBD area or a remote area can be a blessing too. Works well for a client base coming from manufacturing and automobile industries.

4. Availability – It is sad that this wonderful feature isn’t talked about much or used by hoteliers to yield on their inventory. I mentioned before that MNCs want LRA rates in the offering. Here’s a fact- most hotels don’t have any strategy around availability for their corporate clients. This could be either the revenue managers/hoteliers have no need to yield as they are meeting/exceeding budgets/meeting the ADR goals/have a commanding revpar index. Or they are totally undermining this feature. There are two key ways of handling LRA/NLRA. One is with locally negotiated rates and the other is rate negotiations via global procurement that go on GDS platforms for further distribution.

1. Global Pricing- The procurement teams are usually united in their approach when they come to hotels for pricing. How? Most of these MNCs have a contracted TMC to represent them. For example a ABC might handle ten large MNCs in their portfolio. ABC will sit with these MNCs and discuss the requirements for the next year but will also propose its own tried and tested clauses that will squeez more juice out of the hotels. Then XYZ TMC will do the same for its set of MNCs. That’s how most add-ons become part of the “standard requirement” via the collective buyer approach. What we need to do as hotel chains is to NOT deal with LRA at unit level seperately with different strategies. Hotels should leverage the volume of units they have worldwide and address LRA globally. The global strategy team should reach out to each large MNC and share with them or their TMCs, a premium pricing structure with LRA city wise. Once it has been formalised and signed by both parties, this should go to every unit managed by the hotel chain and every associate should be made aware about it. Just like how each associate know for example the price of a Sunday brunch.

2. Local Pricing – Once the LRA rates are established globally for the year, the teams on the ground should mirror the same with the local offices of the MNCs. LNR programs surprisingly do not have a LRA/NLRA clause even if the local companies have large volume business to offer over a set travel pattern. For all customers who must be contracted locally, its important to sign a NLRA contract by default. They need to be educated about how NLRA works. Strangely a lot of prime location hotels practice NLRA yielding but only at the backend, keeping the customer in the dark and thereby eventually losing them to competition. This problem is rampant not only in one particular country but across continents.

Hoteliers today have fewer add-ons or value propositions on which they can yield. Its important to safeguard these for better profitability or create newer avenues or end up relying purely on volumes to keep the show running.