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11/09/2021

The Lucrative Type of Hotel Booking that Is Due for a Comeback

Learn why now is the time for long-term contracted rates to make a technology-enabled comeback.
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From “secret menus” to “coupon codes” that unlock special savings, today everyone is looking for a deal; however, before the internet made it possible to scour millions of data points to to mine these hidden gems, you really did have to “know a guy, who knew a guy” to get deals at hotels.

That is… unless you qualified for a long-term contract (LTC) or “corporate rate.”

Before, I explain why this type of booking is poised for a comeback, let’s go back to basics: What are long-term contracts?

The concept of long-term contracts is simple: A hotel, or chain, offers a guaranteed room rate to guests from a particular company or agency, in exchange for a negotiated minimum number of rooms within a fixed period.

There are positives and negatives for this type of booking for hotels. The obvious benefit is a guaranteed income in a challenging market, no matter how COVID might affect demand. The downside is that when the market is stable and demand is high and room rates increase, a property has already locked themselves into long-term contracts which minimizes the number of rooms that they can sell to leisure travelers who are willing to pay full price for their stay.

To show you why this type of booking is going to be a KEY revenue generator for hotels today (and a money-saver for group buyers, in a time when bottom lines are contracting to unheard-of levels), it’s important to understand the history of long-term contracts…

Back to the Future

Once upon a time, corporate rates were pretty easy for almost any company to negotiate and their use was policed generously, if at all, by hotels. Anyone with the right business card could access deeply discounted room rates for their business or personal use.

That’s because, prior to 2007, hotel occupancy and room rates were predictably cyclical; a pattern of peaks and valleys repeating about every 7 years. As the economy began to recover from the Great Recession in 2008, hotel performance indicators began to rise – and just kept rising. What followed was nearly 15 years of uninterrupted growth in occupancy rates, average daily rates and REVPAR, making it unnecessary for hotels to commit their rooms at discounted corporate rates to remain profitable. As the peaks and valleys disappeared, so did the practice of offering deeply discounted corporate rates.

Even before the recession, there were factors that were causing the practice of granting corporate rates to fall out of favor. First: general overuse. Second: hotel consolidation gave owners and management companies improved ability to analyze and predict profitable revenue trends across brands. In addition, the OTAs became a distribution channel that let hotels make short-term discounts available to the masses whenever they needed, which boosted occupancy in the short-term, without committing to hold inventory aside, rather than selling it at full price once the market spiked again.

Years later, this type of booking still exists (they’re still often used by very large corporations, agencies and niche business segments), but most hotels have all but forgotten about the benefits of long-term contracts.

Then Came COVID…

Nineteen months into the global pandemic that shut down the travel industry worldwide, leisure travel is slowly but surely rebounding, but unfortunately, business travel is NOT back – and may not be for years. As such, travel and hospitality suppliers are starting to rethink their business strategies to find new ways to replace the income that they lost from these very profitable channels.

That’s why now is the PERFECT time for long-term contracted rates to make a technology-enabled comeback. Using LTC, hotels can start generating consistent, guaranteed bookings and revenue, no matter how COVID affects the market – especially within the business segments that are most active now: work crews, trainings, military deployments, construction, sales, etc.

So, how do you get your hotel in front of group buyers, looking to book long-term contracts?

Procuring “indefinite delivery/indefinite quantity” accommodations is tricky, requiring specialized expertise and the right tools, as sourcing and managing RFPs from group bookers can be extremely complex.

That’s why the best way to get your hotel connected with the group buyers who are already searching for the perfect property to accept their long-term contract, is to use online marketplaces, offered through sophisticated, AI-powered RFP lifecycle management platforms, which bring together buyers and sellers of group accommodations to facilitate the procurement process for both. Ideally, hotels should look for group accommodation booking platforms that support all types of RFPs, including the option to source accommodations based on duration & consumption, rather than only fixed date/room block events.

Finally, hoteliers should be looking for platforms that give both hotels and the group buyers unprecedented visibility into current market demand, using powerful data analysis tools that “level the playing field” to make it easier to build productive relationships, source more efficiently and contract with real transparency.

You’re probably thinking… “That sounds great but how much is that going to cost me? I’m already paying so much to gain access to RFPs originating outside of our sales department; I can’t afford another costly booking channel!”

Here’s the best part: many online RFP lifecycle management and contracting platforms don’t charge commission on group accommodations booked through their site; they are a no- or low-cost solution, operating on a monthly subscription model, making it easy to budget for and minimize your cost of acquisition.

So, what are you waiting for? Your hotel + long-term contracts + advanced procurement technology = win/win.