Are Last Room Availability Rates Overvalued?

Last Room Availability rates (LRA) can often be “over-valued” and could be costing some companies up to $1 million each year in their hotel program. Research from Hotel Solutions (a CWT consulting arm) has shown a 5 per cent gap between the perceived and actual value of LRA – for a company that spends $20m with preferred hotels, it could amount to $1m.

LRA is a negotiated hotel rate clause that means as long as a hotel has a room for sale, then anyone with an LRA contract has the right to buy it at their contracted terms and prices. A non-LRA (NLRA) rate is available at the discretion of the hotel and the rate can increase as rooms are filled.

LRA is considered best practice when negotiating hotel rates and most travel programs around the world have them in their contracts.

The research, which analysed 7,300 hotel bookings across 97 countries, found at first glance, LRA rates work as intended – they are available 14 per cent more than NRLA rates. So assuming a hotel offers LRA at the same rate as NLRA during negotiations, it is worth including in the agreement.

However, it shows there is a 12 per cent chance that even with an LRA rate, the traveller won’t be able to stay at their contracted rate due to room availability constraints. That needs to be compared against a 26 per cent chance that they will not receive the NLRA contracted rate.

This means that if a premium was paid for LRA and the paid rate vs. negotiated rate is compared, companies may end up spending more on the premium than they would save from that 14 per cent difference.

“Last Room Availability rates have been the gold standard for hotel agreements since the 1980s, and no one has ever really questioned that. But we have now looked into this in great detail and it seems like the gold has lost some of its shine.” said Eric Jongeling, director of Hotel Solutions. “Our research shows between 5 per cent and 11 per cent differences in some markets so travel managers should bear this in mind when negotiating global rates.”

Other findings included: 44 per cent of hotels charge a premium for including an LRA clause, there is a 12 per cent chance the traveller will not be able to stay at their contracted rate even with an LRA rate and the perceived value differs considerably between premium and economy hotels and between cities.

The research recommends buyers analyse their top hotel spend markets to quantify the real value of LRA. “If your programme has multiple hotels in the same city negotiate a mix of LRA and NLRA rates.”

To read more at Buying Business Travel, click here.

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