Best Available Rates Hit the South African Hotel Industry

Best Available Rates (BAR) have arrived in the South African hotel industry and boy, has this resulted in strong feelings from the corporate sector! Let's delve a little deeper into what BAR is all about.

What are Best Available Rates? BAR is similar to the system used in the airline industry, which sets prices by forecasting demand according to sophisticated yield management models. In a nutshell, hoteliers forecast supply and demand and adjust their prices accordingly. What this means is that hotels set corporate rates on a daily uncapped fluctuating basis depending on the BAR model.

What Mischief is BAR Causing? The shift to BAR has not been without problems or its detractors and has been fiercely debated in a number of forums. The major issues businesses have raised thus far against the BAR model are:

• Difficult to budget up front - with no fixed rates, projections via room night estimates cannot be accurately gauged and, therefore, budgeting becomes a minefield. OK, you could use past data to extrapolate to at least try to do some form of effective budgeting, but this is only ever a "best guess", because apart from the inherent volatility of BAR rates, a corporate's booking patterns will also vary (e.g. changes in advance booking periods, changes in date periods booked etc).

• Difficult to benchmark up front - with no fixed rates, comparing brands becomes very difficult. Benchmarking is only effective on a retro-ac

ive basis but here again it turns into a hit and miss affair, as future demand/booking patterns may change and influence BAR rates achieved. In addition, if you don't book with a hotel/hotel group, you will have no data to compare it against the hotel/hotel group you did book with. Benchmarking, like budgeting, thus also becomes retro-active, and in many cases is very difficult to do.

• Perception of increased rates - Some corporates feel that BAR is the best available rate for Hotels, not for Corporates, and that it is simply a strategy to increase rates. Many corporates have reported their hotel spend increasing substantially and are, understandably, resistant to the BAR model. While BAR may indeed lead to higher average room rates (especially if a firm's booking pattern leans heavily towards high demand periods), it is important to avoid a simple knee-jerk reaction without ensuring you are correctly analysing your hotel data.

• Cheaper Web rates - Corporates are also complaining that hotel websites are offering cheaper rates than the Global Distribution System (GDS) - Some hotels have admitted this. Let's face it, as with airlines, hotels are trying to encourage booking via their websites, by offering cheaper rates online. Travel Management Companies are thus often having to query websites in addition to the GDS, complicating the process further. Essentially, this also technically goes against the hotel's promise of BAR being available to all.

• The reservation process is longer, more confusing and more complicated for travel bookers and consultants. With variable rates, travel bookers now need to shop around more, compare more quotes, and look at alternatives to the BAR hotels (e.g. guesthouses, flat rate hotels, websites etc) and confirm bookings faster, in order to secure those rates while they are still available. This has an impact on productivity and turnaround times for consultants, which may even indirectly filter through to higher TMC transaction/management fees, should this effect be substantial.

• Confusion about BAR - how it works and all the complications it brings. BAR is more confusing and complicated than a flat rate, and it takes more time and analysis to get to grips with it. Additionally, communication by the hotel industry during the change has not been as effective as it could have been - hotels need to work in partnership with their corporates to ensure understanding and optimal use of the system for both parties.

• Split Loyalty and Data - With BAR, rather than having a cheap flat corporate rate to rely on, a corporate may now opt for the cheapest available option on the day - it is thus highly probable that their spend will now be split across more properties, as the different rates fluctuate daily, This may well influence loyalty and support targets for corporate agreements. If alternative booking channels (such as websites) are used, or alternative accommodation, (such as guest houses) booked, a corporate's travel data will now be split across various channels and will need to be consolidated for analysis. Where booking data is limited, or non-existent,(as is often the case with guest houses or smaller hotels), data integrity may be compromised, or you may even get no data at all. However, having said all of the above, if your business adopts an efficient strategy, BAR could work in your favour and you could end up with considerable savings. To find out more about how you can strategise for BAR visit Kitso Consulting today!

Miles Biggs is a qualified statistician with extensive experience in market research and analysis in the corporate travel industry.