Jake Steinman is founder and CEO of the NAJ Group, which created INBOUND as well as the series of Receptive Tour Operator Summits (in Los Angeles, New York and Orlando) which, each year, bring together receptives with travel suppliers and DMOs for educational sessions, networking and business meetings. These events give him both a reason and an opportunity to find out what is on the minds of receptives, who are responsible for providing travel product for millions of international visitors to the United States. We decided to talk to him recently about the state of the “Static FIT Rate.” Following are excerpts from our conversation.
INBOUND: Why do you feel the phrase Static FIT Rate is a problem.
JS: When you mention the phrase ‘Static FIT Rate’ to a hotel revenue manager or GM who has built their bookings through one series of sophisticated technology iterating after another, their mind conjures up something out of the buggy whip era. So, at the risk of sounding overly simplistic I believe it would be more productive to refer to it as the “International FIT Rate,” which not only sounds more contemporary, but also more accurately describes what it is. We’re going to be implementing this change in our “Educating the Independent Hotel Revenue Manager” presentation which we will share with all TourOperatorLand.com partners.
INBOUND: Recently, you’ve been speaking a lot about International FIT Rates and how they’re having an impact on the tour and travel industry right now. I would be interested in hearing more on the subject, but first, could you tell us just what you mean by International FIT Rates?
JS: Basically, “International FIT Rate” is where a hotel offers an allotment to a receptive tour operator of “X” number of rooms a day, or “X” number of rooms a week with variable net rates based on seasonal demand. The tour operators have what is called a “cutoff date” so that they can cancel those rooms before an agreed upon date so hotels have time to resell them. Usually, the hotels include blackout dates during extremely high demand dates.
Why the major chain hotels such as Marriot, Hyatt, Wyndham and others are moving to “dynamic’ rates is because the technology that’s available today enables them to vary the pricing to the operators on an automated basis so they can optimize yield in real time, which saves them the need to manage their inventory manually.
“It’s all about comparison shopping.”
INBOUND: I believe I’ve heard you say that among major chains, Hilton is still doing it that way.
JS: Yes, one of the receptives at RTO West told us that Hilton has suddenly opened up inventory to them on International FIT Rates he attributed to the fact that they had lost substantial business with last year’s “Stop Clicking Around,’ but consumers didn’t respond to that because they’ve been conditioned to go to Expedia or Booking.com, where they can easily evaluate the best available rates for a four-star hotel instead of just going to one brand after they see an ad. The OTAs have rendered the hotels a commodity by forcing rate parity agreements which basically require the rates to vary no more than a dollar from the hotels best available rate.
INBOUND: So, how are the receptives dealing with this?
JS: Most of the receptive operators are small businesses that have under 15 to 20 employees who don’t have the volume or financial resources to do enable them to directly connect to dynamic. They’ve either moved away from the FIT business which American Ring Travel, a mid-size RTO, has done so they can strictly focus on providing elevated service to groups. Those that have remained in the FIT business are either working with independent hotels who are open to International FIT Rates, or they are buying from their competitors like Hotelbeds, which has 180,000 hotels that they can access, in which case they are sacrificing margin. Additionally, I found out the hard way, they’re also buying from Expedia’s wholesale platform.
I recently traveled to Australia and New Zealand and booked the entire trip through a travel agent—Flight Centre—in New Zealand. At check-in there was a problem with the room and we requested to be moved but they wouldn’t comply because our room was booked through Expedia. The Flight Centre, perhaps the largest mass-market travel agency in Australia and New Zealand, sent us our itinerary and confirmations and I found the name of a wholesaler who I’d never heard as the source of our rooms. They told me our bookings were made through a wholesaler who offered better rates than theirs. At the hotel the front desk the wholesaler was booking through Expedia, which meant that three different entities were receiving commissions from that booking.
The smaller operators are really focusing now on group business, which is kind of increasing. Their value proposition is in their ability to tailor-make tours for operators with a client base who are willing to pay a premium to have everything done for them. Fortunately, Baby Boomers, who are entering retirement with time and money to travel, are the primary drivers of the trend towards tailor made vacations, and the desire for experiential travel that reflects the authenticity of the destination. Overseas operators and agents need to count on somebody who’s on the ground and they’re working through receptives who are transforming themselves into creative advisors to the advisors.
What will the Future Hold for Receptives?
INBOUND: How do you see all of this playing out? That is, with this situation changing so much, what it is going to look like in, say, three years?
JS: I see it moving into three different directions:
- Become DMCs for International MICE business. DMCs (destination management services) are group oriented and less price sensitive than leisure groups. The traditional US-based DMC’s work on lead times that can go from six months to a year while overseas corporations provide travel as the prize for reaching goals often set on quarterly or six-month basis. The receptive operators, who are more flexible and have in-destination relationships, are logical partners.
- Advances in Technology: Five years ago a receptive would need to invest at least $50,000 in up-front costs for a group booking system that would automate their processes. Today there are cloud-based systems that are affordable for companies with as few as five staff priced on a subscription model pay $150 to $200 or $300 a month for their own booking system per user.
- Continue to focus on Independent hotel properties:
—If a hotel wants fly-drive guests from many European countries where bookings are placed six-nine months in advance from printed brochures, dynamic rates will not work because regulations provide that quoted rates cannot be changed.
—While the independent hotels gladly accept group business, savvy receptives leverage their group as carrots for FIT contracts.
—Help independent hotels understand that the average booking lead time for RTOs is 6-9 months, while it’s 3.6 weeks for OTAs, which provides them with an early base from which to increase their average rate earlier to the next tier. Also, the cancellation rates for OTAs in now 40 percent with for RTOs in 3-6 percent.