Love 'em or hate 'em, per diems affect hotels

Hotel & Motel Management, Jan 10, 2005 by Bruce Adams

NATIONAL REPORT--The 2005 fiscal year per diem rates that went into effect last fall were much like the hotel industry itself--a local story that's good or bad depending on a hotel's market.

Per-diem rates, established periodically for 420 U.S. markets, are the amounts that federal and government travelers will be reimbursed for a hotel room when they travel. If travelers exceed the fixed per-diem rate, they have to pay the difference out of their own pockets. The per-diem-influenced business represents about 60 million roomnights per year, according to the Society of Government Travel Professionals.

Keith Lander, g.m. of the Best Western Cascadia Inn in Everett, Wash., was glad to see the per diem increase to $64 for fiscal year 2005 from $59 in fiscal year 2004.

"I am thankful for the increase," he said. "I'd love to get more, but it is fair."

Several U.S. naval stations, the aircraft carrier USS Lincoln and aircraft manufacturer Boeing all are in or near Everett. Per diem business accounts for about 20 percent of the hotel's business, Lander said. Offering rooms at the per-diem rate during the busy summer season will be a challenge.

"In the summer, we are sold out every night and I put a limit on the number of per-diem rooms I will sell," he said. "I don't want half the hotel filled with the per-diem rate of $64 when I can get about $99 per night."

It's difficult to figure out how markets are defined because per-diem rates can vary dramatically over relatively short distances, Lander said. Six miles south of Everett is Lynwood, where the per diem decreased to $78 from $82. Seattle is about 25 miles away and has a per-diem rate ranging from $110 to $127 per night, depending on the season. The Seattle per diem was $136 during fiscal year 2003 and $142 during fiscal year 2002.

Pat Turland, g.m. of the Hawthorn Suites in Killeen, Texas, is not happy that the per diem for his market stayed at $62. It had been at $59 for four or five years and was increased to $62 in April 2004, he said. Killeen is near Fort Hood, the largest U.S. Army base in the country.

"We are shocked it did not go up more," he said. "Our rack rates are $89 and $99 and we run an average daily rate of $68. We are trying to get $79 from government personnel. The military is more apt to pay $79 than government contractors. Some military say they can't pay it, and others pay it and say they will get their money back. When everywhere else is sold out, we can get it."

The hotel is an all-suites facility that offers a free hot breakfast and free high-speed Internet access. It's difficult to compete on rate with area economy hotels that don't offer the amenities.

"We look at our occupancy daily and determine what rate we will sell at," Turland said. "We are trying to pick up new business at the nongovernment rate, but there is not a lot of other business to get those rates up. We want to take care of the military because they are our bread and butter."

Anthony Amendola, director of sales and marketing for the Paramount Hotel-New York, said hoteliers have a love-hate relationship with the per-diem rate. The per-diem rate in New York was $208 in fiscal years 2004, 2003 and 2002, and ranges from $177 to $208 in fiscal year 2005, depending on the season.

"Government business has been a lucrative rate," he said. "It paid the bills because there is a tremendous amount of government travel in New York. $208 is an attractive rate for us. It was considered a low rate in 1999 and 2000, but the world has changed since then. The majority of two-, three- and four-star hotels can live with it. But lowering the rate to $177 will backfire and hurt them. Hotels won't keep that rate open."

Rates should have been lowered after 9/11, when virtually all New York hotels were scrambling for occupancy, he said.

"Finally we can raise our rates as inflation and the economy grows, but the federal government lowers the per-diem rate," Amendola said. "It's like they didn't react to 9/11 and now they want to get back what they lost."

Mary Lyons, regional sales manager for Growth Properties, a management and owning company based in Philadelphia with 10 hotels, also had mixed views on the rate changes. Per-diem rates increased to $78 from $74 at its two hotels in Cherry Hill, N.J., which are near Fort Dix, McGuire Air Force Base and Lockheed Martin offices. The rate skyrocketed from $75 to $106 per night in Bucks County, Pa., which is near Philadelphia and the site of a company Hampton Inn.

She was happy with those increases, but not with the decrease from $122 to $116 in Philadelphia. Per-diem business accounts for 5 percent to 8 percent of the total at the company's downtown Comfort Inn on Penn's Landing.

"We are not happy with the rate, but we have to live with it," she said. "If you charge government contractors more than the per diem rate, you will lose business. We would rather take the business at $116 rather than risk losing it."

Joanna Salmen, a partner with Capital Hospitality Group in Alexandria, Va., an owner and manager of two Hawthorn Suites in Alexandria, Va., and in Herndon, Va., said she will take as much per-diem business as she can get at her two hotels. The per-diem rate there went up to $153 from $150.