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Per-diem increases open doors for hoteliers
September 4 2013

Increases in per-diem rates across most major markets allow hoteliers to reopen inventory to government travelers.

Highlights
  • The GSA considered re-evaluating its methodology to calculate federal per-diem rates.
  • The GSA decided to curb the reductions and instead froze per-diem rates until this year.
  • The freezing of per-diem rates for FY2013 saved an estimated $20 million in costs for the federal government.
     
By Jason Q. Freed
Contributing Editor, Tech Impact Report

REPORT FROM THE U.S.—Hoteliers are applauding the General Service Administration’s return to its standard methodology in determining per-diem rates across the United States, a practice that led to increases in most markets when the fiscal year 2014 numbers were released late last week.

A year after considering a new methodology that would’ve excluded top-tier hotels and thus reduced per-diem rates in most markets, the GSA on Friday increased the standard continental U.S. per-diem rate from $77 to $83 per night. Most non-standard markets—those locations that federal contractors travel to frequently—saw increased per-diem rates as well.

“It’s a pretty big deal for us,” said Mark Crisci, co-president of K Partners—a Texas-based developer, owner and operator with multiple hotels near military bases throughout the southwest U.S. “We have some markets that saw some fairly long-overdue increases.”

Crisci said two markets where K Partners owns hotels saw per-diem rates increase $8 per night. It will open up some options when budgeting and determining a distribution strategy for 2014, he said. Instead of closing out per-diem customers because the rates are simply too low, K Partners will again be able to fill rooms with government travelers, he said.

“They are trying to make the rate more competitive,” Crisci said of the GSA. “We have some situations where we just can’t offer it. What I’m hoping is that it’s a little precursor to anticipating demand in some of these regions.”

Methodology
In July 2012, the GSA approached hoteliers with an early plan of re-evaluating its methodology to calculate federal per-diem rates. The GSA looked at a number of potential options that would result in per-diem decreases in most markets, and many hoteliers feared dramatic decreases would cripple business and cause a bevy of unintended consequences.

The American Hotel & Lodging Association and the U.S. Travel Association, among other parties, got involved by lobbying the GSA with their concerns and providing data and materials that opposed dramatic reductions to per-diem rates.

The GSA last year ultimately decided to curb the reductions and instead froze per-diem rates until this year. The federal department returned to its traditional methodology—basing per-diem rates on markets’ average daily rate data from the lodging industry—which Shawn McBurney, senior VP of government affairs for the AH&LA, considers a win for the hotel industry.

“It’s quite significant,” he said. “Per diems are meant to reflect actual market rates, actual rates that were charged. Radically changing the methodology would artificially reduce the rates that a traveler could pay. We thought this wasn’t a good idea and probably would actually increase what government travelers would pay in the long run.”

McBurney said if the GSA would have artificially reduced per-diem rates, travelers wouldn’t have been able to find rooms near their destinations. “They’d be priced out of the market,” he said, “and would have to go to outlying areas and rent cars.

“The GSA understood that,” he said.

The calculation “provides GSA with the average rate that rooms rent for in a given area,” said GSA Spokesman Dan Cruz.

Cruz said the freezing of per-diem rates for FY2013 saved an estimated $20 million in costs for the federal government.

In an attempt to further reduce costs, the GSA called for the creation of a government-wide Travel Advisory Committee to help review the methodology the government uses to set these rates. The advisory committee “overwhelmingly approved” the previous methodology used to set the rates, Cruz said.

The AH&LA was able to grab a seat on that committee.

“The GSA was great to work with,” McBurney said. “The committee was set up to look at the totality of government travel to find efficiencies.”

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