The drop in hotel demand caused by the pandemic applies to government business as well, but hoteliers find some comfort in 2021 GSA per diem rates staying largely the same as in 2020.
REPORT FROM THE U.S.—The U.S. General Services Administration’s decision to maintain the current per diem rates into fiscal year 2021 provides some consistency for hoteliers at a time when a pandemic changes everything almost daily.
The GSA announced late last week the per diem rates in the continental United States (CONUS) would remain largely unchanged starting in October. The standard U.S. lodging rate will stay $96 while meals and incidental tiers will be $55 to $76. There are 319 locations in the U.S. that have higher lodging allowances than the standard because of increased average costs in those areas.
Hoteliers said they are happy the GSA has at least maintained rates, but the drop in demand overall still presents a challenge.
Mike Marshall, president and CEO of Marshall Hotels & Resorts, said most markets have a base rate that’s fairly low to begin with, he said.
“At the end of the day, if there’s a big piece of business and your hotel is suffering, you’re going to go out and chase it with lower rates,” he said.
Marshall said the per diem rate stands when hotels are full, but hoteliers are likely to drop rates to compete for those bookings when demand is lagging. For example, in New York, no one is going to pay the per diem rate because so many hotels there are hurting, he said.
“There are quite a few markets like that,” he said.
Peachtree Hotel Group’s SVP of Revenue Generation Vickie Callahan said she was surprised the standard per diem rate stayed flat, given the challenges in the industry now, when the rates have increased by $2 each year for the past few years.
“That was really probably the only disappointment we had,” she said.
How this all plays out will be interesting because in some markets, rates are below per diem now, said Mary Beth Cutshall, EVP and chief development officer at Hospitality Ventures Management Group.
Holding to the per diem rate may be more challenging now than before the pandemic, and requires companies to consider not just the market but the competitive set and how they are approaching revenue management and yield management, she said.
“The big question is what’s the percentage of rooms that will actually get booked in the category or perhaps outside of the category,” she said. “We’re still a little bit early in figuring that out.”
Lower government demand
Most government travel is down, though certain agencies and the military in particular are still traveling, Callahan said.
Outside of Washington, D.C., and state capitals, government business is typically episodic, Marshall said. People fly in from all over getting government rates in D.C., he said. There’s also hotel demand from military installations and other government facilities and their vendors.
“But really, there’s not a steady demand, per se, except for in state capitals and D.C.,” he said.
State and local governments budgets likely face cuts, so there won’t be much travel stemming from those, he said.
“With the pandemic, people just still aren’t traveling,” Marshall said. “Whatever the rates are doesn’t really matter if they’re not traveling, but I think it’s important that they maintain the rates as they were last year for those that are traveling.”
Government business is somewhat seasonal, but is a key piece of profitability for many of HVMG’s hotels, Cutshall said.
“The fact that it’s down double-digits on top of the of the other segments that are down really is a challenge, not just for our hotels but for the industry in general,” she said.