The Revenue Management Conflict: Rate Integrity vs. Volume
You are GM of a 250-room airport hotel with a strong corporate base. A major airline is negotiating a crew contract for 40 rooms per night, 300 nights per year, at $89, against your current corporate average of $134. The contract would lift annual occupancy from 71% to about 79% and would be guaranteed, with a 24-hour cancellation window. Your director of revenue management opposes the deal, arguing it will dilute rate and train other accounts to demand discounts. The sales director supports it, citing the guaranteed base and the airline's potential to route more crew through the airport. Variable cost per occupied room is $34.
1. Evaluate the contract economically and decide whether to accept, counter, or decline.
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The contract adds 40 rooms × 300 nights = 12,000 room nights. At $89, that is $1.068 million in room revenue. Against a variable cost of $34 per occupied room, contribution is $55 per room, or $660,000. Since the rooms are incremental and the contract is guaranteed, the relevant comparison is contribution, not the corporate average rate. The deal is profitable on a marginal basis.
The risk is rate dilution. The director of revenue management is right that a visible $89 rate can undercut the corporate base at $134. I would mitigate that with contract design: a closed, non-published crew rate, no eligibility for loyalty benefits or upgrades, a separate inventory block, and a clause preventing the airline from using the rate as a benchmark. I would also counter on price, seeking $95 to $99, and on terms, such as a minimum commitment and a longer cancellation window. My decision would be to counter rather than accept or decline, because the contribution is real but the rate-integrity risk must be priced in.
2. How would you handle the disagreement between your two department heads?
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I would not overrule either one without testing the analysis. I would bring both into a short working session with a shared model: incremental room nights, contribution, displacement risk, and rate-integrity exposure. I would ask revenue management to quantify the displacement risk on peak nights, since crew blocks can crowd out higher-rated transient demand, and ask sales to quantify the airline's growth potential and the cost of losing the account.
The disagreement is healthy if it produces a better decision. I would make the decision myself, document the reasoning, and make clear that both functions were heard. I would also set a review point at 90 days with defined metrics, such as occupancy, transient average rate, and corporate account retention, so the decision can be corrected if the feared dilution appears. The judgement is to use the conflict to surface the real trade-off rather than to pick a side by seniority or personality.
3. Six months in, two corporate accounts cite the crew rate when renegotiating. What do you do?
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First, verify how they learned of the rate. If the crew rate was published or visible in a channel, that is a contract-control failure and I would fix the distribution immediately. If they inferred it from occupancy patterns, the issue is messaging, not leakage. Either way, I would not simply concede a discount, because that rewards the tactic and spreads it.
I would respond with value, not rate: the corporate accounts receive benefits the crew contract does not, such as flexible cancellation, loyalty accrual, upgrades, and meeting space. I would show the total cost of their program versus the crew contract, which is closed and restricted. If a concession is needed to retain a major account, I would offer a value-add, such as a breakfast credit or a meeting-space allowance, rather than cutting the room rate. I would also review the crew contract terms and tighten any clause that allows benchmarking. The judgement is to hold rate integrity while giving the account a face-saving path to stay.