What happens when the government’s daily allowances change? – Hotel online

the authors | November 19, 2019

By Bram Gallagher Ph.D. and Aman Patel

As federal government employees purchase a significant amount of hotel rooms, the General Services Administration (GSA) has partnered with Federal Travel Regulation (FTR) compliant accommodations to offer federal travelers rates. hotel room dailies for select high volume indoor and outdoor travel destinations. from the continental United States. These federal guidelines are frequently used to determine per diem hotel allowances for state and local government travelers as well.

Using the federal government’s per diems as a guide, individual properties and hotel chains set special room rates to be offered on government trips. Hotel owners and operators have the flexibility to decide who qualifies for a government rate. Depending on brand or hotel policy, qualified government companies can range from direct employees of federal, state, and local agencies to contractors working on behalf of a government division.

With a few exceptions, “public affairs” is a small source of demand in any individual hotel. Although the room rate is typically at the bottom of the price schedule, government-related travel can be a relatively stable source of demand, especially during economic downturns when other more lucrative transitional and group travel disappears.

Each year, the GSA reviews the daily accommodation allowances and adjusts them as needed. Adjustments can be made to increase or decrease the daily allowance depending on economic and market conditions. Hoteliers across the country pay attention to the announcement of new daily rates each year, and then assess the impact accordingly.

The Cobb County Case

To assess the impact of a change in federal per diem rates on the accommodation market, CBRE Hotels Research (CBRE) studied the market in Cobb County, Georgia. Cobb County was chosen because in August 2018, the GSA announced that it had designated Cobb County as a new Non-Standard Area (NSA). In turn, the government’s daily rate for Cobb Country declined significantly for fiscal 2019, which began on October 1, 2018.

Prior to 2018, the GSA considered Cobb County to be part of the greater Atlanta area along with Fulton and DeKalb counties. In FY18, the daily hotel rate for Cobb, Fulton, and DeKalb counties ranged from $ 148 to $ 166, depending on the month. In fiscal 2019, Cobb County’s rates fell to $ 116 year-round, while the Fulton and DeKalb County daily rate was adjusted to a range of $ 152 to $ 159.

CBRE purchased data from Kalibri Labs which allowed us to isolate nights occupied and income paid by travelers who paid a government rate in Cobb, Fulton and DeKalb counties from January 2015 to June 2019.


The data on the purchase of overnight stays is separated into different categories, of which the government is a part. Annex 1 details the levels and percentages (inserted above the bars) of total revenue generated in the different categories of channels in Cobb County:

Sources: CBRE Hotels, Kalibri Labs Q3 2019.

While not insignificant, the government chain’s revenues represent a small proportion of the overall Cobb County hotel market. The numbers from our comparison groups, Fulton and DeKalb, have remarkably similar proportions, around three percent of the total. If this proportion is typical of hotel markets, then the per diem effects on the government channel should be large and pronounced to have significant effects on the whole. Some markets with many nearby public offices and facilities may have particularly large proportions of government revenue and therefore be more sensitive to the effects of per diems.

The effects of the daily rate could potentially be felt both by the rate paid by customers in the government channel and by the number of nights spent. This latter effect is particularly important because a smaller number of guests could potentially have implications for the fares that other travelers pay. If a hotel finds that it can charge higher rates when occupancy hits a certain compression threshold, a lower number of nights taken by the government chain could reduce the number of nights that reach that threshold.

Exhibit 2 shows the average rate paid by customers in the government chain in Cobb County and Fulton / DeKalb counties for comparison.

Sources: CBRE Hotels, Kalibri Labs Q3 2019.

The rate in Cobb County shows an immediate drop of around $ 20 in October 2018, slightly less than the difference between the average before and after daily rate in Cobb County. At the same time, there was no statistically detectable change in the Fulton / DeKalb level. This suggests that government channel customers are reluctant to maintain the rate they previously paid with funds other than per diems. Fulton and DeKalb counties, which have many hotels in the Greater Atlanta area, had higher rates than Cobb’s before and after Cobb’s rate change. The Super Bowl event held in Atlanta which had a large impact in January and February 2019 had no noticeable influence on the prices of government channels.

Regarding overnight stays, Exhibit 3 details the total number of overnight stays rented to customers of government channels:

Sources: CBRE Hotels, Kalibri Labs Q3 2019.

There was no detectable year-over-year change in government chain overnight stays in any of the counties. This seems to suggest that the reduction in the daily rate did not have a noticeable effect on the nights of compression. Little to no substitution of Cobb at higher per diem hotels in Fulton and DeKalb counties has occurred. Conversely, it doesn’t appear that government travelers have moved from higher per diem hotels in Fulton / DeKalb counties to lower per diem properties in Cobb County. Daily price differences between geographies have less of an impact on government travel relative to other demand segments, as the highest rate is “approved” at the preferred location.

With the full effect of the new per diem from the ADR changes, the total net effect of the change on Cobb County’s overall ADR is approximately $ 0.40. Since the ADR for this area is well over $ 100, this effect is quite small, even with a drastic change in the daily rate and the rate paid by guests of government channels. The effect would be relatively more pronounced in markets with higher proportions of guests from government channels.


We recognize that the impact of changes to the federal government’s per diem accommodation allowances will differ from market to market. However, the significant reduction in daily hotel rates in Cobb County and the resulting low impact on the performance of the accommodation market provide information that may be applicable elsewhere.

For the markets studied, the government chain represents only a small proportion of the total hotel market, representing only 3% of the total turnover of rooms. This limits the impact of daily rate changes overall. Even for large changes like those seen at Cobb, we would expect the effects of the daily rate to be felt primarily, if not exclusively, through the rate. Finally, we found no evidence that government chain customers are swapping rooms in one market for another based on daily rates.

About Jean R. Manzer

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