No Vacancy: Travel buyers facing a seller's market
Purchasing negotiates hotel room rates
By Susan Avery -- Purchasing, 10/18/2007 2:00:00 AM
Corporate travel buyers are preparing for a tough season negotiating hotel room rates for 2008.
It's October and travel buyers should be well into the request for proposal (RFP) process. In fact, most buyers began sending RFPs to the hotels in late August or early September. But for those who haven't done so already, travel management companies say it's not too late to start the process.
By most accounts, those who watch the hotel industry say travel buyers face a sellers' market that could continue for some time.
"Suppliers have the upper hand," says Neysa Silver, director, Hotel Solutions, CWT Solutions Group — Americas at Carlson Wagonlit Travel (CWT) in Minneapolis. "Occupancy rates are high. The hotels are full, and are not looking for business. It's going to be especially difficult for travel buyers to negotiate rates in some key destination markets such as New York, Washington, D.C. and San Francisco."
Several factors contribute to the high rates. For one, travel—both business and leisure—is up. Figures from Smith Travel Research and the U.S. Census Bureau show demand from the business sector rising and then beginning to level off: After steep declines in 2001 and 2002, demand rose 3.4% in 2004, 2.6% in 2005 and an estimated 0.8% in 2006.
Supply is not keeping pace. Research conducted by PricewaterhouseCoopers (PwC) shows hotels began construction on some 136,500 rooms in 2006, an increase of 64.2% over the previous year. PwC reports these starts "reflect positive industry fundamentals including the largest revenue per available room growth since 1981 of 8.5% in 2005 and a robust growth of 7.7% in 2006. PwC forecasts another 5.6% hike in 2007 as supply slightly exceeds demand growth.
While the current market is clearly a result of supply and demand, negotiating rates with hotels may seem very different to purchasers new to the corporate travel buy, says Silver. "It's not like negotiating with suppliers over the price of a commodity. Negotiating rates for 10,000 rooms won't bring down the price. Hotels have costs—which are rising—they have to cover and still make a profit."
 Silver: “It’s going to difficult to negotiate rates in key destination markets such as New York, Washington and San Francisco.” |
Negotiating tips. "How well a company does at moving market share to a hotel, supporting the preferred properties and demonstrating its seriousness about managing its travel program really plays into whether travel buyers will get a good rate," says Priscilla Campbell of American Express Business Travel Advisory Services Group in New York.
In their roles at the travel management companies, Silver and Campbell both provide consulting services to travel buyers whose companies outsource the hotel rate negotiation process. Their organizations use an RFP template available through the National Business Travel Association to initiate negotiations with the hotels on behalf of clients.
"Ask an expansive amount of questions about everything you'd want to know about the hotel and amenities it offers, including breakfast, high-speed Internet access and parking," says Campbell. "Costs the hotel adds to a stay can potentially be a negotiation item. One that is especially popular is whether a hotel is environmentally friendly."
In other words, travel buyers are checking if hotels take steps to conserve resources such as energy and water. "It may be as simple as installing energy-efficient light bulbs," she says. "Environmental programs are becoming more important to companies as they partner with the hotels. It is, however, challenging for buyers to measure the effectiveness of hotel programs."
Hotels typically respond to RFPs in 6–8 weeks. Buyers should not be surprised if hotels no longer offer last availability. Last availability ensures the traveler obtains a preferred rate until the last room in the category is booked. "Many hotels are discontinuing this or extending it only to their very serious high-volume clients because occupancy levels are so high," says Campbell. "Hotels either can't or don't feel the need to offer and accommodate last availability status any longer."
Moving share. The phrasing may be unfamiliar to purchasers new to the travel buy, but it's another way to describe living up to a commitment or delivering on promised volume.
A travel policy is key to a well-managed hotel program. While some companies mandate policy, many do not because the practice may not align with corporate culture. With hotels, experts suggest considering mandating stays at preferred properties so the company can reap benefits of agreements travel buyers work hard to negotiate.
CWT's Silver suggests companies mandate use of corporate cards. Data generated by card use provides a good foundation for buyers to prepare RFPs and develop strategy for negotiations with hotels. Traveler or agent education is another way to help drive volume to preferred properties, she says. "Most travelers want to do the right thing for their companies." Another way for travel buyers to gather data is through travel expense management reporting tools or the hotels which have their own tracking systems.
No data? Then during the negotiation process, buyers can point out language in their company travel policies pertaining specifically to their hotel programs. "It helps the hotel understand just how serious the buyer is in being able to manage a program," says Campbell of American Express Business Travel. "It gives the hotel more to go on as far as being able to offer a better rate."
If travel buyers have not embarked on the negotiation process, sent their RFPs to the hotels, or even gathered their data, there's still time. "If buyers get a late start in October or early November, they may not get their rates loaded into the global distribution system (GDS) by January 1." Hotels typically negotiate annual agreements, with new rates beginning at the start of the calendar year. They load rates in the GDS for access by the travel management companies.
Campbell says buyers may follow these other strategies. For one, hotels may preload rates during the RFP process. Another: Hotels on occasion may work off cycle or on a client's fiscal year. A third: Some hotels will extend rates during the negotiation process especially if the hotel has a long-standing relationship with the customer. "The virtues of having strong partnerships with the hotels and a well-managed program reap some benefits in the long run," she says.
Related story:
Procurement takes on meetings buy
Now Playing: 