With negotiations for 2009 hotel rates largely complete, buyers and consultants are reporting success in staving off increases in domestic rates, even in major gateway cities, as hoteliers face a bleak demand outlook of indeterminate length.
"I asked for the world, and I was able to apparently get a piece of it," said Patricia Carlin, purchasing manager for global card and travel for Dublin, Calif.-based Sybase. Within the United States, Carlin mostly was able to get rates equal to or lower than 2008 levels, and she also set up multiyear agreements with several U.S. hotels. Outside the United States was slightly more difficult, but she mostly was able to keep rates flat or face very minor increases, she said.
Some buyers still are wrapping up negotiations—a few more than usual, as many are facing not only a sliding outlook in the hotel industry but also instability with their own company travel budgets. Meanwhile, Kathy Pruett, senior director of consulting at BCD Travel consulting arm Advito, reported that preliminary estimates for clients' 2009 hotel rates had buyers paying a range of 3 percent less to 3 percent more for hotels in North America.
Bill Davidson, manager of corporate travel and meeting services at Austin-based Sematech, kept his rates steady, with his hotel program concentrated largely in Austin, Albany, N.Y., and San Jose, Calif.
"We're not seeing people coming in with better deals, but we haven't seen any that have gone up," according to Davidson.
Other buyers reported that some hotels they bumped from their programs in recent years because of high rate requests and resistance to negotiation have been returned to their programs at more moderate pricing levels.
These final results follow a long period of renegotiations for buyers. As negotiations started in late summer, prior to the economic collapse on Wall Street, hotels were asking buyers for fairly substantial rate increases, Pruett said.
The subsequent economic turmoil spawned more renegotiations than usual, and some hotels even began to lower rates without being requested to do so, said American Express Business Travel Advisory Services vice president of consulting Frank Schnur. "We moved into a buyer's market in October, November and December, with only a couple of exceptions," he said.
That is unlikely to change anytime soon. Industry analyst Bjorn Hanson, an associate professor at New York University's Tisch Center, said in a keynote at Business Travel News' recent Virtual Corporate Travel World that domestic corporate lodging demand is down by 3 percent to 4 percent, and because of the global nature of the recession and a relatively stronger U.S. dollar, international corporate lodging demand is down even more sharply. "The shift in the balance of power from seller to buyer happened as dramatically as at any time in history," Hanson said.
Buyers were most successful with negotiations in U.S. cities that had seen the biggest increases in hotel rates in recent years, largely because they had the highest distance from which to fall, advisors and buyers said. American Express' Schnur said he even saw some luxury New York hotels cutting their rates by as much as $100 to $200 per night.
Sybase's Carlin said New York still was difficult but she also gained ground there she had not in the past. "They expanded the discounts to the luxury category we kept ending up with because the standard rooms were filled up, and they also threw in last-room availability, which we couldn't get before," she said.
Secondary markets have been more difficult for buyers this year. Not only did those markets not have the huge rate-increase cushion seen by gateway cities in past years, but they also were less immediately affected by the economic downturn, according to Advito's Pruett. Overall, rates required persistent negotiations, she said.
"Negotiations were not as easy as some thought they might be," according to Pruett. "Hotels were not willing to go in and just cut rates, like some clients were hoping, because they were trying to keep rates in line because of internal demands."
As a result, persistent buyers were more successful in negotiating for such key amenities as Internet access, breakfast and parking. Sematech's Davidson said that although breakfast was not a high priority for his program, he did see more willingness this year for hotels to negotiate Internet service, one of his priorities. "If we're not successful in getting it waived, we're at least looking to pay less than you normally would," he said.
Schnur said Amex was able to secure last-room availability even in cities like New York, Chicago and Washington, D.C. Hotels also are loosening cancellation policies, which had tightened in past years, and are returning to 24- to 48-hour allowances again, Schnur said.
NYU's Hanson said domestic demand will continue to drop, leading occupancy to its lowest level since 1971 and average daily rates to decrease an unprecedented 2.4 percent to 2.5 percent. As buyers fine-tune plans to scale back travel and meeting demand declines, hoteliers could lose even the leverage that allowed them to hold corporate rates steady this year.
"Hotels at this point that are not willing to decrease their rates are living off the fat of things that have been scheduled in advance," said said Kevin Maguire, president of the National Business Travel Association and the University of Texas travel manager for intercollegiate athletics. "We're seeing an average of 30 percent to 50 percent decreases in meetings, and in some rare cases, meetings are being eliminated totally."
In past years, buyers increasingly have traded down in their hotel programs, replacing upscale and luxury properties with more moderately and inclusively priced midscale properties
(BTNonline, Feb. 4, 2008). The shift to a buyer's market spurred some upscale properties to combat that and become price-competitive with the midprice properties, American Express' Schnur said. Tightening of company travel budgets, however, has made the practice persevere, with part of the buyers' success in keeping rates steady hinging on their willingness to consider alternatives during negotiations.
"Overall, clients are getting more conscious of having the right mix to optimize their spend," Pruett said. "A lot are starting to look at midscale, limited-service properties just for the one-night stays."
Globally, the rate picture is more mixed. In Europe, it was similar to the United States, with buyers so far seeing rates between 1 percent lower to 4 percent higher than last year's, Advito's Pruett said.
In Latin America, preliminary results show rate increases between 5 percent and 15 percent, she said. The emerging Brazil market saw the largest increases, said Schnur.
Globally, the Middle East saw the sharpest increases, with Advito reporting preliminary results showing increases between 15 percent and 25 percent. The Asia/Pacific region as a whole also still saw increases between 10 percent and 20 percent for 2009 rates, Advito reported. However, rate growth in most Asian markets softened, with the exception of India, Schnur said.
With rates now in place, buyers and consultants alike said it is more crucial than ever for buyers to keep close tabs on their hotel programs this year. This includes checking on compliance in booking and in using preferred properties and checking that volumes are being met.
"With the economic situation now, there needs to be more frequent analysis," Maguire said. "I'd recommend quarterly looks."