With hotel occupancy at its highest levels in some cities since the dot-com bubble burst in 2000, travel managers are finding availability for travelers in some cities as important as price, if not more critical.
This quest is leading to an upswing in room allotments, in which buyers have a quota of rooms permanently assigned to them, but which can be released to the hotel either 24 or 48 hours in advance. In some cases, buyers are willing to pay for rooms up front. In even more extreme cases, they are leasing a hotel floor or an entire hotel.
Experts also recommended less drastic measures to ensure availability, including encouraging travelers to book earlier and increasing the number of preferred properties. Buyers, intermediaries and suppliers all stressed that corporate clients who have built long-term relationships with hotels are being treated more sympathetically now that the market has shifted towards the seller.
In high-demand U.S. cities, neither price increases nor availability problems will disappear soon, said Jan Freitag, director of client services at Smith Travel Research. "For at least two years, you won't see any new hotels coming online," he said. "What are buyers going to do about it? Very little. The only way of securing availability is to pay for it."
Buyers acknowledged that there are times when they have to find travelers a room first and then worry about the price later, but neither are they resigned to complete impotence. "Buyers don't ever lose sight of price, but they do shift their focus," said National Business Travel Association hotel committee chair and Deloitte travel buyer Brian Nichols.
Achieving the difficult task of securing both availability and discounts is evident in the negotiations surrounding upfront room allotments. Paul Wardlow, director of Europe, Middle East and Africa global transient and corporate sales for Starwood Hotels & Resorts, reported a surge of interest in this option and estimated that the percentage of his corporate clients with allotments has risen from 12 percent last year to 20 percent in 2006. He expected the figure to grow further still, especially for properties in Asia.
According to Wardlow, the price for allotted rooms will depend on whether the overall corporate contract includes a last-room availability clause. He said clients should split their programs into a blend of LRA and non-LRA rates, but, "a lot of clients are too scared to do it. If they looked at their programs more creatively instead of as a blanket agreement, they could save a lot of money."
Clients who negotiate allotments with Starwood normally will take options for three to four rooms, said Wardlow, but the number could be as high as double figures in rare cases. As to which clients are given allotments, he said, "it depends on the volume they are putting into the hotel. If they are doing 30 to 40 rooms per night regularly and it is non-LRA, we would look on it favorably. If it is only three to four nights, we wouldn't."
Wardlow said clients also are talking to him about pre-paying for rooms for a full year ahead. Nichols said he too is aware of buyers pre-purchasing, as is Chris Needham, chief executive of the British hotel reservations agency Hotelscene, which handles such major U.K. clients as British Telecom and the British Broadcasting Corp. Needham considers it a strategy that rarely succeeds. "We have been through the negotiations on this," he said. "The problem is cash flow. No one wants to hedge too much. The client wants a cheaper rate as well as the availability of the room, but the hotels don't want to do that because they know they can fill it anyway."
Yet, if pre-paying for a handful of rooms is complicated enough, the availability issue is so acute in certain cities that some buyers have contemplated the even more drastic expedient of leasing or buying whole hotels or floors of hotels. "There have been discussions about assigning a hotel floor to a company," said Nichols. "The challenge for the buyer is directing business to that hotel and allocating costs onward to the correct person or division in your company."
Wardlow confirmed that buyers have approached him about their interest in leasing an entire hotel for a year, and one buyer from a major multinational company told BTN she had devoted considerable time to exploring similar options in both New York and Bangalore, India. "We are exploring the possibility of buying an entire floor in a hotel but we don't see the numbers adding up," she said.
Hotel supply is extremely limited in Bangalore, with most rooms tied up in long-term stays, so it's occupancy rate almost never dips below 100 percent. It explains why, according to HRG UK, Bangalore's room rates last year rose 44 percent.
Two IT companies, Wipro and Infosys, have built their own accommodation in Bangalore. The latter's Infosys Residence has 500 rooms that claim to be fitted out to five-star specifications, including plasma televisions and wi-fi connections.
Other travel buyers in Bangalore have opted instead for serviced accommodation. Intel global sourcing manager Megan Stowe at the Association of Corporate Travel Executives' global conference in London last October said that serviced apartments in Bangalore are of a very high quality, yet only half the price of hotels, though the gap is narrowing rapidly. The apartments all are locally owned, so buyers need a presence or representation in Bangalore to negotiate with them.
Bangalore is an almost intractable situation for travel buyers, but in most other cities expanding the number of properties in the program may be a simpler solution to the availability problem. Nichols suggested this expansion could be by 20 percent to 30 percent in some locations. "It is contrary to the usual philosophy of consolidation," he said, "but some hotels will welcome it." His words recall the last demand boom of 2000, when Starwood and other chains actually asked clients to reduce rather than increase their volumes in negotiated deals
(BTN, Nov. 13, 2000).Meanwhile, Eric Peter, manager of travel services for Johnson & Johnson, advocated an even simpler but often overlooked solution: persuading travelers to book their accommodation earlier. "This is something we are communicating to travelers at the moment," he said. "We are recommending that when they book their air ticket, they also book their hotel room. Everyone should know that, but if corporate travel managers look at the dynamics of their program, they will see travelers often book their hotel a lot later."
Peter added that prompt booking not only improves travelers' chances of finding a room, it also saves money for their organization. This is because the odds of securing a reservation at a preferred hotel are improved, and so too is the likelihood that it will be a standard room covered in the corporate agreement. Standard rooms tend to sell out first, leaving more expensive room types that often are not covered in an agreement.
Peter discerned a great irony in the tendency of travelers to book their flight before their room. "What's crazy is there are usually no cancellation penalties for hotel reservations," he said.
However buyers tackle the availability issue, the success of any short- or medium-term strategies may depend in great measure on the long-term relationships they have built with hotel suppliers. Else Marie Madsen, travel manager for Lego, said she has obtained allotments and other concessions during periods of peak demand because of sustained loyalty to preferred hotels over several years. "Last year, there was a big convention in Copenhagen which filled all the hotels, but they saved rooms for our travelers," she said. "If you keep switching to different hotels, it doesn't build a good relationship. That is why we don't do e-auctions."
Similarly, Richard Lovell, Carlson Wagonlit Travel's executive vice president of Europe, the Middle East and Africa, claimed that corporate clients could obtain good rates through their travel management companies. This was because TMCs maintained their long-term relationships with preferred suppliers, he said, instead of pursuing the merchant model adopted by Internet retailers.