Hotel Discounts Drying Up: Buyers Try Leveraging Meetings Volume With Preferred Properties To Ease High Rates

Though many buyers are driving more meetings volume to preferred hotel vendors, discounts are increasingly hard to obtain, according to an exclusive Meetings Monitor survey of 220 corporate meeting buyers. Hoteliers, however, said companies' efforts to consolidate do not outweigh market realities, and companies need to prepare to pay higher rates and be flexible in negotiations.

Nearly half of survey respondents, 46 percent, said their companies had developed preferred vendor arrangements with hotel companies specifically for meetings. Among that group, 24 percent said their company places between 1 percent and 20 percent of meetings volume with their partner chains. Twenty-seven percent of respondents place between 21 percent and 50 percent of the meetings at partner chains; 20 percent said they place between 51 percent and 75 percent of meetings at preferred chains; 21 percent said they place between 76 percent and 99 percent of meetings at preferred properties; and 7 percent said they place all meetings at partner properties.

Even with that level of committed volume—48 percent of respondents place the majority of their meeting volume at preferred chains—38 percent of respondents said they have received few discounts from hotels in the past year. Only 3 percent of respondents said their discounts have increased.

Rick Wakida, global travel manager for Foster City, Calif.-based biopharmaceutical company Gilead Sciences Inc., said higher rates are unavoidable in a seller's market, but that preferred vendor relationships can soften the impact for buyers.

"Ideally, your long-term relationships in your key destinations help keep rate increases to a minimum and provide you with maximum availability and flexibility. If you've developed good relationships over the past few years when the market was softer, this is their opportunity to prove to you that you have a true long-term partnership," Wakida said.

Vendor partnerships can bring other benefits beyond discounts. Negotiating for availability is key as meeting buyers find it increasingly difficult to find space in top-tier cities. "Rates don't do you any good if you can't get in," Wakida said.

Meetings are one area of corporate travel in which buyers sometimes can influence the destination choice, he said. Moving more events to a few key cities, or to onsite venues can help cut costs. "It depends on the business, the purpose of the meeting sometimes drives destination," Wakida said.

Key relationships are built with property-level staff, not necessarily national sales offices, he said, so independent properties and chains work equally well for long-term partnerships.

"The additional advantage with the chain is if you have a national account manager you have that extra influence and resource you can go to for help," he said.

Fred Shea, vice president of sales operations for Hyatt Hotels Corp., said consolidation initiatives by travel buyers have strengthened.

"As costs go up, companies are looking even more closely on consolidation of their buying power with fewer hotels and hotel companies. They're also looking at consolidation of their group and transient. We are hearing more of that," Shea said. "In some areas there's a discussion of group and transient together, but it's difficult. It's not the same traveler, and they aren't going to the same destination."

Leveraging is most successful on the individual-property level, Shea said.

"Trying to take that across a chain, where your transient is going all over the place and your group is going all over the place, and trying to get the same price for both is very tough to do," he said. "We're not really supportive of that, but customers are definitely asking that question."

Shea said customers that have better tracking and the ability to mandate travel, as well as volume during off-peak dates, have a better edge in negotiations.

"If you're traveling only on Tuesday and Wednesday and only going to New York, you don't have a lot of clout," he said.

To mitigate limited availability or higher hotel rates, 60 percent of survey respondents said they have used alternate properties, 32 percent said they have used alternate dates for their event, 26 percent said they have shortened the length of the event and 18 percent said their companies have not taken any measures to adapt to the seller's market.

Golden, Colo.-based Coors Brewing Co. cannot place the bulk of its business with one supplier because of its variety of meeting needs and locations, said strategic sourcing manager of external services Pamela Esker. "You can't put everything in one place. It's very difficult, so we spread the wealth," she said.

During the past six months, hotel vendors have become stricter on attrition and cancellation fees and surcharges, she said. "They're really pushing those numbers," she said. "That's been pretty outrageous."

Higher rates and surcharges may be unavoidable for now, but Coors is evaluating how it can mitigate rising meeting costs in its annual hotel rate negotiations. There may be an opportunity for increased leveraging with small meetings placed at transient properties.

"It's something we have to live with for the time being. However, as we're approaching our 2007 corporate travel program we're really going to try to leverage more of our group business," Esker said.

If hotels take a hard stance on fees and surcharges, Esker said she would negotiate even more aggressively. "If you're going to charge it, it's negotiable," she said.

Shea said most customers understand the reasons behind higher rates. Beyond higher demand and yield management, other factors such as energy costs, labor costs and uncontrollable expense have led to higher hotel rates.

"Hotel costs are much more in line over the six-year process as opposed to just the last two years," he said. In general, business needs take precedence over cost savings for companies, he said.

Despite the rising rates, Shea said business is good and transparency of pricing helps give buyers some control. Alternative destinations can provide value, he said.

"What used to be second-tier markets are not so second-tier anymore," he said.