Occupancy Holding For European Hoteliers

Travel buyers budgeting for hotel for 2003 should not expect the same bargains in Europe as they may be finding in the United States. Although the picture varies from city to city, and few hotels are daring to raise rates significantly during an economic downturn, there is little sign of rates moving downward either. However, buyers under pressure to cut costs for their companies are examining other money-saving options, such as introducing more budget accommodation choices into their programs and negotiating on such extras as telephone charges.

The reason rates are not moving down in Europe is that occupancy is holding up better. Europe is averaging around 70 percent, according to American Express Consulting Services group manager Lorraine O'Keefe, compared with more typical levels of 50 percent to 60 percent in the United States. "After prices yo-yoed around earlier in the year, we have seen stability but not a down trend," she said. "Hotels seem to have reduced rates in the United States, but not in Europe." However, O'Keefe and other industry sources delivered their predictions with a warning attached: A war in the Gulf or a major terrorist attack likely would break down the resilience the European market has shown to date and push rates down significantly.

Putting such imponderables aside, Hewlett-Packard expects to negotiate keener deals in 2003, said Geoff Allwright, the company's hotel lead for Europe, Middle East and Africa. That is more a reflection of HP's enhanced spending power following a merger with Compaq, rather than a change in market conditions. "It is very city-dependent this year," Allwright said. "Some markets are flat, others more buoyant. I haven't seen any rates going up so far. In some locations, hotels have contacted us throughout the year, asking if it would help win our business by lowering their rates."

HP's greatly expanded room night volume makes it a special case. In general, Fredrik Korallus, senior vice president of sales and marketing at Radisson SAS Hotels & Resorts, believes corporations will be unable to cash in on lower occupancy. "It is a buyer's market and we don't foresee any dramatic price increases, but we are not cutting rates either," he said. "It is important not to overreact to changes in supply and demand." Korallus does have one good piece of news for corporations: The irritations of the peak demand marketplace, such as last room availability, have disappeared for the time being. Bargain hunters, however, will have to go elsewhere. Radisson SAS is "more or less, where we were last year with negotiated rates, but some independent hotels are taking a fire-sale approach," Korallus said. "It may give them a brief moment of joy, but it will cause problems when the market comes back."

The other hotels likely to be suffering, according to Melvin Gold, managing director of hotel consultancy services for accountancy and business advice firm PKF, are those that forced through exorbitant price increases during the seller's market of the late 1990s. "Those who pushed their clients beyond a degree of comfort are likely to find them pushing back now," he said. "Relationship is key."

Gold said buyers will have their best advantage for several years in such gateway cities as London and Paris. The British and French capitals are dependent heavily upon U.S. business and previously had commanded soaring rates thanks to occupancies above 80 percent. However, even here, Gold warned, there will not be significant rate cuts. "Buyers can certainly moderate the level of increase, but whether they can mitigate it entirely is another question."

The gateway cities, which account for a high proportion of U.S. outbound corporate business, are difficult to read. Figures from PKF's City Survey 2002 for Europe, Middle East and Africa show the proportion of London's total room nights accounted for by North Americans fell from 34 percent in 2000 to 30.7 percent in 2001. Since the largest dip presumably did not come until September, it is safe to assume that the figure even will be lower in 2002, after a full 12-month period post-Sept. 11. This especially is true in London's upmarket accommodation sector, where North American guests fell from 50.6 percent to 46.7 percent last year.

However, London, Paris and Amsterdam all have been buoyed by strong local and regional demand and, O'Keefe said, are beginning to see occupancy move up again. Paris in particular and London also have enjoyed increased business from an unexpected source. "They are experiencing a strong market in Middle Eastern visitors, who are not feeling so welcome in the United States this year," said David Danby, vice president of marketing for Inter-Continental Hotels.

Even if buyers cannot make significant headway in rate negotiations, there are other ways to bring rates down. HP is broadening its range of preferred hotels to include more budget properties. Travelers are encouraged to use this growing market segment in Europe when they need little more than a bed for the night. Danby confirmed that Holiday Inn Express, a sister brand of Inter-Continental in the Six Continents Group, has experienced heavier demand in Europe this year, whereas figures at the upmarket Inter-Continental chain are down.

Another trend noted by O'Keefe is corporations negotiating more aggressively on extras, such as asking for a free breakfast, often worth more than $15 in pricier hotels. According to Amex, the room rate usually equates to only 70 percent of a hotel bill, leaving plenty of scope to tackle the other 30 percent. "Non-rate negotiations are something we are trying to pursue this year," HP's Allwright said, "especially phone and Internet access charges. We are also asking hotels what extras they can give us as corporates rather than the guests. If a frequent guest scheme gave our travelers a free case of wine for every 10 stays, for instance, it would be of more interest if that could be changed to free Internet access."

Allwright, Danby, Gold, Korallus and O'Keefe offer the following guide to pricing trends:

London: Occupancy fell from 80.9 percent to 71.7 percent in 2001, according to PKF, but the average achieved room rate was still second-highest in Europe, at e246.76, albeit 6.1 percent down from the previous year. However, prices have stabilized and optimism is returning. "Occupancy in London is now in the low 70s, so there will be no drastic rate reductions," O'Keefe said. "If anything, there will be slight increases."

Paris: Average achieved room rate in Paris was e293.76 in 2001, the highest in Europe. There were signs of rates easing back earlier this year to move occupancy up again, but demand seems to be strengthening once more. Buyers can congratulate themselves if they negotiate a zero increase for 2003.

Brussels: Business has been more buoyant than most other cities in Europe. It is one of the most likely candidates for a rate rise.

Amsterdam: Rates fell last year after two strong years, but this year is expected to finish close to 2001 levels. "We have seen surprisingly strong demand," Korallus said.

Frankfurt, Berlin, Munich: A weak national economy, plus excessive new hotel supply in Berlin and Munich, make these cities good targets for downward negotiation.

Oslo: Gentle growth is expected.

Copenhagen: Has had a good year, thanks to heavy conference and exhibition business and a reputation, along with the rest of Scandinavia, as a safe destination. An increase in supply will help temper any potential rate rises.

Stockholm: Paradoxically, rates have eased a little, especially in upscale properties, in spite of occupancy booming.

Madrid: Mixed reports—O'Keefe said buyers are unlikely to negotiate rates down, but Danby said a dropoff in Latin American guests has hit occupancy.

Moscow, St. Petersburg: Rates are strengthening after two years of collapse, but pricing remains volatile.

Budapest, Warsaw: Oversupply in the upper end of the market will keep rates depressed.