South American Hotels See Turnaround
Fueled by an increase in business travel from the United States and Europe, South American hotels' occupancy and average daily rate in 2004 rebounded after a prolonged slump, according to travel buyers, hoteliers and industry consultants attending a hotel business form in Caracas last month. While the turnaround hasn't affected the entire region equally, nor been nearly as dramatic as the rebound in the United States, hoteliers and consultants expect the turnaround to accelerate in 2005 and 2006.
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At the same time, however, buyers faced some obstacles in getting hotels in South America to adhere to rates negotiated as part of their global deals, a problem South America shares with other developing parts of the world. Both the rebounding market and inconsistent pricing figured prominently at the forum.
Unlike the late 1990s, hotels in such cities as Rio de Janeiro and Sao Paulo, Brazil; Buenos Aires, Argentina; and Lima, Peru, today no longer resist the need to respond electronically to global companies' request for proposals. Nor do they delay in accurately loading accepted rates into global distribution systems, so travelers and agents can book them.
However, negotiated rates frequently are undercut by rates offered by individual hotels at the local property level. The two-tier pricing system that results has made budgeting and planning harder for buyers since they often don't get credit for stays booked at the so-called local rate.
When buyers don't get the credit to which they're entitled, they're more likely to fall short of the volume projections made to the hotel company. These projections figure into buyers' negotiated rates at other of that hotel company's properties as part of a chainwide deal. Local rates also can include upgrades to suites and concierge-level rooms that are not authorized by a buyer's travel policy.
"Secretaries in the account's local office traditionally had a lot of power to book hotel rooms for out-of-town guests, and the practice continues in many cases," said Mayra Milian, a travel manager at Ariba who manages the Caribbean and Latin American hotel program for Lucent Technologies. "They weren't part of the travel department, but because of the relationship they had with the hotels, they were able to get an especially good rate."
Travelers were happy to be looked after, since they didn't always know the destination well enough to know which hotel they wanted to book. "Many of the hotels are so eager for the business that they reward the secretaries for the referrals," said Elizabeth Wada, director of sales and marketing for the South American division of Sol Melia Hotels & Resorts, which sponsored the forum.
This mostly is done in moderation, but there are instances when the incentives become excessive, Wada said, adding that Sol Melia discourages the practice entirely.
Buyers at the forum agreed. "It raises ethical issues that are unacceptable," said a hotel program manager for a New York-based accounting firm, adding that the practice of secretaries accepting rewards for bookings is in violation of the firm's code of behavior. "Not only are preferred hotels to be booked, but the negotiated rate is the rate we expect to pay."
Yet, corporations bear some responsibility. "Online booking tools and agents can be instructed to generate exception reports when the trip includes reservations for air and car but not for hotel," said Andrew Menkes, chairman and CEO of Partnership Travel Consulting, at the forum. "That way, the company can be sure travelers are booking the hotel themselves and that it is an approved hotel."
Many buyers' chainwide deals may not include negotiated rates for certain South American markets, either because the chain doesn't have distribution in those destinations or the buyer may not have sufficient room night volume to warrant a negotiated rate. These buyers usually fall back on a consortia rate available through a travel management company.
Openwave Systems global travel manager Rick Wakida said he tried to stay within the chainwide deal whenever possible. "If for no other reason, it comes with the services of a national account manager, who can intercede on your behalf, whether it's a problem with a local rate, availability or rate loading," Wakida said. "This can be especially important in a region such as South America, where because of the distance you don't have much direct contact with the local hotels. In fact, the national account manager is the person you have the long-term relationship with."
Due to a lack of communication, the local office of a corporation might resist calls from sales managers at a hotel with which the corporation has a chainwide deal. "In those cases, we'll intervene with the travel manager to make sure the hotel has access," said Jamie Spinney Cockran, Sol Melia regional director of sales for the Northeast United States. "If nothing else, it's important to remind the local office of the negotiated rate," Cockran said.
While such South American markets as Caracas and Buenos Aires still are in the midst of either economic or political turmoil, other markets are flourishing. Mirroring the rebound in U.S. gateway cities, the upscale, upper upscale and deluxe end of the market in 2004 fared the strongest. These also tend to be the tiers most popular with international business travelers. Revenue per available room for the deluxe segment jumped 24 percent and 12 percent, year over year, in Sao Paulo and Rio de Janeiro respectively, according to HVS International. "Demand grew in all segments, including both corporate transient and group," said Guilherme Cesari, who heads the HVS operation in Sao Paulo.