BTN's annual answer book for business travel managers.
On a Wednesday evening at the end of May,
representatives from hotel companies both large and small waited patiently
inside a modest-sized room on the third floor of EY's Manhattan headquarters at
5 Times Square. Some chatted politely across the rows of seats arranged in
front of a projector screen. Others milled about, waiting for the presentation
to begin. Many had met with EY one-on-one hours or days before to learn how
their hotel agreements were faring. But now, they would hear in a broader scope
the outcome of a new hotel sourcing format designed more than a year prior by
EY global travel, meetings and events leader Karen Hutchings and then refined
and executed by the EY hotel team, headed by global supplier leader Tim Nichols.
The approach, a modified fully dynamic rate
program, on its face didn't seem terribly groundbreaking. The component parts
Hutchings and her team pieced together have been around for years or even
decades at EY and within the hotel and corporate travel industries. The
difference rested in Hutchings' willingness to rearrange the old ingredients to
create a new formula, one that would move EY from a hotel RFP season that
spanned six months each year to one that lasts only six weeks.
Massive Scale, Massive Commitment
Globally, professional services and Big Four
auditing firm EY employs 255,000 people and operates out of 700 offices across
more than 150 countries. As Hutchings put it, there's no major city in the
world that EY isn't in.
The travel, meetings
and events program not only is broad but also is constantly changing as the
firm enters, exits and shifts personnel among global markets. In fiscal year
2017, EY held more than 2,000 meetings and events annually. It booked 1.8
million room nights through its travel management companies—American Express Global
Business Travel, Carlson Wagonlit Travel and Hogg Robinson Group—in 105
countries and purchased about 3 million room nights total.
Prior to fiscal year
2018, EY sourced hotels using a hybrid approach: 2,500 preferred properties in
primary markets, plus chainwide discounts with five global brands established
through long-term master service agreements. To get to the 2,500 property
agreements, Nichols worked with Gail Macajoux, Americas lodging manager, and Darren
Jeacock, lodging manager for Asia/Pacific and Europe, Middle East, India and Africa.
The trio would labor full-time for six months, sending out RFPs to more than
4,000 properties and battling through multiple rounds of price negotiations to
winnow that number to the targeted 2,500.
The process was
arduous, and even with the hotel team and an EY analytical team to assist, the
volume of properties they could source formed just a drop in the bucket of EY's
lodging needs. During the first six months of 2017, EY travelers stayed in more
than 20,000 properties globally. "There's not the resources and man-hours
to negotiate 20,000 fixed-price properties just in case you might end up
staying there," Nichols said.
Building a Better Model
Nichols and Hutchings don't know precisely when
the idea for a new sourcing structure first hatched. By Hutchings' recollection,
the idea sprung out of her meetings every six months or so with Nichols,
Macajoux and Jeacock to discuss EY's lodging program. "The hotel chains
are often bandying around the concept of dynamic pricing," Hutchings said.
"Certainly for me, it felt like the team was spending a significant amount
of time going through the whole RFP process each year and didn't think it was
the best use of their time."
To participate in the
annual hotel RFP season is to buy into a drawn-out, outdated process that
nobody likes and most say is dysfunctional but that few are willing to change.
For years, hotel industry stakeholders have been prodding corporates to scale
back RFPs or eliminate them entirely in favor of dynamic rate discounts.
A dynamic rate
discount for corporates constitutes a percentage discount off the best
available rate for all room types at a particular property. According to
Tripbam founder and CEO Steve Reynolds, the typical dynamic discount at the
property level is 20 percent or more and includes some amenities but is not
commissionable. This is not to be confused with a chainwide discount, in which
a corporate receives a percentage off the best available rate and that discount
covers all participating hotels within that chain. Chainwide discounts are
typically 15 percent, according to Reynolds; don't include amenities; and are
noncommissionable. And hotels can opt out during times of high occupancy.
Why go dynamic? Some
argue that these discounts constitute a better deal for both hotels and
corporates because they follow the market. During times of high occupancy, the
best available rate goes up, costing corporates more. In times of low
occupancy, however, the tables turn and corporates can realize better rates.
But Gus Vonderheide, Hyatt VP of global sales for the Americas, said the real
value of market-based dynamic rates lies elsewhere. "The misnomer a lot of
times with dynamic pricing is that it's going to be a big cost savings; that it's
either going to make the hotel a lot more profit or it's going to make the
corporation pay a lot less in room rate," Vonderheide said. "Neither
one of those are really true. This is more about a win-win from a resource and
timing perspective." A dynamic model allows for longer-term contracts,
Vonderheide said, enabling travel programs to stop spending several months each
year embroiled in negotiations for static discounts.
But for many in the
corporate travel world, the current setup for dynamic rates isn't good enough.
How, for instance, do programs ensure that they're actually receiving a
discount off the best rate available and not just a discount off an arbitrary,
inflated rate? And how can a massive program with, say, 3 million annual room nights
build a budget and keep from getting fleeced?
These were some of
the problems Hutchings and the team had to grapple with in considering the
shift to a fully dynamic rate program. Add to the list, EY's network of
independent hotel partners, as well as some larger hotel companies whose
technology limitations prevent dynamic rate discounts.
To address the rate
protection problem, EY leaned into a longtime feature of its hotel program. City
caps, which are updated annually, limit the rate travelers can pay in a market.
But EY's plan was to share those city caps with hotel partners to let them know
that if they wanted EY’s business, they would need to ensure that the hotel
rates they offered didn’t exceed the caps. Hutchings summarized it: If you're
below the city cap, you're a preferred hotel. If you're above the city cap, you're
not a preferred hotel. "We reviewed our existing city caps and expanded
them to 585 cities," Nichols said. "We also added over 100 different
countries or cities that weren't mentioned in the city caps, so we now have
city and country caps." The team leveraged EY's internal real estate and
hospitality group to benchmark the caps and make sure they were reasonable.
How the Hotel Industry Typically Defines ItA dynamic agreement between a corporate and a
hotelier for a percentage-based discount off the hotel's best available rate at
the time of booking. The dynamic rate can apply to a single property or to properties
across a chain, which is called a chainwide discount.
How EY Defines ItA rate that can be adjusted, either via a percentage-based
discount off the best available rate or through a fixed rate that changes on a
relationships with hotel partners that didn't have dynamic rate programs in
place, the team determined it needed to redefine what "dynamic" meant
to EY. "When we talk about dynamic pricing, for us, it's not necessarily
the traditional sense," Hutchings said. "We may have fixed, seasonal
rates, but for us, that still makes it dynamic because it's moving up and down."
This change, Hutchings added, would allow previous hotel partners to
participate with what EY deemed a dynamic rate instead of penalizing them for
not having one.
With market caps and
a new dynamic definition in place, the team needed to devise a way to track the
dynamic discounts. The team turned to a partner of two years, Tripbam, to
assist. Reynolds said Hutchings and Nichols presented him with the program
fully formed and asked not only whether Tripbam could support the structure but
whether he could identify potential pitfalls based on his work with other
clients that had gone dynamic. "To be honest, we really didn't come up
with a whole lot in terms of reasons not to do it," Reynolds said.
EY uses Tripbam on an
"apples-to-apples" basis. After a rate is booked by a traveler through
one of EY's TMCs, Tripbam "shops" that same room type with the same
amenities at the same property to see if the price drops between the booking
and the stay. When it does, the reservation is rebooked with EY's dynamic
discount applied to the new, lower best available rate. Tripbam's frequent
shops also allow EY to audit its hotel program, keeping track of whether the
hotel companies apply the best available rate discounts correctly.
EY currently has
Tripbam fully in place in North America and recently established it in Germany,
the U.K. and France. It plans to deploy Tripbam in seven more countries in EMEA
and move on to the Asia/Pacific region after that. In countries where Tripbam does not operate, EY
uses its TMCs to monitor the rates it's paying.
Even though the new structure will, in theory,
open up more options to EY travelers, EY also has incorporated Airbnb into its
lodging program in some countries. The average age of the EY traveler is 27,
Hutchings said, and they are staying in Airbnbs. "You could ignore it, but
it would still happen. We'd much rather embrace these things." Airbnb
accounts for only about 0.4 percent of EY stays, Nichols said, but it's still a
seven-digit figure, so it's important to manage, and usage is expected to grow.
From Hotel Team to Sales Team
During Hutchings' six-year tenure heading EY global
travel, meetings and events, she's gained a reputation for changing things up.
In 2015, BTN named
her Multinational Travel Manager of the Year for consolidating EY's global
agencies from 130 to three and introducing a TMC partnership structure
predicated on "co-opetition." Most recently, Hutchings has made a
name as a bot evangelist, having introduced robotics into EY's travel program
to take easily automated tasks, such as prompting employees who are registered
for internal events to book their airfare earlier, out of the hands of humans.
The EY travel,
meetings and events team—which has adopted "challenge the status quo, keep
it simple and keep innovation top of mind" as its guiding principles—has
come to expect big ideas and big changes. Nevertheless, Nichols, Macajoux and
Jeacock had some selling to do to the larger travel, meetings and events team
before they felt ready to move forward with the new program. "EY is a
large organization globally with numerous individuals in high-ranking roles
that are stakeholders on a day-to-day basis, and our [travel] leadership team
went out to those folks and said, 'Here's what we have in mind going forward
this year. Here's how it's going to impact you. Here are the benefits,'"
Nichols said. "We made sure we had all the pieces in place. We weren't
seeking permission or approval, but we were making sure people understood what
was going on."
Working with hotel
partners required even more nuance. Some hoteliers were happy with the new
arrangement; Vonderheide said Hyatt had other corporate customers that had
shifted to dynamic pricing, so he connected the EY team with some to discuss
how the change was working for their organizations. Others were skeptical. The
modified dynamic rate program didn't change just EY's internal way of doing
business, it also challenged the well-worn practices of traditional hotel
EY met with its top suppliers in the spring of 2017 to discuss their plans. EY had six-year master service agreements in place with five hotel companies, and they were set to expire at the end of December. EY's new strategy would mean not only reestablishing master service agreements with those companies but also creating a wider network of "preferred" properties than ever before. "And then we waited, and we waited, and we waited some more," Nichols said. During the Global Business Travel Association convention in late summer 2017, where many corporates commence or prepare for hotel negotiations, hoteliers were anxious because EY hadn't sent out RFPs. August passed. September passed. By October, Nichols said, hoteliers "were breaking into cold sweats."
But then, at the end
of October, EY's new process commenced. "We said, 'Six weeks—we're going
to get it done," Nichols said. "And we did the process in six weeks.
It was a hectic six weeks."
Back in that room on the third floor of 5
Times Square in May, Hutchings provided an overview of EY's travel, meetings
and events program and detailed other initiatives the group had underway before
passing the baton to Nichols. As he took his place up front, hotel
representatives readied their camera phones to snap pictures of the
Nichols is a data
guy. One stop on his career path was a six-year stint at Travel Analytics.
Reynolds said he is a travel manager who can look at things with an analytical,
systematic view. So, when Nichols stepped beside the lectern to present EY's
program results, he first laid out the current hotel industry landscape with
specific figures around occupancy in broad global regions using STR and Tourism
Economics data. The takeaway was that occupancy has been at all-time highs in
Europe and North America. Nichols moved on to the next slide, and camera phones
How is EY doing?
For the first four
months of the year, EY's rates increased 2.9 percent year over year on a
constant dollar basis. In the U.S., rates rose 2.5 percent, while the rest of
the world increased 4.5 percent. [Editor's note: EY presented these figures to
hotel representatives on May 30. Prior to publication, EY recalculated the
global rate increases to account for local currency. On a constant dollar
basis, EY's rates increased 0.2 percent year over year globally. Rates
increased 0.9 percent in the U.S., fell 0.1 percent in Europe and increased 4
percent in Asia/Pacific.]
outperform industry benchmarks, Nichols said. EY gleans the rate information from
TMC data, which accounts for only 60 to 65 percent of EY's total lodging data.
That means, Nichols said, the global rates likely are lower because markets
like India, where direct booking is more common than booking through agencies
and booking tools, are also lower-ADR markets.
EY kept fixed rates
for a subset of hotels—primarily
independent hotels, properties in high-risk countries and a few in high-demand/low-supply
markets. Beyond that, "the program has negotiated dynamic rates with
thousands of hotels at levels that make them competitive in their local markets,"
Nichols said. EY's roster of master service agreements expanded
from five chainwide discounts to 16 and established comprehensive options for EY
travelers at more than 35,000 hotels. Those master service agreements run
through 2023 and cover the legal relationship between the parties; EY still
negotiates the discounts annually.
Using Tripbam, EY achieved
$1.3 million in gross savings during the first four months of the year. In the
new dynamic environment, EY was getting flooded with so many savings opportunities
from Tripbam—"a threefold increase," Nichols said—that EY raised its
previous threshold for how much savings warrant an offer.
By shortening the
sourcing process from six months to six weeks, Nichols, Macajoux and Jeacock can
turn their attention to other areas. The team realized a twofold increase in
the number of project rates it has established during the first quarter.
Corporate housing move-ins increased 223 percent, and EY is working with
long-term-stay apartment provider Urbandoor to make that process more
efficient. "When you have the time and the ability to focus on other, more
productive things like that," Nichols said, "that is huge in terms of
engagement with travelers and doing the right thing for the organization."
The program also has
performed well with travelers. In a survey of 293 EY travelers and travel
arrangers, three-fourths were more satisfied or equally satisfied with the
program as compared with last year. Forty-nine percent noticed a change in
their booking experience. "The flip side of that is that half didn't
notice a change," Nichols said, despite the significant changes put in
place. Sixty-eight percent said their online booking tool was providing a good
choice of rates. Fifty-eight percent found the city caps too restrictive; that
didn't account for the 100 percent of hoteliers who found the city rate caps
too restrictive, Nichols joked to hoteliers in the room at 5 Times Square. Some
respondents praised the program for offering greater choice; others were
frustrated that certain properties showed up as sold out because of city caps.
Nichols said a
pleasant surprise is the number of EY travelers who have chosen to be good
corporate citizens. Though points and loyalty still drive a lot of behavior, he
said, "when they've bumped up against city caps in a given market, we've
seen them move down the brand ladder into more cost-effective brands in the
The new format also
has boosted hotel companies that EY had worked with less in the past. For
example, Choice Hotels International has seen a significant upswing in the
number of stays from EY travelers in Brazil. "That's the whole allure of
the program," Nichols said. "By having a price point or a discount in
place pretty much anywhere in the world where you exist, as a supplier, you
have the opportunity to win EY's business when our business takes us to those
Refining the Model
EY is phasing "RFP" out of its
lexicon. Instead, Hutchings said, it's a renewal process. With dynamic rates in
place across the vast majority of its portfolio, EY and its hotel partners can
opt to roll them over to next year.
For those properties
that still need to RFP, EY is building a tool internally, further cutting costs
the company traditionally would have spent on an external RFP tool.
Nichols said six
weeks might have been "a little tight" to introduce the program and
the team may expand it by a week or two. Nevertheless, the heavy lifting is
done, he said, and the idea is that the process will get easier year over year.
At the same time EY
launched its new rate program, it also unveiled an internal TripAdvisor-style
hotel feedback tool called EY Lobby. In its first six weeks, Lobby gained
16,000 hotel reviews and received 5,000 hits from travelers researching lodging
options. The tool is linked to travel risk management partner International SOS
and is pushed to travelers post stay. EY will use data from the tool to notify
a hotel when its travelers are receiving subpar ratings. Additionally, hotels
will have the capability to offer promotions to EY travelers through Lobby.
Since Hutchings and
Nichols have started discussing the changes they've made to their hotel
program, they've gotten some eye rolls and comments to the effect of,
"You're EY; it works for you," the implication being that change is
only possible at a massive global program. Hutchings counters that small
companies can be more agile because they have fewer stakeholders. But people
need to be willing to change. "In business, in general, people need to be
bold," Hutchings said. "That's exactly what we've done here. That's
what companies do, whether it be investment banking, insurance, whatever. They
are bold in what they're doing when they're talking about client-facing things,
and yet in travel programs, people tend to be more conservative. We just
decided that we didn't want to carry on being that way."
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