Multiyear Hotel Deals In Vogue - Business Travel News

Share this page

Business Travel Supplier Directory

Text size: A A A

Multiyear Hotel Deals In Vogue

November 15, 2012 - 04:05 PM ET

By Michael B. Baker

Lasting Seller's Market Has More Buyers Thinking Longer-Term

In anticipation of a perceived hotel seller's market through at least 2014, some hoteliers and consultants are noting an uptick in requests for multiyear hotel agreements. Consultants warn that such requests don't guarantee a lighter workload for buyers, as they often require renegotiations for the second year. Interested buyers also remain hindered by technological limitations related to request-for-proposal templates and rate-loading processes.

At the onset of the current rate-negotiations season, Best Western International senior manager of worldwide sales William Bos said he saw more corporate travel managers looking for multiyear deals both for transient and group contracts. Similarly, Marriott International president and CEO Arne Sorenson spotlighted multiyear contract requests as evidence of solid corporate travel demand.

For group and meeting bookings, multiyear deals usually are a winning strategy, according to Bos.

"If you go to a hotel and say, 'I'm going to give you this event for the next five years,' the hotel will say, 'Absolutely,' and cut you a better deal," he said. "We want as much business as we can get, and where you put the most volume, you'll get the best deal."

Success can be more elusive on the transient side. Carlson Wagonlit Travel global program manager and senior consultant Lisa Maloney said buyers approach transient rates in two general ways: They either request to hold the negotiated rate steady for two years, or they agree to a certain percentage increase for the second year. In some cases, buyers might agree to slightly higher rates for the first year with the understanding that they would be unchanged for the following year.

Considering hoteliers' publicly stated projections for the coming years, any of those scenarios this year may prove attractive to buyers. Sorenson, for example, during Marriott's earnings conference call in October said the company is aiming for high-single-digit increases for 2013 corporate rates. Hotels during the next few years will add virtually no new supply in North America and Western Europe, meaning they still could have leverage when negotiating 2014 rates—even without significant growth in corporate travel demand.

"Hotels now, for valid reasons, are sending the signals that they are going to be really aggressive for price increases in 2013," said Bob Brindley, vice president of business solutions for BCD Travel's Advito consultancy, "so buyers say that if the rates are going up, they should have the potential to lock them in for two years."

When hotels touted a similar line last year, Maloney said she began to see more requests for two-year agreements. Now, many of those who didn't ask last year are doing so this year. Although some buyers last year secured two-year deals with as many as 70 percent of their hotels in certain regions, success largely was mixed, she said.

"It's going to be about the same this year," Maloney predicted. "It will depend on the market."

WellPoint manager of strategic sourcing for travel Cindy Heston, who bids her top markets in June and July—a few months ahead of the traditional negotiating season—said she negotiated multiyear transient rate agreements in that first wave this year at about 50 percent of her properties.

"We saw more of an attempt for a [rate] increase, where in the past we haven't had that kind of discussion because it was a negative trend across the board," she said. "We've had a few hotels multiyear [in the past], but not to the level we had this year."

Oracle global travel global process owner for executive travel services Rita Visser, however, said she typically asks for multiyear deals and "isn't getting them to the high percentage that we've had in the past," though she acknowledged that changes in Oracle's program could account for that.

"There's an incentive for buyers to lock in two-year deals if they can, but hotels know that too, and they're not going to agree to something that limits their rate capabilities in the coming year," Advito's Brindley said.

Of course, forecasts are not always accurate. After all, many hoteliers when setting 2008 rates worked under the notion that the seller's market would continue for at least another year or two. But the economy began to decelerate that September, and they found themselves facing rounds of renegotiations before the year was out.

If hotels' average rates underperform in 2013, buyers who negotiated two-year deals likely will end up returning to the table next year to renegotiate those deals anyway. Brindley said buyers often renegotiate even when forecasts are close to the mark, as they consider the rate they negotiated the prior year to be a ceiling.

"The process does not totally go away, but it's a more efficient process," Brindley explained. "The way standard models work, you still have to request the new rate for the second year from the hotel. If they honor that rate, you can automatically accept it."

The Global Business Travel Association standard hotel RFP template can be a stumbling block to multiyear deals, Brindley added, as it has space only for four seasonal rates, leaving no room to include rates for the second year. "The new GBTA template, which will be used for 2014, will address more of these issues," Brindley said.

Buyers must ensure their booking channels can roll over rates to the second year, CWT's Maloney said. They also should confirm that amenities included in their rates roll over as well, and be aware that blackout dates will change after the first year, she said.

SIDEBAR: CBC Secures Multiyear Hotel Contracts 

Faced with largely static travel patterns but rigid requirements for hotel procurement, Canadian Broadcasting Corp./Radio-Canada corporate travel manager Pauline Valiquette sought to lessen her workload by negotiating multiyear hotel contracts via a vastly simplified request for proposals.

CBC, Canada's only public broadcaster, annually spends about $8 million on hotel stays across most major Canadian cities and select markets in the United States and Europe. Because it is publicly funded, CBC must follow certain travel procurement procedures—placing an ad on a government website to open bidding to all suppliers, for example, and requiring suppliers to sign a standardized contract, which some hotels had been reluctant to do in the past, Valiquette said.

Using the terms of that contract, Valiquette developed a two-page letter attached in the RFP that specifies exactly what hotels must sign in the final agreement. Location is one of the most critical criteria, as hotels must be within a certain kilometer range of CBC offices, she said. CBC also used RFP tech firm BidStork, now Sabre Hotel RFP, so it did not have to deliver physical documents to hotels.

"The ad is open to every Joe Blow, but the RFP has to be written in a manner that selects hotels based on proximity to our offices," Valiquette explained. "We attached the letter in the RFP, saying this is what you're going to need to sign, and attach the location, the previous volume and the RFP itself."

Because CBC's hotel needs do not change much from year to year, Valiquette negotiated firm two-year contracts that secured rates through 2013. The contracts also have three additional one-year options.

"With these, we don't have to post and go out for bids for another
five years," she said. "My buildings are not moving, so we can try to develop partnerships."

By not having an annual RFP process, Valiquette can concentrate on promoting the program, through which hotel stays can be booked in an online tool or via CBC's travel agency, and adjust as needed. Calgary requires particular attention, due to the heavy travel volumes from the mining and oil industry that create occupancy challenges, she said.

During the option years, hotels will send their rates by email. If they seem reasonably in line with industry benchmarks, Valiquette can just accept them. Otherwise, she can return to the negotiating table.

Historically, however, she has had success keeping rates in line with the benchmarks. CBC's negotiated prices mostly are flat rates, though some locations require more flexible pricing agreements.

"We did our work before, and except for New York, we had an overall increase of 2 percent" for the rates through 2013, Valiquette said. "That's below where the industry had predicted rates to be."

This report originally appeared in the November 2012 issue of Travel Procurement. 

This page is protected by Copyright laws. Do Not Copy. Purchase Reprint

Leave your comment:

Comments

blog comments powered by Disqus