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
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
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
"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
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
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,
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
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."
originally appeared in the November 2012 issue of Travel Procurement.