While some around the industry wish for the end of the
annual hotel sourcing process, including what many describe as tedious requests
for proposals, both buyers and sellers generally expect that it is here to
stay—at least through 2020. Many are hopeful, however, that a way to make the
cycle less cumbersome will be found, though degrees of optimism vary.
"Most companies are still in an annual budgeting mode,
and this process about setting rates in hotels is part of that annual process,"
said Ashford Hospitality Trust chairman and CEO Monty Bennett. "I don't
think that part is going to change."
Technology might make the process less of a bear. While
Marriott International COO Bob McCarthy concurred that annual RFPs would have a
role for the foreseeable future, he noted that it is becoming an
ever-more-automated process at his company. "We computerize and update
this in a very organized way that allows hotels to complete some information
that allows us to know whether they want the business, and if so, what they're
willing to charge for it," he explained.
But former Wyndham and Travelport executive Flo Lugli doesn't
see the process becoming totally automated. "You still have to go through
some sort of a negotiation process to understand what it is that both sides are
going to give and get for the rates that they're charging," she said. "To
the extent that there are other important things that need to be addressed—such
as guaranteed last-room availability, upgrades to executive floors, free Wi-Fi,
free parking, that kind of stuff—you have to have a conversation in some
format."
The elements that buyers are negotiating as part of those
RFPs likely will change. Hotel companies will continue to push dynamic pricing
programs, in which discounts are applied to the best available rates rather
than using fixed rates for the year. Though most large companies still
negotiate fixed rates, particularly for their top cities, a few already are moving
away from that structure, said Christie Hicks, senior vice president of
Starwood Hotels & Resorts Worldwide's sales organization.
Widescale adoption of total dynamically priced programs by
no means would be swift, she acknowledged. "There are a couple of big
accounts that have gone to almost total dynamic pricing, and that's been good
in those cases on both sides, but it's a tough leap for people to get
comfortable with," Hicks said. "You have to be forward-thinking and
have enough clout within your organization to create change by getting the
right people to listen."
Some of the same arguments buyers have against dynamic
pricing today likely still will be there in 2020. A top concern is dealing with
hotel properties in cities that have annual or one-time major events that drive
up hotel rates considerably, leaving buyers in a dynamically priced environment
with no recourse.
There are challenges on the hotel side too. Even though
hotel companies in recent years have become more willing to offer chainwide deals,
which buyers can use to supplement their program for cities in which their
volume is insufficient to negotiate a fixed rate, the hotel ownership model
prevents buyers from always getting the best deal that way, according to Advito
principal Bob Brindley.
"Because hotels are mainly franchised, each hotel
location is working in its own individual best interest, not the chain's
interest," Brindley said. "We still will see a prevalence of fixed
rates for top hotels in top markets; however, chain agreements will continue to
grow."
At the same time, hoteliers and buyers alike will have
better data to predict and monitor travel patterns, which also could erode
reliance on fixed annual rates, said Cindy Estis Green, CEO and co-founder of
hotel data analytics firm Kalibri Labs.
"By looking at corporate accounts by day of week, by
season, by arrival and departure patterns, it will be easier for hotels to
service them," she said. "You'll have rates with some sort of
flexibility in them. The sophistication—and being able to adapt to match up
what the corporate account wants and what the hotel needs—will improve by 2020."
This report
originally appeared in the Nov. 11, 2013, edition of Business Travel News.