Buyers Parse Hotel Program Strategies

Business Travel News editors in April at the Association of Corporate Travel Executives conference in Orlando discussed the state of corporate hotel programs with travel buyers Lynn Frank, Credit Suisse First Boston vice president of global travel; Frank Melesky, Lockheed Martin Corp. travel commodity manager for hotels, meetings and groups; and Brian Nichols, Deloitte hotel and ground transportation manager in strategic procurement services.

BTN: Analysts say the hotel industry is rebounding. Is this your sense of the marketplace, and if so, is it across the board or in select markets?

Brian Nichols: I wouldn't say it is across the board, but in some markets we're noticing higher occupancies, standard rooms selling out in situations where they haven't in the past. Some markets remain soft, but in some markets we're noticing less availability.

Our program probably is 70 percent metropolitan downtown and in the upper upscale price point. It's where we notice the market rebound the most.

Lynn Frank: We definitely are seeing a strengthening of the hotel market in many major cities. The lower-tier hotel rooms are becoming sold out more frequently, and our corporate events department also is seeing an increase in activity.

Frank Melesky: We don't necessarily have a great deal of business activity in the major markets like Chicago, Los Angeles and New York, but we're starting to see the market improve in other destinations. It's a subtle improvement, rather than something more dramatic like it may be in the major markets.

BTN: How extensively did you consolidate your hotel program during the recent downturn?

Nichols: In each of the past two years, we reduced the number of hotels in the program by about 20 percent because of the economy and the focus on costs. The ability to consolidate gives us leverage to negotiate a better rate. We're going to continue to keep the program tight and monitor it every quarter. If we start having significant leakage in certain markets or customer service issues where we aren't getting availability in certain markets, we'll adjust it. But even if the economy rebounds, we're going to maintain the smaller number of hotels as long as we can.

Melesky: We reduced the total number of properties in our program. We strengthened our policy so we're able to bring more business to our approved hotels. As a result, the reduction is working. We have to watch business travel activity closely. In certain cities, we under-projected the number of room nights we actually have, so we're having to add some properties as the months go by. So far, the hoteliers are working in support of that.

Frank: Credit Suisse First Boston has a global program and a mandated travel policy, which has been in force for several years. Since 2002, we began consolidating the number of preferred hotels we use in each city. Travel managers may not be able to provide an advance commitment of volume as closely as we have in the past, but CSFB certainly can commit to marketshare. This consolidation exercise allowed us to do just that.

BTN: How important is it to have national account status with a few chains in a market like this?

Frank: We have strong relationships and discounts with chain hotels on an international basis. These relationships have only improved over the past couple of years, as they have been an integral part of our consolidation process. We have more than 9,000 frequent travelers globally, and they know what they want. Partnering with select chain properties helps us to deliver consistent service and quality.

Nichols: Through the requests for proposals process, we hit about 80 percent of our destinations. Then we have relationships with several global brands that cover us outside of that. It's our blanket coverage where we put people if it's outside of our RFP cities.

Melesky: We depend on the global brands for most of our coverage. We certainly do business in unique locations in small towns where the national brands might not be represented. In most cases, we rely heavily on the national and international brands. Our travelers are astute in terms of telling us where they need to stay and the properties that work best for them. We have a good feedback mechanism within the company so that information gets back to the corporate travel team. Then we go out and negotiate with even the small family-owned hotels to get them into the program.

BTN: During the downturn, a number of buyers traded down from working with full service brands to more cost-effective midprice chains? Was that a strategy you employed?

Frank: We've diversified our portfolio of hotels. In every major market, we have deluxe properties in the program. However, given the various purposes for business travel, we have added other property levels in order to offer a range of rates and services. Our policy doesn't dictate the price point travelers must choose in any given city as long as they stay at a preferred property.

Nichols: Two or three years ago, the program was heavy in the upscale tier. We were doing some business in moderate, extended stay hotels and moderate full service hotels, but we weren't really including those in the program on a proportionate basis. Based on volume for each metro city, we now include one deluxe hotel, multiple full service hotels, at least one moderate and one extended stay. We've tried to do it in every city.

We then educate the travelers on it, that these are the types of services they offer, so consider where you want to stay based on your budget and requirements for the trip. Even if the market changes, we're going to continue to include this range of product and price points.

BTN: Have you received any negative feedback?

Nichols: Not really. We didn't tell certain people they had to use certain hotels within the program. They just had to use a preferred. So the way we position it is that we've taken our program a step further to provide multiple options. You can pick what you want, but we're going to put all these options in there for you to choose from. Location notwithstanding, they're then free to choose a less expensive property.

Frank: We didn't receive negative feedback from offering a diversified portfolio of hotels. However, our policy does state that if the standard rates at one preferred hotel is not available, travelers must book another preferred hotel as opposed to upgrade to a better room category. This is why we communicate strongly with our preferred hotels the need for last room availability.

BTN: Another strategy buyers have used during the downturn was to try to get fees for high-speed Internet access and other value-adds waived? Did you have any success with that?

Nichols: We've certainly focused on high speed. We've negotiated for complimentary high speed even when we felt there was more room to negotiate rate. Our travelers have told us it's essential for them. Because of the range of daily charges—from $9.95 to $21 depending on the city—we saw having the fees waived as a large opportunity, so we tried fairly aggressively to negotiate it. We've had reasonable success getting it negotiated as a value-add, yet I wouldn't say we're pleased with where we're at.

A concern for us is how often high speed actually is delivered complimentary. If a hotel is negotiating the value-add just for us, the front desk clerk may have to allowance it off the folio each night. If one-third of our program is complimentary and somebody travels every week, is he or she going to remember to look at their folio when they check out and say, "Was I charged for high speed?" So we're still struggling with how to measure whether we're getting what we negotiated.

Frank: Of all the value-added services, high-speed Internet access continues to be at the top of our list. We're a company that relies heavily on technology. We don't issue paper hotel directories, for example, and we have a fully automated Web-based hotel RFP process. We need to partner with travel vendors that can support the manner in which we do business.

Melesky: For us, the second most important value-add is complimentary breakfast. Parking, in so many cases, is not an issue anymore because there's no fee for parking anyway. Yet, breakfast seems to be the most desired amenity to include in the package.

Nichols: Here, too, some midprice without food and beverage brands include breakfast in the rate as a brand standard, so we try to educate the traveler where that's the case.

BTN: Given that they were facing decreased revenues, many hotels were accused of adding various hidden charges. Was that something your travelers have complained about?

Frank: The biggest complaint and largest area of frustration is centered around heavy phone charges. Although we post all phone-related information by hotel on our intranet, our travelers in many instances don't completely familiarize themselves with how hefty these charges can be. And many hotels don't do anything in the room to appropriately make people aware of the extent of these charges.

Melesky: It gets back to the Internet question. Many upscale hotels don't offer high speed yet. When they don't, you have to use a dial-up connection to work on your laptop. The charges can add up. As a result, we try to make travelers aware that if they're going to use dial-up service, they should be sure they know the rates beforehand.

BTN: During the downturn, many companies took the opportunity to tighten travel policy. Was that the case at your companies?

Melesky: On Jan. 5, Lockheed rolled out a new policy that mandates the use of approved hotels. Since that time, we've seen the use of preferred hotels significantly increase. In 2003, we were at 45 percent use of approved properties. Now we're at 62 percent. So we've seen considerable growth because of the mandate.

It was an important step not just because of the need to do it post-9/11. Rather, top management wanted us to get more forceful when it came to compliance. We had good deals but people weren't taking advantage of them. Now we have good deals and a policy that supports people booking them.

BTN: What exactly is your definition of a mandate?

Melesky: Travelers "must use" approved hotels at the risk of nonreimbursement. It's a threat that has teeth, not just lips. We certainly want to be sure the traveler has an opportunity to express why they selected a certain hotel that might not have been approved.

Business reasons are what we want travelers to think about first and foremost when selecting a hotel. If a particular hotel is a must to conclude the business successfully, then by all means go ahead and book that hotel, but you had better be able to defend that choice.

BTN: What's your sense of why people opt out of policy?

Melesky: The choice is usually business driven. It's typically the most common reason given. We don't permit people to utilize hotels simply because of a brand preference or frequent stay program, that's not an excuse we can accept. The business need comes first.

Frank: We've taken it an additional step. Not only do travelers have to stay at a preferred property, but also the reservation has to be booked by the designated travel agency in the traveler's location. We've made it more difficult, if someone wants to stay out of policy by requesting that they obtain out-of-policy approval in advance and with a valid reason. All information is notated in the travel record. In the first quarter of 2004, less than 3 percent of hotel reservations through our designated travel agencies were booked out of policy.

Nichols: In January, we rewrote our policy, moving to more forceful language. It targets two things: how they book, so they're required to book through either the travel agency or the online tool, and they're required to use preferred vendors. We also changed the way we communicated policy. Before, policy was posted on the intranet, but was not communicated as proactively. Recently, we've had messages from the firm's leadership, spelling out not just what the policy is, but in plain English what this translates to in terms of expectations of the traveler. It's presented in a clear, bullet-pointed type of communication. We've also tried to measure the reasons people opt out of policy through exception reporting. We implemented pre-trip reporting in February for certain hotels that are nonpreferred and high cost.

Frank: We use pre-trip approval as well. We used it previously, but changed providers and now plan to ramp up that part of the program. One of the exception codes is "staying with friends and family." It's like the magic word that can be a way for travelers to sidestep the policy. It's not used often in the large scheme of things, but we're trying to get our arms around the total spend. Travelers who book a reservation and are gone overnight, but for whom there's no hotel in the reservation, either are sent an e-mail or get a follow-up phone call to get them to book a hotel.

Melesky: About 75 percent of our domestic bookings are made online in our self-service system. We have that high of an adoption rate. The way our approved hotels are displayed on the online tool makes it easy for our travelers to know which hotels to book. Accordingly, the travelers are in a better position to use the company-approved hotels.