Corporate clients are traveling "smarter" by consolidating their hotel programs to shift market share to preferred suppliers, and negotiating more value-added amenities into their rates, according to a recent report from Hogg Robinson Group. HRG also found that clients during the first six months of 2009 benefited from significant rate declines around the globe compared with last year.
With overall volumes down, hotels "are adjusting pricing structures to meet market expectations and to make rates appear more attractive," according to HRG director of global hotel relations Margaret Bowler. "In turn, corporates are reviewing and consolidating their programs to secure lower rates because there is more availability."
During the latest rounds of negotiations and renegotiations, corporate buyers garnered deals that included food and beverage credits, free wireless Internet access and reduced parking fees, according to HRG. "Significantly, last-room availability is now considered by many as standard, having only been available at a premium prior to the slowdown in the market," according to the report.
Rates Retreating Further, But Currency Is A Factor
"The international hotel market is continuing to see average hotel rates fall in many regions," Bowler said. "The latest figures suggest that the industry has some way to go before rates stabilize."
Due to fluctuating exchange rates and a weakened British pound, many HRG clients paid lower rates at hotels around the world when using local currencies, but higher rates based on sterling.
Overall, HRG reported that second-quarter hotel rates measured in local currencies fell 16 percent globally, following a 10.5 percent drop in the first quarter. The company said findings are "based on a combination of industry intelligence, actual room nights booked and rates paid by its UK clients."
For the six months through June, Moscow remained the most expensive city for business travelers, but the average daily rate there fell for the first time since HRG began tracking it, by 10 percent in local currency and 14 percent in pounds sterling.
Abu Dhabi jumped to second most expensive--with an average daily rate increase of 5 percent in local currency (the largest such increase of any city in the report)--"demonstrating demand for hotel accommodations ... particularly from the banking and finance sectors," according to HRG. Paris, New York City and Milan rounded out the top five, despite local currency ADR declines of 12 percent, 24 percent and 16 percent, respectively.
Mumbai dropped out of the top 10 most expensive cities list, falling to 16th place following a local currency ADR decline of 23 percent. Dubai's first-half 2009 ADR dropped 24 percent as it "continued to suffer from a fall in demand from the banking and finance sector, coupled with an exodus of expatriate and migrant workers due to the slowdown in the country's expansion program," according to the report.
Other large reductions occurred in Hong Kong (18 percent) and Shanghai (17 percent). London fell to 23rd most expensive from 16th, as ADR dropped by 4 percent in the first quarter and 3 percent in the second quarter.
Budget Brands 'Squeezed'
Though a common strategy for corporations seeking to cut hotel costs is to steer travelers toward budget hotels, the budget sector "has been squeezed due to its inability to respond more rapidly and at short notice in terms of flexible pricing to offer more competitive rates to suit market needs," HRG wrote. It noted that midmarket brands continue to open properties in "key European cities ... providing greater diversity and choice for the business traveler."
Bowler said the "budget [hotels], along with the three- and four-star properties are all now playing in the same arena--they are all after the same bits of business. Although there are budget brands that when you look at their pricing it appears to be lower, by the time you have added everything else on, very often they are not always the cheapest option."
Looking generally to 2010, "early indications [predict] that clients are looking at flat pricing, but in some cities because of supply and demand the rates may go up slightly," according to Bowler. "Also, rates depend on whether corporates have the ability to mandate volume and if they have the ability to consolidate service."