2009 Budget Planner: Waning Seller's Market To Soften Increases In Hotel Rates

Following several years of stiff rate increases and a tough negotiating climate, travel buyers this year should absorb much more moderate increases in average daily hotel rates. Most buyers facing travel budget cuts, however, will have to enact them through demand management, as hoteliers are unlikely to give up ground on the pricing gains they've accrued in the now-waning seller's market.

With negotiations in the early stages at this point, it is difficult to tell the exact situation with 2009 hotel rates, said Margaret Bowler, HRG's director of global hotel relations. The negotiating climate now, however, is such that buyers might have an easier time in mapping out what their hotel spending levels will be.

"In past years, travelers might have been booking a hotel, but not necessarily at a preferred rate," Bowler said. "They've been squeezing out client-negotiated rates and upselling. Now that corporate rate is more available."

As for what those negotiated rates will be, the days of massive double-digit percentage increases are largely gone, Bowler said. In its forecast, CWT said buyers should expect rate increases in the 2 percent to 3 percent range.

Some high-demand markets—Moscow and Mumbai, for example—will continue to offer little pricing relief, however. Even such high-occupancy U.S. cities as New York will begin to see less robust rate gains, she said. "New York is still buoyant, but there's more availability," Bowler said.

Still, even as occupancy drops, availability will still remain an issue in pricing for key U.S. cities, said Kathy Pruett, senior director of consulting at BCD Travel's consulting arm Advito. "We're still going to be close to capacity in the major markets for availability of rooms," Pruett said. "In secondary markets, there's some lightening of demand, and the hotel chains will be more willing to negotiate."

In addition, buyers will be able better to control ancillary costs associated with hotels in 2009. In an effort to maintain rates, hotels should be more willing to include such amenities as Internet access, breakfast and parking as part of the negotiated rate, Pruett said. "That's where buyers are going to have the best leverage this season," she said.

Still, buyers should not assume that it's now a buyer's market, HRG's Bowler said. Some hotels might consider reducing rates if there's a large opportunity to pick up additional business, but most will risk further occupancy declines to keep rates at least flat, year over year.

"Yes, there are regions that are softening, in North America more so than in other parts of the world, but it's all supply and demand," Bowler said. "For corporate travel buyers to think they can go in next year, get really great pricing and go backward, they really aren't."

In regard to overall hotel volumes, Advito's Pruett said some buyers are looking at reductions this year. So far, they do not seem to be pronounced, she said.

"It's mixed. Some clients are looking at limiting travel in different ways, trying to reduce the number of trips and length of stay in some trips," Pruett said. "Others have said it's business as usual. We don't see a huge cut yet, but that can change. Most of our clients are being asked to carefully look at costs and cut where they can."