Buyers Push Hotels: Add Clauses To Contracts For Web Rates
The debate over lower-than-negotiated room rates found on public Internet sites, which gripped the transient corporate travel industry earlier this year, now has entered the meetings arena and has some meeting buyers attempting to negotiate specific contractual clauses with hotels governing the use of such rates. The clauses range from ensuring bookings made through such Web sites are attributed to room blocks to guarantees that the negotiated room rate will be the lowest offered for the duration of the event. Success has varied.
Hotels largely have resisted such language, stressing their rights to sell their product through whatever distribution channels they wish, but some have relented, to varying degrees. In many cases, such bookings will be applied to room blocks, provided the corporate planner can prove the booking in question can be connected to an attendee. Some even have allowed planners, in specific situations, to receive a rate lower than the negotiated rate, provided attendees adhere to all terms and conditions of the lower Web rate.
The issue is key to corporate buyers because of ever-present contractual clauses governing room block attrition. Too many bookings through the Web that aren't attributed to the block can trigger attrition clauses, requiring damages paid to the hotel, even if enough meeting attendees have booked with the hotel.
The issue caught fire earlier this year, as the rise of large, third-party Web travel sites—specifically Expedia, Orbitz and Travelocity—and corporate travelers' penchant for seeking, and sometimes finding, airfares and hotel rooms at costs lower than negotiated corporate prices rankled corporate travel managers. Though several travel management companies and technology providers have developed tools to ensure transient air bookings made via the Web are accounted for by corporate travel managers and applied to volume-dependent agreements, no such technology exists yet for group hotel bookings. Also, the major hotel chains have not created consistent policies on dealing with the issue. Even if they did, said Starwood Hotels & Resorts senior vice president of global sales in North America Christie Hicks, there is no guarantee planners would benefit. Even if the chains decided to allow attendees to apply Internet rates to meeting blocks, she said, they likely would increase meeting and conference room charges commensurately.
About 10 percent to 15 percent of Starwood's corporate meeting clients have requested contract language demanding no lower room rate be offered during the meeting itself, or if it is, then the buyer must receive that rate, Hicks said. However, she said, as a general rule, Starwood will not accept such language.
As corporate meeting planners usually submit rooming lists, including specific company personnel, to the hotel, Hicks said it's usually possible to match it to corporate attendee Web bookings made outside of the room block. "If the names match, nine times out of 10, we'll give them credit for it," Hicks said. "Our goal is not to mess around with our best customers."
Beyond that, hoteliers also pointed out that Web rates aren't just a particular price, but also often are laden with restrictions. The issue, they said, centers around the difficulty of comparing an Internet-listed guest room rate with the prices a hotel charges a company for meetings. Internet rates often have specific restrictions and qualifications that encroach upon specific contractual requirements made between the corporation and hotel. "When they want a clause that looks to guarantee the lowest rate, we certainly try to educate our customers regarding apples-to-apples comparisons," said Ty Helms, vice president of sales at Hyatt Hotels & Resorts. "We show them what the Internet rate really means and the fences tied to it, like minimum length of stay or prepayment."
After that process, Helms said, if the buyer still insists upon such a contractual clause, Hyatt may consider it. However, the restrictions that apply to the Web rate would not be waived. "We modify the clause to speak to the Web rate fences," he said. "And the clause will be null and void if their room block falls off. In that case, we certainly need to resell those rooms through every channel we can."
Helms wasn't sure exactly how many corporate planners are seeking such clauses, but said individual property sales managers have sought corporate guidance on dealing with the issue.
Hicks acknowledged that hotel companies bear some responsibility to head off such situations before they occur. "We must price appropriately and not drop rates in a panic too far ahead of the meeting," she said. "The difference between the Internet rate and the contracted meeting rate must be justifiable."
Hospitality industry attorney Jonathan Howe, president and senior founding partner of Chicago-based Howe & Hutton Ltd., said two clauses he insists on for corporate clients govern the right to cross-match the planner's registration list with the hotel's rooming list and the right to receive credit against the room block regardless of the booking channel the attendee uses. Though neither clause was developed specifically as a result of Web rates, he said, both are applicable to ensuring those bookings count to contracted room block levels, allowing corporations to avoid attrition costs.
Though Howe was less optimistic about the possibility of hotels contractually agreeing to guaranteeing no Internet rate will be lower than the meeting rate, he did not discourage such attempts. "If you don't ask, you can't get," he said. "Much of it depends on the percentage of hotel rooms the group would be using."
Much of the furor over Web fares and rates has been fueled by factors apart from the financial bottom line. "Planners' biggest concern is that they don't look bad to their bosses, so this issue infuriates them and makes them look inefficient," Hicks said. "Our goal is to price appropriately, but if attendees find a better price on the Web, we go to the planners so they can explain the issue to their bosses. They can tell their bosses about meeting space charges, labor issues and other things attendees don't really care about."
"Corporations better be on their toes with this, because if someone starts seeing better rates, it will go up the food chain, and then there could be a problem," said Tony Pastor, site and contract specialist for New York-based McKinsey & Co. Pastor does not seek Web rate guarantees in his contracts, primarily because McKinsey meeting attendees have not shown an inclination to seek lower rates on the Internet. "Why should they?" he asked. "It's not coming out of their pockets." Pastor does research public Internet rates before consummating hotel contracts. "I use it as a data-gathering tool for negotiations," he said.
Hyatt's Helms said the issue is simply a sign of the times, destined to fade as the economy improves. "This will be corrected when demand gets stronger," he said. "Until then, there's always an opening in times of weakness, and it's up to us to measure that risk."