Margaret Bowler
Though the hotel negotiation season traditionally winds down in January, Hogg Robinson Group still is bargaining for further hotel discounts on behalf of its clients, who are relishing today's buyer's market. Within a changing lodging industry, HRG's corporate clients are discovering new ways to leverage their hotel spend, resulting in prolonged negotiations and/or mid-contract renegotiations. HRG global director of hotel relations Margaret Bowler recently spoke with The Transnationalabout corporate buyers and lodging.
How has the deteriorating hotel market impacted corporate bookings?
If I go back to September of last year, a corporate who was looking at their RFP then was saying, "We reckon that flat [rates] would be a really good option if not a minimal increase in rate, year on year." By November, that was out the window: Flat was worst-case scenario, [corporates] were looking for decreases and we already had corporates looking at it again after January. In terms of what is really happening, it's now all about consolidation. For the past four years, corporates were not able to get the availability; therefore, they potentially had to have more hotels in each city than they had volumes to be able to cater to the demand and give them the availability. Now, whereas that hotel may have said last year, "I only want 200 of your 1,000 room nights," they are now saying, "I'll take 500 or the lot," because availability has opened up. Corporates are still negotiating and you will see it going on throughout 2009. A rate now isn't for 12 months.
How would you best describe the 2009 hotel rate negotiation season?
It is not business as usual this year; it is business unusual. That is the way that a lot of hotel groups are now looking at it. It is about reacting and deciding on which business they actually want. From our point of view, it is about talking and advising our corporates that they always want to base business in the hotels that they actually want to work with, so that they are not yielded and they get the best price, but that there has to be a commitment from both sides. Cities are opening up. There are deals even in New York. There is now availability and better pricing going on, whereas even last year you either had this price or you don't have a rate at all, because the demand was so much higher. It is about watching where the markets go and reacting. I don't think it is the case where people are saying, "I have a rate for 12 months; I'm going to sit on that or extend it." The market is so variable at the moment: "Is that price now a good price for the business that I have within that market, or is there a better rate available?"
Are groups and meetings suffering in light of the recent media attention and public scrutiny?
We are noticing that more of corporate incentive pieces have been put on hold, which isn't surprising. Training is still happening, but it tends to be the training that has to happen because of legal reasons. There is certain training that has to happen in the finance industries, and, because of the regulations, they will have to do it. But people are sitting on inquiries longer, because they don't want the cancellations, which is very difficult for hotels to plan. The other big effect--if you just look at travel from the United Kingdom--you have the weakening of the pound. Europe is incredibly expensive and now with the pound weakening against the dollar, [corporates] are definitely noticing the difference in cost coming out of this market.
What are some of the major challenges this season from the travel management company's perspective?
I would anticipate now a lot of clients are changing and revising rates after the January figures. For others, we may see some movement at the end of March or April, but they are definitely looking much closer and we are being requested to provide a lot more information in terms of city averages and where rates are going in general. It is more interesting from the hotel side, because they all now have revenue managers and systems that tell them what they should be selling at. That is fine when the business is coming in and it is about managing rate, but when the business isn't there, that is out the window. We are starting to see hotels having to sell again and go back to basics and talk to customers and not say, "Well, we only want X percent of your business." It is now, from a hotel point of view, about being on a program and, as availability opens up, obviously the corporates have the ability to reduce the number of suppliers and consolidate spend.
There has been some speculation that hotels will be looking to a new clientele in order to ride out the downturn. Are hotels companies interested in providing contract rates to clients they normally have not done business with?
Yes, hotels are looking for the local agreements and companies that are on the doorstep that they wouldn't normally speak to. It is exactly the same as what we saw happen after 9/11. There is a cycle of demand in hotels, and it always surprises the hotel when the business starts slowing down. Since 2004, we have been going uphill in terms of demand, so rates had been going up. Hotels had been enjoying a nice time, and they had been deciding which businesses they have and at what price, because they could. What we have seen happen now toward the back end of 2008 and definitely in January 2009 is that we have gone over the hill of demand. Demand now is decreasing, meaning there is a huge amount of availability, and [hotels] are now having to talk to customers that perhaps they haven't spoken to before or to clients to whom they said 12 months ago, "No, we don't want your business." They now all of a sudden want it. Some corporates are definitely changing their policies: Whereas they may have always been traditionally five-star clients, they are now moving to more four star. But I wouldn't say we have seen it dramatically. There aren't any that were always five star that are now budget, for example. That would be incredibly difficult to make happen.