The concept of predetermined, standard negotiating seasons and annual terms for hotel contracts may have been forever altered by the chaotic demand and pricing environment of the past year, at least according to some. Corporate buyers taking full advantage of the current economic climate by renegotiating hotel contracts midyear could see tables turned in the future, according to hotel sales representatives speaking during a recent online discussion hosted by American Express Business Travel. Hotel officials also pointed to the potential re-emergence of the dynamic pricingmodel.
"The days of issuing a simple, one-year request for proposal in September that would be accepted in October, loaded in November and available in January ... are gone," said WorldHotels vice president of the Americas Tom Griffiths. "Companies and hotels are going to be looking at ways to maintain the greatest degree in flexibility, both in the way of availability and pricing, even as the market comes back. Hotels are going to want to have flexibility just as clients have flexibility today. It is a very fluid process, and the old days of 'seasons' is long gone. Every month will be a new season."
InterContinental Hotels Group director of travel agency and government sales Alice McQuade said that if constant rate renegotiations continue throughout next year, it would give hotel companies the opportunity to gain back some of the losses they recently incurred. Griffiths and fellow panelist Kelly Phillips, Hilton Hotels vice president of leisure and business travel sales, agreed.
Should the economy improve by the end of 2009, it would give hotels "the opportunity to renegotiate and save us, and say [to the buyers that] 'business is better and we deserve more for it,' " Phillips said.
Corporate director of global business travel sales for Omni Hotels Brad Frazier said his company is willing to reopen bids for the remainder of this year and next on a case-by-case and market-by-market basis, if necessary.
Some are skeptical, suggesting that constant rate renegotiations are not practical for hotels or travel buyers.
"This year, hotel negotiations were ongoing but that was purely a function of the rapidly deteriorating fundamentals at the end of 2008," Smith Travel Research vice president Jan Freitag told Management.travel. "I sincerely doubt that this will be a trend that we will see forever. It is just too intense for both sides. These rates need to be loaded into the global distribution system, which is very time-consuming, and you need to know what you are dealing with. They are making their lives very hard and difficult."
PricewaterhouseCoopers principal and U.S. industry leader for hospitality and leisure Scott Berman agreed with Freitag. "The major companies are smart enough to recognize that they need to have first access to that inventory," he said. "The expectation is that you can make a deal in this moment, and it will pass."
Meanwhile, Hilton's Phillips said that not only could rate renegotiations become the norm, but hotels also anticipate that dynamic pricing will be revived as an alternative to static rates.
"[Dynamic pricing] has never had more relevance than it does today, and what we are doing is focusing the negotiation on a percentage discount on our most available rates versus a fixed and static rate, which allows that negotiation to be very fluid," Phillips said. "The rate fluctuates with the market, and it allows [hotels], all the corporate travel managers and the travel management companies to focus on things that can really help drive cost savings from a compliance perspective."
Travel buyers have stated a willingness to negotiate a dynamic rate in markets where they are unable to drive high volume. But Phillips expects that thinking to change during future negotiations. "For the high-volume markets," she said, corporations would be able to negotiate a dynamic price discount and, "perhaps as a second-tier offering, can negotiate a chainwide discount for the remaining volume where [travel buyers] don't have the volume buying power.
"For the first time, we are having customers come back to us saying that our rates for the day have dropped well below our negotiated volume rate, and that puts the travel managers at jeopardy, our hotel integrity at question and the value is really being questioned," Phillips continued. "In a dynamic environment, this never would happen."
Omni's Frazier acknowledged ongoing corporate buyer resistance to dynamic pricing, but said it is in the best interest of hotel companies to push such a model.
"In these challenging economic times, as rate seemed to be dropping, the dynamic packaging model works very well for the corporate travel manager and we would love to be able to institute that concept long term," said WorldHotels' Griffiths. "But that has to be a two-way discussion so that both sides of the buying and selling aisle are satisfied with the relationship and the result."