2008 Hotel Rate Hikes Appear On Par With 2007

Early reports indicate travel buyers absorbed hotel rate increases for their 2008 programs similar to those negotiated for 2007, particularly in successfully including last-room availability even in high-occupancy markets. For the first time in several years, however, buyers also were left with a rosier outlook on future negotiations.

Bob Brindley, vice president of BCD Travel's Advito consulting division, said that with a few programs still being finalized, it's early to predict average increases, but so far, increases are in line with the average 6 percent increase seen last year. Anecdotal reports from buyers and hoteliers also jibe with that number.

Jill Cady, vice president of worldwide sales strategy for InterContinental Hotels Group, said industry forecasts—such as PricewaterhouseCoopers', which predicted corporate rate increases of about 5.7 percent—held true, and buyers reported increases in the 4 to 7 percent range. Marriott International also concurred. "We had a focus and a goal for about a 5 to 7 percent increase, and we think we're going to be right in the middle of that," said David Marriott, the hotel company's senior vice president of global sales.

Some buyers took a harder beating in high-occupancy cities. National Business Travel Association president Kevin Maguire, who also is the manager of travel for intercollegiate athletics at the University of Texas, said that some saw increases of 20 percent—or in some cases, even 50 percent—in those cities.

Behind some of those increases was buyers' adamant stance on last-room availability, even in difficult markets. "Travel buyers wanted the LRA price, even if it was a bit higher," IHG's Cady said. "We saw that in a lot of marketplaces, and typically, it wasn't skewed as much by high-demand markets."

At the same time, Maguire said LRA continues to be more difficult to define, with shifting rules on room types and occupancy requirements from property to property. "Each hotel has its own variation, so I'm not even sure we can call them LRA rates anymore," Maguire said.

In addition to tightening last-room availability definitions, hotels also used their negotiating leverage to raise the bar on room-night thresholds for buyers trying to create a national program, Advito's Brindley said. "Hotels have been trying to dial down the number of programs that they're in," he said. "National account status is harder to come by."

All parties said that buyers sought to make their hotel programs more global this year. Advito's Brindley said that hotels are willing to include more international properties that might not be as successful as their domestic counterparts.

"Of the average programs we worked on two years ago, probably about 75 percent were primarily U.S.-based," Brindley said. "Now, pretty much any program with more than 200 hotels is becoming more global."

Companies that negotiate international hotel deals separately also are unifying the process, IHG's Cady said. "Even if it wasn't consolidated to one buyer, there was a lot more collaboration with buyers across multiple geographies to have a united message in what the company was looking for," she said.

Even with little pricing improvement, buyers have reason to be optimistic when looking forward to negotiations this year. PwC's latest lodging industry forecast predicted that occupancy would drop while supply growth accelerated this year, even though PwC hospitality and leisure group principal Bjorn Hanson said the seller's market still has a few years left in it. Analysts already are cutting lodging estimates based partly on declining occupancy.

"If anything, rates have kind of plateaued, except for a couple of markets," Brindley said. "If the economy softens, and more capacity hits the market, we look forward to a better buyer's market."

Those overall economic concerns also mean buyers could need less when they return to the table at the end of this year. "The economy is getting ready to enter a breaking scenario," NBTA's Maguire said. "You'll see a slowing of some business travel."

In fact, IHG's Cady said she suspects some of that forecasting might have slowed down the negotiating process last year. Hoteliers and buyers consistently report that the process is elongating, but Cady said it seemed more dragged out than usual in 2007. Buyers might have been waiting for a last-minute pricing opportunity, she said.

Brindley said the continued globalization of hotel programs also elongates the process. A good portion of international properties can work through automated RFP tools, but many still cannot, he said. NBTA's Maguire said a tonic to the increasingly complicated negotiating process, two-year deals—at a fixed rate or a set increase—also continue to gain traction among buyers.