Buyers could face slight delays in hotel negotiations this year and reluctance for multiyear deals as hoteliers wait to see how the economy pans out. Yet consultants warn against allowing too much of a delay in the request-for-proposals process. At the same time, some buyers are using the economic dip as a chance for strategic renegotiation of 2008 rates, but hoteliers said it's happening only on a small scale.
Kathy Pruett, senior director of consulting at BCD Travel's consulting arm Advito, said the timing is a mixed bag among clients. Some plan to start the RFP process at the usual time, the beginning of July. Pruett's early discussions with hotel chains indicated they may hold off in anticipation of having another good year regarding rates.
"A lot of the chains have said they are still evaluating what they're going to do looking forward, so it could be just a little bit later to see what the economy and the international markets are going to be like," Pruett said. "It's not going to be that late, maybe by a week or two."
Hoteliers are facing softening domestic occupancy and demand, and several hotel CEOs already have said to expect discounting and slower revenue growth later this year
(BTNonline, June 9). Kevin Maguire, president of the National Business Travel Association and travel manager for intercollegiate athletics at the University of Texas, said he didn't see a big drop in business travel coming but that there would be some drop in hotel demand as businesses cut back length of stays. At the same time, hoteliers remain hopeful that the weak dollar will boost inbound international travel to make up for domestic lulls.
Neysa Silver, director of Carlson Wagonlit Travel's hotel solutions group, said the timing of negotiations this year remains difficult to predict. She expects most of her clients to release requests for proposals after the NBTA conference in late July and said any further delays could disrupt the rate-loading process leading into next year. "It's a pretty big risk to wait on an uncertain economy," she said.
Should there be much of a delay, it won't be on the buyer's end, said Frank Schnur, vice president of consulting for American Express Business Travel's Advisory Services. Some large companies already have started the process, he said.
"We definitely don't see any of our clients trying to delay the process," Schnur said. "2009 looks like it's going to be the best year they've had in negotiating with hotels in a long time."
Given the amount of labor involved with the process, some hoteliers also are reluctant to allow any delays. Denise Lodridge-Kover, vice president of business travel sales and strategic partnerships accounts for Hilton Hotels Corp., said an on-time start is key to finishing up by November.
"I know everybody is watching the economy, but we're ready to go," she said. "We're planning on the same timeline we always have."
Advito's Pruett said an early start would not be beneficial, either. "I wouldn't want to be the first out of the gate," Pruett said. "There's not as much good information or good intelligence to have any benchmarking."
Once negotiations begin, buyers should not expect any easing on rates, although increases certainly will not be as high as the past few years, CWT's Silver said. She predicted average rates will increase between 2 percent and 5 percent for 2009, as hoteliers risk losing more occupancy by holding onto average daily rates. This also will mean increased opportunities for negotiating for amenities, American Express' Schnur said.
Advito's Pruett said the uncertain economy also means it will be a tougher environment to negotiate multiyear deals, which some buyers recently have turned to as a remedy to the costly annual RFP process
(BTNonline, Oct. 22, 2007). Hilton's Lodridge-Kover said there have been more conversations about multiyear deals, but not yet enough to establish a trend. Silver said they're not the best choice in a rocky economy.
"Some will do two-year deals," she said, "but clients are not banging down the door for them. It still tends to be a yearly procurement cycle."
NBTA's Maguire this year expects more split negotiations, in which hoteliers set a rate and then return to the negotiating table midway through the year to reexamine them. The process means more work for buyers, he said.
"There's still a cost involved, but it's nothing on the level of RFPs," Maguire said. "It can be done with a letter of agreement."
To that end, some buyers are leveraging the current economic stumbles to revisit their 2008 rates. Silver and some buyers said specific properties are approaching buyers with discounting offers. Silver said about half of her clients are taking a market-by-market look at opportunities for lowering 2008 rates.
Schnur also reported seeing an interest in limited midyear negotiations, although Pruett has not seen much of a push. With 2009 negotiations on the brink of beginning, most buyers do not have the resources to make large-scale renegotiations cost- and time-effective.
"It's not an across-the-board strategy," Silver said. "Clients are pursuing markets they're noticing are getting a little bit softer, but most aren't thinking about 2008 right now."
Hilton's Lodridge-Kover said a few companies have approached her team looking to revisit 2008 rates, but it has been a minimal number. There are not rampant renegotiations right now because of the associated administrative costs for both hoteliers and buyers, she said.
Hoteliers in many cases are resisting renegotiation requests as well, she said.
"We stand pretty firm that this was an annual rate that was negotiated," Lodridge-Kover said. "If a customer is going to ask us to lower rates, there has to be a good business reason for us to do that, and history has proven that lowering rates does not equal increased volume."