David Townshend
Marriott International senior vice president of corporate and global sales David Townshend last week spoke with Management.travelabout 2011 corporate negotiations and a new agreement with Concur to deliver electronic hotel folio data to users of Concur's expense reporting system.
The past two negotiating seasons were in buyer's markets. How does it look for 2011?
When you look at what has happened over the last two years, specifically within Marriott but very similar to what has happened across the industry, we have lost about 20 percent in pricing--average rates have dropped about 20 percent. That's conservatively somewhere in the neighborhood of five to six years of pricing increases. This has had a devastating effect on the business. Thousands of hotels and ownership groups across the industry have been driven into bankruptcy, and clearly that is not good for the business--it's not good for owners and operators of hotels and it certainly is not good for the traveler or those who manage travel. When we are in this deep of a buyer's market, it's not healthy for anyone. When the downturn hit in the beginning of the fourth quarter of 2008 and the first quarter of 2009, we saw travel come to a virtual standstill. This was further compounded with an avalanche of large-group cancellations that spread across the country. We, like every other business, looked for opportunities to cut cost; we had to. We did everything possible to minimize customer-facing cuts, but at some point you even have to go there in order to survive. For Marriott to continue to provide innovative products and services, and to provide the traveler and the meeting attendee with the level of service that they expect and deserve, we need to be profitable. This, coupled with the increase in demand that we are experiencing in virtually every major market around the world, requires that we get some of this pricing back.
What is your position on corporate pricing for 2011?
We are really seeing an increase in demand around the world driven primarily by a resurgence in business travel, corporate group and better-than-expected attendance at association meetings. Our strategy over the course of the last two years really has been to focus mostly on building occupancy, and it is really starting to come back. We are really proud of what we were able to accomplish under enormously difficult conditions. Once we achieve a certain level of occupancy, we look for opportunities to increase rates. This can be done in two ways: through absolute rate increases or through more effective mix management. In other words, shutting off some of your lower-priced channels, like some of the opaque channels, or just yielding out some of the lower-rated segments and driving more into the high-rated segments. Specific to special corporate rate negotiations, we are going to be looking to increase rates wherever possible. During our second-quarter earnings call last month, our COO [Arne] Sorenson spoke about increases in the high single digits to 10 percent, realizing that some markets will be lower and some will be higher. Likewise, some accounts may be lower and some higher. Obviously, not all markets are equal and not all accounts are equal and this will be reflected in whatever pricing increases we ultimately are able to achieve. Increasing rates is a critical priority for Marriott around the world. It's not just within the corporate segment but within the meetings and conferencing segment as well. We have been very clear with our large corporate customers [with whom] we have very long, tenured relationships. We began these discussions about six months ago about the need to regain some of this pricing and how this is in everybody's best interest. No one wants to see the hotel industry go the way of the airline industry, and unless we get some of this pricing back we all run this risk. I can assure you that Marriott will not allow this to happen.
Are you witnessing travel buyers move toward a purely dynamic model?
I can't say that we have seen an increase in customers asking for that. Moving to a 100 percent variable pricing model will always be favorable from our point of view because whenever a supplier is required to confirm a fixed price six months in advance of when that pricing goes live and then confirm that pricing for a 12-month period, there is substantial risk involved in that. It will always be our preference to move to a 100 percent variable model, but the industry needs to move in tandem as opposed to one chain doing it one way, another chain doing it another way and then other chains not doing it at all. Also, customer acceptance. Marriott has dynamic pricing in place with about 60 of our largest customers, and it's really a mixture of fixed pricing in high-volume hotels and then a dynamic model for those hotels that have moderate to low volume. This is globally. Customers are perfectly fine with a variable model when the market is headed down, but where they have concern is when the market starts to head up. They like the security that a fixed price provides, but in order for this to work for all parties there needs to be an element of shared risk and I'm not sure we have that.
What are your thoughts on midyear renegotiations?
There was an enormous amount of frustration both on the buyer's side as well as the supplier's side based on the volume of rebids that occurred in the first quarter of 2009. No one wants to have to go through that again, and I hope we never will. You never say never, but I can't imagine us going through that again to the degree that we went through it in the first quarter of 2009. We had just finished pricing in the last quarter of 2008 for 2009, and then the bottom fell out of the market and the demand picture changed dramatically. A number of customers did come back asking us to reevaluate and lower our prices. In some cases, we did and in other cases we didn't. It really depended on the markets where [corporate customers] had high volume. Some markets held their own, and others didn't. How I feel about this? I'd refer you back to my comments regarding shared risk and the fact that we do not go back to our customers midyear and ask for rate increases when we see demand spike.
How has the new e-folio agreement with Concur benefited Marriott from a sales perspective?
Overall acceptance has been very positive since many customers were anxious for Marriott to enable this. When the news broke, customers were delighted. Travel managers benefit since it improves their ability to more effectively analyze their travel spend, as well as store their data electronically. It gives [travel managers] a view of their total spend ... not just room and tax but also ancillary spend. Travelers benefit since this data feed automatically downloads into their expense management system, eliminating their need to manually break down their expenses. This helps make for a more productive traveler. I am sure the day will come soon when travel managers, as well as travelers, select hotels because they are e-folio enabled.