A panel discussion this week here at the Association of Corporate Travel Executives conference provided fairly confident viewpoints from two large-corporation buyers--as well as an inkling of overall client expectations--as the industry prepares for this fall's hotel negotiating season. Essentially, buyers from Lockheed Martin and Johnson & Johnson seek to spend the same next year as they did this year--although it may not be strictly determined by rate. Overall predictions have hotels continuing to raise rates next year.
"We are going to see greater controls from our organization on demand management than we have seen before, and our expectation is that it remains flat as we get greater value beyond just a rate component going into this year's negotiations, based on what we see to be the trends in demand and the changes within the economy," said Johnson & Johnson travel services manager Maria Chevalier.
Acknowledging some market softening, InterContinental Hotels Group vice president of global sales for the Americas Mike Fegley nevertheless said a flat trend for 2009 rates might be optimistic for clients. Trends differ greatly by market and service tier, he noted, but the buyers responded with their own willingness to consider alternatives to city centers as well as midscale brands.
Lockheed Martin director of corporate travel Richard Wooten also is seeking "a flatter trend on process and hopefully an opportunity on some lower rates--and, certainly, a little better leverage to get last room availability in all of the markets."
Last room availability, in which the corporation's negotiated rate is guaranteed even if there is only one available room left in the property's contracted categories, could be one element of negotiations that makes a comeback this fall as the seller's market wanes--even if only slightly. Buyers are also hoping hotels may be more willing to negotiate on fees.
"We work very aggressively to negotiate out any ancillary fees, and if we needed to move from one hotel property to another to achieve that, then we would," said Wooten. "That could really make the decision."
Chevalier agreed. "Those fees are considered and will continue to be considered as we evaluate one property over another, one brand over another," she said.
One reason midscale properties can be more attractive is that they tend not to charge for such services as Internet access. Wooten said it "kind of puzzles" him that hoteliers charge for Web access, and noted that such a practice "absolutely" figures into his firm's choice of hotels.
"For the last two or three years, we have really made that shift to the mid-tier or limited-tier hotels," said Wooten. "That is kind of the sweet spot for our company, and it has worked out very well for us."
Johnson & Johnson has not traded down, but is considering doing so. "In our case, 70 percent of our hotels today are full service, so, yes, we are looking at shifting that. It is something that is getting upper-management perspective."
"You are certainly going to see" some trading down for 2009, said IHG's Fegley. "There are some very large companies out there that quote 63 percent of their program is in the midscale. If you look at the new supply growth, the two fastest-growing brands right now are [IHG's] Holiday Inn Express and [Hilton's] Hampton Inn. On that midscale with and without food and beverage, you are going to see the rates kind of flatten out a little bit because supply is growing. You are also going to see some demand going that way, but those brands don't entertain the groups and meetings as much--so there is going to be a shift just like in the hard times in 2000-2002. Midscale runs the lowest of occupancy, they have the rooms available, they might be less inclined to charge for LRA--so you are going to see some people shift brands in these tough times. There is definitely softening out there, and they are going to be shifting in people's buying patterns."
Meanwhile, the buyers said, big gateway cities remain the hotels' rate fortresses. "We are naturally going to have challenges in the traditional hot markets, such as New York and Washington, D.C.," said Wooten, noting that the firm's requirements for government per diem rates have kept some Lockheed travelers outside city centers in areas like New York.
"Unless you get some supply in there, the negotiating challenges remain constant in those high-demand markets," agreed Chevalier.