New York - Hotel rate increases will be hefty after travel buyers' negotiations later this year, but not on the same scale as in 2006, PricewaterhouseCoopers' hospitality and leisure group principal Bjorn Hanson told buyers and suppliers gathered here for Business Travel News' 23rd annual Corporate Travel World conference. Travel buyers, meanwhile, said they are struggling to maintain the integrity of their corporate hotel programs.
Rates increased by 7.1 percent in 2006, the highest growth in 10 years, Hanson said. This year, he expects that growth to moderate to 6 percent. "It won't get worse this year," he said. "Rates are going to get higher but not increase by as much as they did last year."
In fact, rates could be worse than they are, PwC's Hanson said. Increases have been significant, but have remained mostly below the rate of inflation, so in real dollars, the hotel industry still is not doing as well as it was in 2000, according to Hanson.
Hanson forecasted a pattern of decreasing occupancy this year, a prediction already manifested in 2007 industry performance thus far, even though industry leaders expect that to turn around
(see story). In addition, construction should begin to accelerate throughout 2007 and 2008, he said.
Still, occupancy remains high, Hanson said, making the job more difficult for travel buyers trying to ensure booking at negotiated rates.
At a benchmarking session for Corporate Travel 100 travel buyers, participants said the difficulty in getting those negotiated rates is compounded by the increasing problem of "rate piggybacking." Travelers asking for companies' rates—even if they are not an employee of that company—are getting them at the front desk. Although such an activity could be beneficial to a company trying to meet a room-night obligation, it more often means the negotiated rate is not available to company travelers when they want to book.
One buyer indicated at least one major hotel company is moving toward requiring employee identification to get negotiated rates, but the hotel company would not confirm that.
Compounding the problem is the tendency for front desk clerks to upsell upon a traveler's arrival, bumping what was an in-policy booking to an out-of-policy purchase. Booking and corporate card data can help rectify this, although buyers said data availability and quality in the hotel realm generally is poor.
Hotel, airline and travel management company representatives told attendees that requests for proposals are rife with inefficiencies and costs, adding layers of bureaucracy and expense to the negotiating process.
Advito Consulting vice president of global business intelligence Maria Chevalier said there are more participants in the RFP process, documents are longer and the number of questions asked continues to grow.
"If you're not really evaluating it, it's best to keep it off the RFP," suggested Continental Airlines managing director of multinational sales Kelly Hart. Hart concurred that the length and the time it takes to field RFPs has grown significantly in recent years—representing "tens or hundreds of hours for an already stretched staff."
While Hart said the RFP process is valuable for both buyers and suppliers, Continental is "seeing more and more questions that have little or no bearing on the decision-making process."
Chevalier said "fads" in the travel industry find their way into requests, but linger even after the industry turns to the next hot topic. Among those, Chevalier noted, are detailed questions about procurement, Sarbanes-Oxley, corporate social responsibility, security and data privacy.
While the panel noted that such topics are important to many companies, they questioned whether supplier answers had any weight in decision making. "Companies are asking a lot of environmental things on the RFP, which is fine if they really evaluate it," said Hart. "What weight does it have? Because once you get into the negotiation, it's all about price." Hart continued: "When you come in and ask, 'Where are your hubs?' Give me a break."
John Hackett, Omni Hotels corporate director of sales and business travel, said hotels might have it easier than their supplier counterparts since "only hotels have a standardized RFP." However, Hackett noted that fielding requests still comes at a hefty cost, and remains a time-consuming practice. "We'd rather see our people selling than going through this process," he said.
With the domestic airline industry's return to profitability, buyers now have "more negotiating leverage than in the past," TRX's Travel Analytics vice president and general manager Scott Gillespie during a presentation entitled "Airline Capacity, Profitability and Published Fares."
"Airlines can afford to increase the discounts they're offering," Gillespie said. "We know they won't do that for everyone across the board. Those with strong policies will benefit over those without strong policies, as is always the case."
According to Travel Analytics fare analysis, over the past 18 months published fares have trended upward, with fares in higher buckets growing the most, and lower-bucket leisure fares growing enough to largely offset airline fuel expenses.
"Airlines typically have been able to get leisure fares to come up at the same pace as their fuel costs," Gillespie said. "They are successfully passing through fuel costs at the lowest end of their fare ladder. As you can see for most of the rest of the fare ladder, they're quite successful in increasing fares."
Gillespie said corporate fares also have increased alongside published fares, but noted that discounts range from 10 percent to, in some cases, 20 percent off of published fares.
"If you have a tight travel policy, chances are a one-way ticket went up about $25," Gillespie said. "If you have a pretty loose travel policy, your travelers are likely to be buying higher fares, and average fare price probably has gone up $45 or $50."
A panel of travel buyers discussed rolling out global travel programs and highlighted how to internally monitor hotel programs, which could account for millions of dollars in savings. Duane Futch, director of global travel services for Wal-Mart, said he wanted to make sure the company was getting the most favorable rates, and is conducting rate audits through Bidstork, an electronic request-for-proposals tool. "We're going to go and get our money back. We think that is going to be worth millions a year because with over 18,000 properties, look what happens. We are going to play the game in reverse now."
Kevin Iwamoto, Hewlett-Packard global airline, car, corporate card and ground commodity manager, said he found 40 percent of travelers in his program were booking nonpreferred hotel properties. Along with recently reducing preferred properties from 1,200 to 750, Iwamoto has implemented a policy requiring travelers to give one of five reason codes when booking a nonpreferred hotel in its online booking tool. "I am determined to find out what that is, where is it coming from and how to bridge that gap," he said.
With mega travel management companies having approximately 25 percent to 30 percent of U.S. market share, consolidation is inevitable, but the cost of creating a rollup may be too high, said Jack O'Neill, COO of Carlson Wagonlit Travel North America, during a panel discussion of North American mega TMC executives. "The cost of entry is getting pretty steep," O'Neill said. "With the necessary investment to manage in terms of technology and global capabilities, it would probably have to be sort of a niche rollup."
Meanwhile, one of the biggest challenges in the Asia/Pacific market will be providing consistent technology solutions, including online booking tools, said Andrew McGraw, senior vice president and general manager of American Express Business Travel North America.
"In Asia, you have dozens of languages, cultures and philosophies and the way they do business is going to be a little different," added Tom Gleason, president of HRG North America. "Many times when you sit down with a corporation, they are very clear with their solution in North America and in Europe, but the solution in Asia is a little bit muddier because they have to get there through long-term relationships."
The panelists also discussed standardizing data and service in the Asia/Pacific region. "The key is to drive business into regional call centers where you can standardize the technology and make the processes more consistent," said John Snyder, president and COO of the Americas for BCD Travel.
Senior executives from American Airlines, Carlson Wagonlit Travel, Farelogix and Sabre all said their companies submitted comments to the European Commission about potential global distribution system deregulation in Europe
(see story). "Since flag carriers still hold an interest in Amadeus, some level of regulation is appropriate. Those flag carriers dominate their home market," said CWT executive vice president of industry relations Mike Koetting, referring to the carriers—Air France/KLM, Lufthansa and Iberia—that are partial owners of the GDS. On the other hand, Farelogix president and CEO Jim Davidson said regulation has "stymied technology and creativity," and Sabre executive vice president and group president Tom Klein said that "once airline ownership goes away, it is hard for any regulator to not deregulate." AA vice president of global accounts Frank Morogiello, though, said a broader view is necessary. "We all must remain flexible on distribution," he said. "We think there is some excessive cost in Europe. You should focus on the total distribution cost. The GDS is one area, but so are commissions, discounting, frequent flyer miles, et cetera. We still think it costs too much."
When Lockheed Martin sought to put in place a traveler security and tracking system, the price was an obstacle. Yet, director of corporate travel Richard Wooten said the company needed such a system after facing problems with its own internally developed module. "Our folks are going to parts of the world considered high-risk," Wooten said.
What resulted was a new pricing model—negotiated between Wooten and IJet CEO Bruce McIndoe and presented at CTW—to charge travelers on a transactional basis when booking.
"Lockheed started the per-transaction charge," McIndoe said, noting that soon others followed suit. The first was Carlson Wagonlit Travel when it partnered with IJet to offer security services to their client base. McIndoe said that depending on volume, transaction fees range between $1 and $1.50 per booking, which offers "full IJet support" to travelers, Wooten said.
Jonathan Tisch, Loews Hotels chairman and CEO and chairman of the Travel Business Roundtable, spoke of the need to create a "21st-century visa system" in order to secure the future of both business and leisure foreign travel to the United States.
The entry process into the United States recently was rated as the world's worst and most unfriendly, with foreign visitors often having to wait hundreds of days to secure a visa and encountering harsh security officials upon arrival, according to Tisch. However, through the Discover America Partnership, of which Tisch is among the leaders, policy makers are better hearing the travel industry's voice, he said.
"There are highly effective officials on Capitol Hill who are starting to listen to us," Tisch said. "We are making progress."