Heading into the negotiating season for next year's rates, travel managers and buyers are developing a variety of ways to offset rising hotel costs. Among other options, they are considering heavier use of lower-tier hotels, which can be cheaper but still suitable for business travelers; adding or consolidating preferred properties, depending on their companies' travel patterns and specific local-market conditions; and including amenities like breakfast and high-speed Internet access as part of preferred programs.
Regardless of how they piece together their hotel programs, many managers will sharpen their focus on compliance--through policy revisions, enforcement and communication to employees--to ensure that methods for controlling lodging costs achieve intended results.
External factors that are largely out of client control are not proving kind. The latest reports from hotel companies, travel agencies and other third parties indicate continued rising rates in the healthy lodging sector, with more of the same expected for 2008. The familiar mix of limited supply and strong demand has, in many major markets, led to ever-higher average daily rates. For 2008, BCD Travel anticipates ADR growth of 4.5 percent and American Express Business Travel expects that "negotiating leverage still will be in favor of the hoteliers as opposed to the travel manager," according to Amex hotel practice leader Priscilla Campbell.
The U.S. General Services Administration raised the standard per diem travel allowance by $10, to $109, to account for a $10 increase, to $70, for standard lodging rates. Though the new GSA per diems, effective Oct. 1., cover only government travel, many other organizations use them as guides for their own travel programs.
Partly due to the expectation of another year of higher hotel costs, many Amex clients are starting to construct next year's hotel programs earlier than usual, Campbell said. "We are well into hotel negotiating season," which normally kicks into full gear in September, she said this week.
In addition to carefully considering preferred property lists and optimizing spend through rate negotiations, Campbell suggested that clients increasingly are finding it challenging to include last-room availability components in their preferred agreements. And when buyers can secure such guarantees, they often come at a premium. "But that should not prevent clients from asking for LRA at an appropriate cost," she said.
"Last-minute bookers are increasingly suffering from inflated rates in the most popular locations, and clients need to ensure that they have negotiated last-room availability in their corporate rates to avoid this," said Margaret Bowler, HRG director of global hotel relations.
According to a recent HRG analysis covering the first half of 2007, 29 percent of global client hotel bookings were made between four and seven days before arrival, slightly less than figures from 2006, and 28 percent of bookings were "denied," up a few percentage points from last year.
In an environment where hotel occupancies are running quite high, denied bookings "are due to clients either not having negotiated rates for particular locations, last-room availability not being included within the negotiated rates, or [LRA] not being honored by hotels," HRG reported in its 2007 half-year survey. "The data would suggest that hotels are not delivering agreed client rates, preferring to accept business at higher rates. This is particularly the case in cities where demand is high, and where corporates have negotiated what appear to be highly competitive rates without last-room availability, based on expected large volumes of bookings, in the belief this will drive down costs."
Beyond the rate itself, corporations continue to examine opportunities to include various amenities in their preferred agreements, including free breakfast, parking and high-speed Internet access. Such add-ons also are helping lower-tier properties attract business clientele, according to travel agency and consultant sources.
"Since nearly all hotel types offer free high-speed Internet connections and continental breakfasts as the norm, companies are saving money by putting travelers in lower-cost hotels, without sacrificing service and traveler satisfaction," said Phyllis Schumann, Runzheimer International product manager of travel management services.
Use of economy hotels has grown by 31 percent since last year, according to Runzheimer's 2007 Hotel Negotiation Survey, which found that lodging costs on average represent 30 percent of total travel and entertainment expenses. Seventy-four percent of 54 U.S.-based travel manager respondents said their companies' business travelers "frequently use" such hotels.
HRG's Bowler noted another related development drawing more business travelers to budget hotels: They are "continuing to open in city center locations, traditionally the domain of full-service hotels."
BCD Travel's clients, however, "showed no significant movement to lower-tier properties," according to the travel agency's 2007 client benchmarking survey.
Compliance is the key
For any managed hotel program, compliance is both a challenge and a key to success. "Average hotel compliance levels in 2007 are 61 percent to 70 percent, lagging behind those in air and car rental programs," according to BCD Travel's survey. "Forty-seven percent of respondents defined their hotel program as encouraged but not mandated, although the percentage of companies mandating hotel policy rose by 33 percent, from 9 percent in 2006 to 12 percent in 2007. Only 46 percent of the survey respondents reported that their policy requires hotel booking through the preferred agency channel. Survey respondents indicate that the percentage of hotel bookings made through the agency of record or the online booking tool has actually decreased since 2006, with 22 percent of respondents indicating that less than 40 percent of their hotel bookings are thus channeled."
Such gaps in managed travel programs jeopardize the benefits of preferred relationships with hotel companies. One of the best remedies is a deeper emphasis on effectively communicating with employees, including via the online booking toolswithin which travelers are guided to negotiated rates and informed of program and property-specific details.
For example, companies don't reap the savings from including amenties in preferred agreements if they go unnoticed or unused by travelers. "Don't go have breakfast at the coffee shop across the street if free breakfast has been included," said Amex's Campbell.
From the supplier perspective, they too want to see that existing and prospective clients can manage their traveler populations and meet negotiated commitments. "This past year, I had more hotels ask me for a copy of clients' travel policies," Campbell noted. "They want to see that the language around the hotel policy is strong enough to support a preferred hotel program."