Euro Buyers See Hotel Hikes

BTN contributing editor Amon Cohen recently discussed hotel negotiating with four European travel managers: Alcatel travel director Cyriaque Benoist, Symantec international travel manager Claire Blades, Syngenta head of global travel management Peter Brodbeck and BT travel manager Jan Tucker-Jones.

BTN: How is 2007 hotel program pricing looking compared with 2006?

Jan Tucker-Jones: We've got about 300 hotels in our program and early indications are that we will be having an increase of around 5 percent. Some London hotels have tried to put their rates up by as much as 22 percent. We're not having it, but they are trying.

BTN: Are any other cities a particular problem for you?

Tucker-Jones: Leeds, Birmingham and Bristol. All key U.K. locations are an issue for us.

Peter Brodbeck:I see an increase of around the same amount—5 percent. In some cities in Asia/Pacific, I have seen even more than 15 percent. In the United States, we also are facing problems. Our key market there is Greensboro, N.C. It doesn't have too many hotels, and they are starting to increase rates by 15 percent to 20 percent. In other places, it is stable. For instance, in our home market, Switzerland, the increase will be approximately 3 to 5 percent.

Claire Blades: The countries with the biggest increases are Russia—where we can be paying $500 a night in Moscow—India and Dubai, where we have seen something like a 150 percent increase, although we haven't finished negotiations yet. Among the European markets in which we have seen big rises are the Thames Valley and London. We have seen a couple of decreases in the German market.

Cyriaque Benoist: For us, it has been stable in Europe, but with significant increases in the United States and slight increases in Asia.

BTN: Using volume is the main technique to minimize price increases, but is that working?

Benoist: Due to the introduction of an online booking tool, we have now achieved a compliance rate with our hotel program of 67 percent. We are using that to explain to chains that we are bringing more travelers on board and that we are being more directive in our policy. We are also telling the chains that we are significantly decreasing the number of hotels in our program, so if they want to stay on board, then they need to be aggressive in their pricing. It is working. It is a good way to counteract their increases.

Blades: The hotels are really looking for their clients to consolidate. We are telling them we are going to give them all the business in their area and it's going to be booked online, which means it's going to be mandated. They love the word "mandated." It clinches the deal for them if you tell them travelers don't get paid expenses if they don't stay with a preferred supplier. It is the sort of thing which can make or break the deal. The hotel salespeople have to explain to their general managers or regional directors why they are going to maintain the rate or even reduce it, so you have to give them something.

Tucker-Jones: This year we did an e-auction on top of the RFP for hotels in Cardiff as a pilot. We have gone down from nine hotels to three hotels there. The Hilton didn't believe we would take away business from them, but we have demonstrated that. We did that exercise mid-term, which has been useful. Even though we've got areas where prices have gone up, we also have some where they have stayed the same or even reduced slightly.

BTN: Are there times when hotels are not interested in giving discounts for additional volume?

Brodbeck:Our key locations are not in major cities, so we have to deal with a limited number of hotels for which we have a significant volume. Not having enough hotels makes it difficult for us to negotiate. In Basel, for instance, we are using one hotel where we have more than 8,000 room nights. They depend on us, but we have no choice, and they know it. We also get a lot of big fairs in Basel, where hotels know they can double their prices, and they are not interested in us. In other markets—for example, Singapore—they don't need us at all.

Blades: The hotels are getting clever. They used to be happy to put all their eggs in one basket, but now they are telling clients they can't take any more because they can find another corporate whom they can charge E2 more.

BTN: On one hand, you're saying that if you mandate your program and give hotels more volume, they will give you a discount. On the other hand, in some cases offering volume is not good enough because supply and demand are so imbalanced at the moment that hotels are not listening to you. It's almost like two conflicting trends.

Tucker-Jones: You're absolutely right. It's more of an issue in some markets than others. We try to build a strong relationship with the chains so that we get the benefits across the board—but somewhere like London can be very hard because volumes are exceeding availability, so obviously prices are going to start creeping.

Blades: We also need to remember that it was only a few years ago when the hotel industry hit rock bottom. Buyers took advantage of the situation they were in. We all knew as buyers that the seller's market would come around again. If you look over five or 10 years, it will pretty much average out because it doesn't take very much in the industry for things to start dipping and the hotels to start cutting rates. You've got to take it when you can. Like Jan says, if you are getting a good rate with a chain in one area, you are going to be paying top dollar with them somewhere else.

BTN: Although you understand that and your peers understand it, do your managers understand?

Blades: Management doesn't just look at the hotel program normally, so you are bringing to the table the bigger picture of the whole travel program. You may have an increase in hotel spend, but you may have a decrease in air spend, and if companies are going ahead with e-solutions, such as online booking tools, then that takes away a lot of travel management charges. As long as you are keeping them in the loop, it shouldn't be too much of a shock.

BTN: Have you increased the number of hotels in your program in some cities?

Blades: Yes, which contradicts in a way what I was saying about not diluting your program. In India, for instance, there are three hotels where we get a really great rate, but they are always full. If we can negotiate with other hotels for a few dollars off the rack rate or even the corporate rate, then we will have to because it is just so busy. In cities where hotels are hungry for business, consolidation is the answer, but it is not the answer in high-demand cities.

BTN: What other strategies are you looking at to keep your accommodation bills down?

Benoist: We are trying to move our travelers from four-star to three-star hotels. This can create a lot more savings than moving from one hotel to another. We analyzed in a scenario how much we could save and it is very significant—sufficient to mandate a change, but clearly that is not easy. We have not yet decided to do it.

Brodbeck:You also need to have the right amount of hotels. For example, in Basel we have three-star hotels but we are also using four- and five-star properties because there are not enough three-star hotels to take all the travelers.

Blades: The hotel rate is not the only factor. The hotel next door to your office may be $20 more than the one down the road, but if the one down the road requires you getting a taxi there and back for $15 each time, then it is a false economy. Internet access is another issue. As an Internet company, we can't be without access, but some low-grade hotels don't have it.

Tucker-Jones: One thing we have tried to do is get more value-add out of hotels. There is an optimum price you can get out of them, but if you start adding extras like breakfast, Internet connections or car parking, it can add up.

BTN: Are hotels trying to persuade you to move to dynamic pricing?

Tucker-Jones: InterContinental Hotels has raised the idea. We pushed back and said no. I always want to cap my costs. With dynamic pricing, I can't see my costs. We all need budgets we can work to.

Blades: We are in a seller's market, which is the reason that hotels are coming to corporates and saying, "How about dynamic pricing?" Over the year, they will end up winning—end of story.