Buyers expecting a sea change in their favor at the hotel negotiating table this year should proceed cautiously, as few industry watchers predict a significant shift toward a buyer's market. However, the portent of an economic recession may provide buyers with bargaining chips for 2009 rates.
"It's still pretty early in the process to see anything definitive shaping up. We see a mix of favorable trends for buyers and a mix from what we hear from the hotels," said Bob Brindley, vice president of the Americas for BCD Travel's Advito consultancy. Demand patterns differ and outcomes vary, depending on the buyer's particular industry performance, Brindley noted. Corporations with high volume mostly in key markets may see disparate results from those whose programs emphasize second-tier markets.
Although supply and demand in the United States is said to be leveling off, rate increases for high-demand locations are expected to hit double digits in 2009. Overall, though, room rates are rising by a smaller percentage this year than last year, and some analysts are expecting a dip in occupancy rates.
For 2008, average daily room rates in the United States increased by 5.2 percent, versus 2007, whereas that figure for 2009 is projected to be 4.5 percent, according to PricewaterhouseCoopers lodging consultant Bjorn Hanson.
Hotel companies have planned robust supply increases for 2008. But with an estimated 200,000 new available rooms by the end of 2008, infiltrating the market during a time of sluggish demand may prove detrimental for suppliers, PKF Hospitality Research reported.
Due to the increase in available rooms, the U.S. average occupancy rate is expected to decline one percentage point this year, to 62.2 percent, compared with 2007, according to PKF.
[PULL_1]There is a danger in basing expectations on broad statistics, since hotel pricing strength varies dramatically from one market to the next, and each client's travel patterns differ greatly.
"I'm not sure if the pendulum has swung completely in our favor," said Cindy Shumate, director of travel services for Estee Lauder. "This past year, I have seen hoteliers come back to me and offer me different pricing after the first one was rejected. They have been more aggressive during the RFP season, and they are more willing to come back and offer a new price."
Other recent indications also are showing a shift. Last month, Morgan Stanley analyst Celeste Mellet Brown in a research note wrote that "industry sources suggest that corporate rate renegotiations first pushed by the financial industry are trickling into other sectors. The corporate rate renegotiations are themselves extraordinary; the last time rates were re-cut midyear was in 2001, and rates will again be negotiated for 2009. We also expect companies to reduce total trips by employees due to rising airfares, resulting in lower corporate transient demand and lower attendance at events that are not canceled."
"At the beginning of the year, last room availability was completely off the table, and now it is fully on the table," said Marc Casto, president and COO of Silicon Valley-area travel management company Casto Travel. "I have never seen such a dramatic switch. It was stunning to see how different contracts looked in January versus in April. I can easily foresee a situation where [revenue per available room] over the course of the summer and the latter part of the year starts spiraling down."
Wooten said he is seeking "a little better leverage to get last room availability in all of the markets."
Economic uncertainty has forced some travel buyers to cut back, but high room rates have kept close scrutiny on the lodging line for many years. Seeking savings where possible, some clients have traded down to limited-service tiers or cut overall travel and turned to such travel alternatives as remote conferencing. For example, 73 percent of travel managers surveyed in November by the National Business Travel Association said they planned to reduce luxury hotel bookings in 2008.
Luxury chain hoteliers expect to see a 3.8 percent decline in occupancy, but plan to offset it by increasing room rates 5.8 percent, PKF reported. Midscale hotel occupancy rates are expected to increase 3.4 percent, mostly due to corporate bookings, PKF affirmed.
"We are also starting to see rates creep up at these budget and moderate-tier hotels," Amex's Campbell said. "It sometimes doesn't need to be classified as a shift or trade down because the savings may not even be there."
Despite some buyer optimism about a shift in their favor, corporations are still advised to add as much as 5 percent or more to their budgets, to accommodate rising hotel costs, said Bob Langsfeld, Corporate Solutions Group president.
"The only way to control 100 percent of your travel spend is to not travel," he said. "This season is going to be longer, there are going to be more issues brought into the negotiations and more corporations are going to look to downscale their travel spend."
In such a challenging and mixed environment, doing one's homework is paramount.
Data Analysis
Developing a proper plan of action is the first step toward smooth negotiations, and ensuring that enough research is complete before the process begins allows corporations to step up to the table with a clear blueprint of their needs.
Travel managers spend much of the first six months of the year developing spend analysis by collecting data from travel management companies, expense tools, credit card companies and booking tools. Buyers rely heavily on data gathered from the previous year to determine a range of spend and to predict what would be good offers from the hotels.
"The best practice for 2009 is to know your data and evaluate your data and to do all possible to leverage it during negotiations; that will go a long way," said Amex's Campbell.
Understanding the historical elements of a corporation's travel program helps travel buyers specify how many travelers, meetings, room nights and locations the hotel company can expect to be booked throughout the year.
Recording and presenting corporate spend data also provides hotel companies with the confidence that a buyer will meet expectations once a negotiated room rate is set. Indeed, hotel companies during the first six months of the year conduct their own research in order to determine rate increases.
Developing the RFP
Armed with data, buyers must prioritize the hotels and/or chains that they will invite to bid on their business. Buyers then develop requests for proposals, which should provide enough detail to suppliers about the company's business needs to allow suppliers to bid.
If a buyer's RFP is not thorough, it could significantly increase calls to the travel department to garner needed information or result in less than favorable rates when a hotelier is unable to quantify the value that the business could provide. It also may extend negotiations well beyond the deadline. One way to ensure an RFP covers all of the bases is to compare it with the NBTA Hotel RFP template.
NBTA's Hotel RFP is a living document that has become the most efficient RFP template available, according to buyers and suppliers, and changes are made to it every year. Last year, for example, demand increased for the addition of more environmentally conscious questions to the 2009 RFP. "Environmental topics have come more to the forefront, and the RFP was an answer that people wanted to find," said Laurie Kazimer, chair of the NBTA hotel committee.
However, some argue that with prices on the rise, going green may have to take a back seat.
"There are a lot of green questions on the NBTA Hotel RFP, but the responses from hotels are kind of canned, meaning that they will point you in the direction of their Web sites in regard to green initiatives," said Carol Ann Salcito, president of Management Alternatives. "I have not seen one corporation make a hotel choice based on a green policy. It's not cheap to go green; there are a lot of expenses involved." Ultimately, corporations are looking at the bottom line: cutting travel spend.
The RFP process can be time-consuming and costly. Some corporations outsource the process to travel management, consulting or independent technology companies, such as Lanyon (which acquired RFP Express), Lodging Logistics or Uversa International. With RFP Express, Lanyon manages content for 80,000 hotels and handles RFPs for more than 21,000 corporate, leisure or TMC accounts.
"Technology on a very high level is a best practice; it makes [the RFP process] somewhat easier and much more efficient," said Campbell. "There has been a rise in clients using RFP tools; it is the way to go when managing a hotel program. They really do a great job with sourcing the technology."
How ever corporations tackle the RFP, developing it requires the use of the corporate data collected. For example, deciding which hotel properties should receive the RFP is determined largely by the analysis. Travel buyers aim to ascertain how much can be spent at a property compared with the year before and must determine what amenities to seek when choosing a hotel, i.e., free WiFi, full or limited service, etc. Also, corporations identify whether they want to negotiate chain-wide or property-level deals. Often, chain-wide deals are dynamically priced, and property deals are fixed with corporations agreeing to a set number of room nights per year, according to Wyndham Hotel Group senior vice president of global sales Greg Land.
[PULL_2]"There's been a dynamic pricing shift because of the economy: A lot of companies that don't have a lot of travel suppliers will go that route," said Land.
"Smaller corporations tend to book dynamically priced rates because they are looking to expand their travel program, but are just in the beginning phases of developing a history with a hotel company and are unable to promise a guaranteed amount of room nights per year."
Issuing the RFP
Once travel managers decide which types of deals they want and which chains, cities and properties to bid on, they issue their RFPs.
It is at this point that hotels truly appreciate receiving RFPs that used the NBTA template. Wyndham Hotels said the process of transcribing the various forms of RFPs can be difficult due to lack of standardization. Wyndham has employed a third party to transcribe and synch the RFPs. "We try to be really flexible to all of our customers. We would hate to dictate how a customer would want to communicate with us. However you want to work the process, we will work with you," said Land.
Once corporations are aware that the hotel companies have received their bids, hotels are given a deadline to respond to travel buyers with prices, which usually can take 45 to 65 days. Corporations then must decide whether they want to accept, decline or go through a second round of negotiations. This is contingent upon the importance of the property and the program. Typically, corporations will issue rejection letters to companies that are extremely out of reach, but if a location is needed, they might renegotiate.
Wrapping Up
Once hotel companies receive the acceptance letters, they are given a deadline to have each rate loaded into the global distribution systems. Hotels are given instructions and codes to upload the rates into the GDSs for the new year, so travelers and the designated travel agencies can access them online. This process is considered to be the most tedious of the season and is described as a "scramble" at the end of the year to meet the deadlines, according to Wyndham.
The process can be fairly complicated due to the lack of standardization. Each hotel company or property may have to manually input the data into the GDS, or they may have an automated program; either way, the process is lengthy.
Additionally, travel buyers have to be aware of inaccurate rates loaded in the system. Many corporations hire outside teams to audit the rate-loading process. Some also conduct two rounds of audits to ensure that the rates are accessible and available by January of the following year.
• • • • •Timeline
Year-round
Revenue Analysis: Hotels track revenue, daily yields and marketshare delivered by each corporation, as well as opportunities to expand relationships. Hotels also track overall yields and revenue mix to determine optimum mix to maximize occupancy, RevPar and profit.
Mid-January to June
Spend Analysis: Corporations mine credit card, expense, agency and GDS data to identify total room nights and volume by city, property, chain and hotel type, travel patterns, average cost per location, city and trip, as well as occupancy and rate trends in key markets.
May to June
Inhouse or Outsource: Corporations determine whether to outsource the hotel RFP process or handle it inhouse, which technology or format to use and how suppliers will need to reply.
June to July
Set Strategy: Armed with spend analysis and business strategy, corporations develop hotel negotiating strategy by tier, city, market, chain and location, and factor market occupancies, RevPar and forecasts.
Late July to Early August
Target Partners: Corporations identify from which properties, locations and chains to seek bid proposals after they consider their company's financial objectives, ability to deliver volume and meet the demand for rooms in specific locations.
Summer to Fall
Develop RFP and Bid Packet: Corporations update and finalize RFPs with their latest service, safety and security requests, required amenities and upgrades, and terms of payment and distribution.
Mid- to late August
Solicitations and Bid Meetings: Corporations issue their bid packets, which include cover letters, corporate overviews and spending and volume details, along with their RFPs; perhaps hold bid meetings or conference calls to answer any questions about corporate objectives.
Late August to September
Pricing: Hotel properties and chains finalize pricing for the next year and share with corporate buyers the rate benchmarks to expect for the following year.
Early September
Bid Preparation: Hotel properties and chains evaluate RFPs, past performance and yield expectations to develop bids or decide not to respond. National sales offices compile and consolidate responses for all locations on chainwide RFPs. Hoteliers determine whether to pitch a negotiated rate or dynamic pricing.
Mid- to Late September
Bids Due: Responses due to buyers, typically 45 to 65 days after receipt; corporations must consider deadlines and hoteliers' ability to meet them in master timeline for the process.
October
Bid Analysis: Corporations compile all RFP responses, analyze which proposals provide the best rates, value and terms and may negotiate further with suppliers.
October to November
Negotiations: Corporations and hotels often engage in one or two rounds of negotiations on pricing, last room availability, amenities and other contract details. Some corporations base decisions only on RFP response.
November
Negotiations and Decisions: Corporations complete evaluations and begin final contract negotiations with selected vendors; typically send letters to rejected bidders to explain why their bids were declined.
November thru December
Rate Loading: Hotel, corporation, agency and third party begin process to ensure that negotiated rates are loaded into GDS, online booking and agency systems and are viewable to users.
December thru January
Rate Auditing: Corporations may initiate one-time, periodic or year-round audits to ensure that rates negotiated are in fact accessible to travelers through booking systems of choice.
January to February
Re-Auditing: Properties that failed rate audit are notified and ability to book the negotiated rate is retested. Should hotel fail second or third audit, corporation may invoice for penalties stipulated in contract or drop the property from the hotel program.
Year-round
Deliver Volume: Corporations promote negotiated rates, program booking and agency systems to preference preferred vendors and take other steps to ensure volume commitment is achieved.
Sources: Priscilla Campbell of American Express, Maria Chevalier of Johnson & Johnson, Laurie Kazimer of NBTA Hotel Committee, Greg Land of Wyndham Hotels and Carol Ann Salcito of Management Alternatives