As global market conditions continue to deteriorate, the lodging industry finds itself squeezed by a desire to maintain rate integrity without jeopardizing corporate relationships. Hotel rates paid by corporate travelers rose in all global regions in 2008, but the slowdown late in the year has hoteliers looking to offer better deals and in some cases reduce their corporate negotiated rates for 2009 in order to hold onto their clients, according to Hogg Robinson Group.
"There is no denying that these are challenging times and with them, we are seeing a noticeable shift in business practices," said Margaret Bowler, director of global hotel relations at HRG. "Current market conditions are prompting a changing dynamic in the industry, which is creating opportunities to both hotels and corporates. Over recent years we have seen hotels deny corporates their negotiated rates during peak periods in favor of more lucrative sales. With a greater focus now on long-term, stable relationships, hotels are opening up availability on corporate rates once more."
HRG's U.K. clients said they are still traveling, but they are changing their travel patterns and reducing expenses as the global economic slowdown takes a toll, HRG reported. The average number of nights a corporate traveler stayed in a hotel across all locations in 2008 dropped to 1.5 from 1.9 nights the year before, HRG found.
In addition, HRG indicated that more corporate travelers last year stayed in lower-tier properties than before. Average rates in four- and five-star properties continued to rise even into the fourth quarter, with the five-star sector experiencing as much as a 12 percent increase suggesting that "the top end of the market is yet to feel the effects of the economic situation," HRG wrote in a report published Tuesday. Many HRG clients shifted their business to three-star properties where, "in many cases," corporate clients can receive a competitive rate along with value-added bonuses like free Internet, parking and free breakfast.
Bowler described the the 2009 corporate negotiation season as "messy," saying that corporates were satisfied with receiving a flat to nominal rate increase for 2009 when negotiations began in September, but by November they turned the tables on hoteliers, demanding to see rate decreases and value-added amenities.
"For the past four years, demand and rates have been going up, which means that the corporate very much felt like whatever the hotel said, they were lucky to have a price. Whatever rate was offered, they had to take with a bit of negotiation," said Bowler. "This is the year where the corporate believes that the balance is now switched. The corporate is able to dictate: 'This is what I want to pay and this is my strategy.' "
Also, Bowler noted a shift in contractual patterns, saying that some corporates were no longer looking to lock in a rate for 12 months, aiming instead to renegotiate on a monthly basis.
"The corporate is all about making sure that they have the best price, the best rate and the best value knowing that for what they are giving the hotel, it makes sense," Bowler said. "They now perceive [lodging] as one of their big opportunities for savings." Corporates also are pushing harder for last-room availability and against dynamic pricing, Bowler said, while in some cases consolidating their programs and forcing out those hotel firms with which they do not have a strong relationship.
In many cases, Bowler said, hoteliers are proactively requesting the corporate business, but corporates "have long memories" and "are sticking with the ones that worked with" them.
According to HRG, Moscow for the fourth-consecutive year was the most expensive market visited by HRG clients, with an average room rate of at £303.35 ($US439.22). New York's full-year average was £222.97 ($US322.84), followed by Paris at £200.16 ($US289.81). Price increases in Abu Dhabi, Geneva and Zurich put those cities into the top ten while Dubai notably fell to eighth from third-priciest in 2007. "Demand is definitely falling, but I think it is more so that there is more supply and we always knew that this was going to happen to Dubai," said Bowler. "It is frightening the amount of rooms that have opened and the amount of rooms that are still set to open in Dubai. If you look at Abu Dhabi, it is still storming because there aren't enough rooms in Abu Dhabi for the demand, but what will happen in Abu Dhabi is, it will mirror Dubai.
"Average hotel rates are flat or falling in many locations, but contrary to what many may expect, hotels are not slashing prices," she continued. "Instead, the majority of hotels are adopting a sensible long-term strategy to offer value rather than significant price cuts to customers in order to maintain their share of the market."
"When you break that down into quarters of 2008, you can clearly see the last quarter rates were going backward year on year," Bowler said.
Related resource:
HRG 2008 Hotel Survey