Buyers negotiating for 2008 hotel rates are finding a heavy cost to last-room availability in key markets, hoteliers are receiving more queries as to their environmental policies and both are seeing the process from request for proposals to agreement elongate and increase in complexity.
Buyers are facing a negotiating climate in terms of rates only marginally better than what they faced last year, said Bjorn Hanson, principal of PricewaterhouseCoopers' hospitality and leisure group. Corporate rates will increase by 5.25 percent on average after negotiations, PwC's Hanson said.
"The range of negotiated increases will be larger than last year, meaning those companies that have large, reliable commitments will fare a little bit better than those companies that didn't meet their targets last year," Hanson said. "It's more in the 4 percent to the 6.75 percent range."
Rick Wakida, global travel manager for Foster City, Calif.-based Gilead Sciences, is in the beginning stages of negotiations. With early bids sent out, he is bracing for increases, particularly in such high-demand markets as New York and Chicago, he said. "It definitely appears to be a seller's market," Wakida said.
The news is better, however, in some other markets, said Priscilla Campbell, practice leader of hotel advisory services for American Express Business Travel. In cities that have seen new hotel builds—Boston and Las Vegas, for example—buyers might be gaining ground, she said.
"We are seeing some indications that buyers are going to have a little more leverage in some markets, giving them the opportunity to assert negotiating power a little more strongly than in the past," Campbell said. "It's a very soft swing, but there's definitely opportunity in 2008 that didn't exist in 2007."
Still, even though supply growth has been accelerating, it still remains below the long-term average and will continue to do so in 2008, PwC's Hanson said. "The balance of power remains with the sellers, but it's not as imbalanced as the last two years," he said.
Perhaps no aspect of negotiations makes this imbalance clearer than last-room availability. High occupancy continues to attach a premium to LRA in agreements, as was the case last year
(BTN, Nov. 6, 2006). Consultants said even when it is available, it's not always worth that extra cost.
Campbell said hotels are becoming savvier in their yield management strategies. Therefore, she said, buyers this year need caution when negotiating last-room availability agreements.
"Hotels are redefining what a standard room is, so there are a lower percentage of rooms that qualify," Campbell said. "Some hotels are taking it farther, and during high demand periods they can take away corporate rates and put in minimum- and maximum-stay requirements."
Part of that is perception, particularly in key markets, said InterContinental Hotels Group vice president of worldwide sales strategy Jill Cady. The standard rooms available through LRA generally are the first to be snatched up by hotel customers-at-large, so availability always seems to be blocked out in those markets, she said.
Gilead's Wakida said that while his overall RFP has not changed, he is prepared for a difficult battle for LRA in high-occupancy markets. For those hotels, he already has an alternative strategy in mind, he said.
"We might look at the bids a little differently," Gilead's Wakida said. "The hope is that in a lot of markets, we can get LRA, but in those others we might take an extra property to offset the fact that we might be closed out."
Outside of the most saturated global markets, such as New York, Dubai and London, buyers generally are holding strong to demands for LRA rates, IHG's Cady said. This is true even in cases in which buyers could considerably moderate their rates by foregoing LRA, she said.
"We're seeing a continued trend of buyers not wanting to accept non-LRA rates," Cady said. "They would rather pay a bit of a premium."
Travel management companies said they are urging clients to be sensible in seeking LRA. "Ultimately, we feel that in a good majority of markets, it's important," said Neysa Silver, director of Carlson Wagonlit Travel's hotel solutions group. "We look at occupancy, and we're really careful to push non-LRA rates in markets that can't bear them."
Buyers with a strong negotiating position, meanwhile, are looking at other strategies to get around availability difficulties, said Bob Brindley, vice president of the Americas for BCD Travel's Advito consulting division. In some cases, buyers are looking at run-of-property LRA agreements covering all rooms except suites, which can come at a higher premium depending on negotiating clout, he said. Buyers also are trading down hotel tiers for short stays and certain types of travelers in an effort to make up rate costs, he said.
Brindley also has seen a slight resurgence of block purchases, in which buyers secure a number of rooms in a hotel for exclusive use of their travelers. That strategy, however, is feasible only in certain markets, he said. "It had faded out as a strategy," Brindley said. "It's not happening across the board, but it is coming back in specific situations."
Dynamic pricing, on the other hand, is playing less of a role in negotiations than it did last year. Travel buyers largely have resisted hoteliers' push for floating rates, which are based on a discount off best available rates, rather than fixed negotiated rates
(BTN, May 21)."Dynamic pricing is starting to penetrate deeper and deeper each year, but I don't think it's at the levels we once thought it would be," CWT's Silver said. "A negotiated rate still tends to be the strategy that we help our customers realize."
IHG's Cady said she hasn't seen any increased interest from travel managers, with a major exception in markets where buyers don't have as much volume.
Wakida said his own strategy continues to oppose dynamic pricing agreements, even though he understands the logic behind it, particularly in markets that a company considers secondary or tertiary. "Those are the markets best suited for it," he said.
Consultants and hoteliers also are noting an increase in questions in requests for proposals asking for information on hotel environmental policies. While brandwide green policies concerning hotel builds still are hard to define and relatively rare
(BTN, April 2), buyers are asking specific questions about hotels' individual policies, including those involving laundry service.
"Last year, I can only think of one client who incorporated eco-friendly questions into the RFP, and this year we have many," according to Amex's Campbell. "The trend most definitely is growing, and hotels that accommodate this are going to end up winning their favor."
Even though green questions are in requests for proposals, the role they play in negotiations likely will be negligible, said Bob Peper, CEO of Colville, Wash.-based RFP provider Lodging Logistics. Consultants agreed that, for now, green questions largely are for the purpose of data gathering.
"It definitely is something that is getting asked, but I don't know that they're using that as a decision-making criterion," Peper said. "Some companies are putting out what their own green initiatives are so that the hotels maybe will adopt them."
At most, Advito's Brindley said, the only role green questions are likely to play in negotiations at this point is as a tiebreaker.