Hotels Adjust Corporate Rates

Buyers who negotiated 2009 rates in rosier times for hoteliers now have new opportunities for savings with targeted renegotiations, as some hotel companies have implemented mechanisms to adjust corporate rates to reflect market declines. Meanwhile, analysts are elongating their forecast for a hotel buyer's market, with hotels this year now expected to see their deepest rate drops in decades.

A recent analysis showed hundreds of benchmarked booked rates were coming in below levels negotiated in October and November, said Neysa Silver, director of hotel consulting in the Americas for Carlson Wagonlit Travel's Solutions Group. Bob Brindley, vice president of BCD Travel's Advito consulting unit, said as data comes in from the first quarter of the year, renegotiating opportunities would become clearer.

"Definitely, as we go into April, we will see clients going back," Advito's Brindley said. "They're not going to open up a whole new request-for-proposals process, but if they see, for example, a negotiated rate of $175 and booked rates come in at $140 or $150, it's worth revisiting, especially if a client uses the property a lot."

Negotiating opportunities cross all hotel tiers, Brindley said. "Luxury properties have especially been hit hard, with the double whammy of people looking to save money and not wanting to be seen staying in a luxury property," he said.

PKF Hospitality Research in March revised its 2009 forecast for the U.S. lodging industry, now saying there will be a 13.7 percent annual decline in revenue per available room versus its earlier prediction of a 9.8 percent decline. The forecast said occupancy would drop by 7.8 percent and average daily rate by 6.4 percent, the steepest plummet since PKF began compiling data in 1932, according to PKF Hospitality Research president Mark Woodworth.

Additionally, PKF said only two markets, Minneapolis and Orange County, Calif., will begin to see RevPAR gains again by the end of the year. In 2010, 12 additional cities will follow—Albuquerque, N.M.; Atlanta; Austin, Texas; Chicago; Columbus, Ohio; Dallas; Detroit; Fort Worth, Texas; Houston; Nashville; Oahu, Hawaii; and Raleigh, N.C.—with the rest of the major markets beginning a recovery in 2011.

The once invincible New York market is forecast to take an especially hard hit in terms of RevPAR this year, dropping 26.1 percent. CWT's Silver said those hoteliers already are dropping negotiated rates to boost occupancy.

"By and large, the suppliers are coming to us," she said. "Some are dramatically changing their rates, up to a $100 decrease."

The East Coast felt the initial hit, but better hotel deals now can be had in every market, said Kevin Maguire, president of the National Business Travel Association and University of Texas travel manager for intercollegiate athletics. It usually will take buyer initiative to access them, he said.

"Hotels are very hesitant to budge and lower the rates, and they'll come up with all kinds of explanations of why they can't do it if you don't push the issue," Maguire said. "If you push, the hotels will back off."

"Obviously, they need people in the hotel, so they are very open to this from the supplier standpoint," CWT's Silver added.

For Debbie Dayton, global head of travel-related services for Deutsche Bank, the new climate already is clear. She shifted its global hotel sourcing program to an April 1 to March 31 cycle, believing hoteliers would be more receptive to discussions after the holidays, when they were not bogged down with most of their other corporate negotiations. Many of her peers in the financial sector have done the same, she said.

"It worked in our favor this year," Dayton said. "Instead of having to go back and renegotiate, we are taking advantage of the fact that the market is deteriorating very quickly."

Some hotel companies have technology in place that will help buyers. Marriott International—in addition to allowing corporate clients to book promotional rates lower than negotiated rates without incurring a penalty—has an automated system that nightly compares corporate rates against benchmark and promotional rates, said a Marriott spokesman. If benchmark rates are lower than the corporate negotiated rate for an extended period of time, the corporate rate is lowered to that benchmark.

"That takes the mystery out of it," said Dominion director of travel and corporate services and BTN 2007 Travel Manager of the Year Donna Kelliher. "We do quite a lot of business with the Marriott brands. That's as collaborative as you can get."

Other major hotel companies leave it to the discretion of individual properties. "It is the policy of IHG to provide overall guidance on pricing and promotions to our hotels while enabling the hotels to act within to their local market," said InterContinental Hotels Group vice president of strategic accounts Jill Cady. "IHG hotels have the ability in the system to flex down preferred/negotiated rates should market conditions call for such an action."

Some individual hotels also are taking the initiative to lower negotiated rates. Advito's Brindley said recent rate-loading audits have shown certain hotels are loading rates below those that were negotiated. "It's a discrepancy, but it's a good discrepancy," Brindley said.

That's good news for buyers for whom renegotiation is not feasible. BlackRock vice president and global travel manager Maria McSorley negotiated her 2009 hotel program in October. Before the year was over, she went back to renegotiate such value-adds as Internet and last-room availability and considered additional reevaluation at the beginning of 2009. However, reduced travel levels deterred her.

"Even the commitment we had initially we weren't able to meet," McSorley said. "What good is it that I go back to a hotel and ask for a better rate when I'm still not giving them what I promised them?"

Dominion's Kelliher said a strong relationship with hoteliers would help resolve volume challenges. "We make commitments based on what the expectations are based on any market, and it's hard to be extremely accurate in the times that we're in," she said. "If we're not meeting commitments, we would hope they would reach out to us, just as we will reach out to them."

Even outside of renegotiating, Kelliher said buyers had a slew of opportunities, particularly if they focus on their top travel markets. "Most travel managers will be monitoring this very closely," she said. "You'll see an effort to calibrate rates, or go with a dynamic pricing model or spot-buying."

Seth Harris contributed to this report.