The lodging industry's top players said they have altered their outlook for revenue trends for the rest of 2008, potentially resulting in a shift in the corporate buyer's favor during the next round of rate negotiations. As many hotel suppliers see softer demand, travel buyers at some big companies have said hotels are more willing to renegotiate corporate rates mid-year, which treads against typical negotiation patterns.
Morgan Stanley last week downgraded its stock rating on Marriott International Inc., suggesting that lodging trends are "worse than perceived." Due to an expected decrease in corporate bookings, the firm's analyst Celeste Brown in a research note wrote that it might be more difficult for the lodging industry to weather current economic conditions without corporations as a crutch.
"While we believe the financial sector corporate rate renegotiations are well-understood, neither the renegotiations from other sectors nor the increased group cancellations [and] pressure on the group rates are well-known by the market," Brown wrote. "The corporate rate renegotiations are themselves extraordinary; the last time rates were re-cut mid-year 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."
Marriott chairman and CEO J.W. Marriott Jr. agreed, saying "businesses are cutting back," adding that upcoming corporate rate negotiations will be challenging for the hotel company, according to Reuters.
"In the United States, business is really soft on the weekends and now beginning to get soft by transient travelers during the week," Marriott said during a 2 June interview on CNBC.
After Morgan Stanley's note, Marriott International cut its projected second-quarter revenue per available room growth in North America to 2 percent from previous guidance of 3 percent to 5 percent.
Given such trends, there might be a small window of opportunity for some travel buyers. While most likely have not seen the negotiating pendulum swing completely in their favor, some have reported unsolicited mid-year renegotiations and a less firm stance on rates by suppliers compelled to accommodate corporate customers.
"This past year I have seen hoteliers come back to me and offer me a different price after the first one was rejected," said Cynthia Shumate, Estee Lauder travel services director. "They have been more aggressive during the request for proposals season and they are more willing to come back and offer a new price."
"Some hotels have contacted us to reduce rates, especially in New York City," said Discovery Communications travel services director Yukari Sison. "Some are really worried about the economy and what that may mean. They noticed a decrease in our volume, so they did lower our rates."
Richard Wooten, director of corporate travel services for Lockheed Martin, said "some individual properties have come back to us and offered a better rate. This is another indicator that things are getting soft, and I am definitely looking at a buyers market."
Management Alternatives president Carol Ann Salcito corroborated the trend, saying hotel properties are "enticing" both their existing clients and those companies that did not select them for current preferred programs "because they are finding that not enough of their rooms are being filled."
She has observed such developments primarily in the United States, and to some degree in Europe, the Middle East and Africa, but noted "no relief in Asia-Pacific."
Part of the hotel's industry challenge stems from high oil prices, which prompt airlines to raise fares, and in turn prompt travel managers to curb business travel spending, including hotel expenses. For example, some buyers are downgrading lodging selections from full-service to limited-service properties. Also, some business travelers are sharing rooms, according to Marco Roca, senior vice president of development for Wyndham Hotel Group. On a broad scale, when gasoline prices increase by 10 percent, U.S. lodging demand decreases by 0.5 percent, according to PricewaterhouseCoopers.
Moreover, after increasing supply for years to keep pace with strong demand, hotel companies now are finding that slower demand growth may pressure occupancy and RevPar.
"There is always going to be turmoil," Marriott said during this week's annual New York University hospitality conference. "I have been through six of these things and this is number seven. It's not going to be fun, but we always get through it."
Analysts and other major hotel companies are predicting a decline in revenue per available room and occupancy during the second half of the year--and have expressed some doubt about the lodging industry's prospects--potentially impacting the negotiating season.
At the NYU conference, Starwood Hotels and Resorts Worldwide CEO Frits van Paasschen said there is a short-term challenge in the United States, but described the U.S. economy as resilient. Starwood and other hotel companies still expect higher revenue per available room, suggesting the overall health of the lodging industry is not as worrisome as the airline industry.
"It's not that bad. It's not chaos. This isn't negative RevPar or negative GDP or an extreme situation," said Strategic Hotels and Resorts president and CEO Laurence Geller, during a panel discussion at the conference.
An InterContinental Hotels Group sales executive said the company has entered the current negotiating season as it typically would. "The negotiation is not final until both parties have agreed to the terms," said IHG vice president worldwide sales strategy Jill Cady. "Deal terms are consistently reviewed to determine what is the right price and terms for the seller and for the buyer."