Midprice hotel chains are gaining favor with travel buyers, as trading down continued to gain traction as a strategy in 2008 hotel programs, a combined result of demands from upper management to cut travel program costs and repositioning of midprice brands as more attractive options for business travelers.
Overall hotel industry data confirms the trend, and it's not just limited to the upscale-to-midprice pattern, said Bjorn Hanson, hospitality and leisure group principal for PricewaterhouseCoopers. In PwC's 2007 U.S. Lodging Industry Report and Forecast, demand for the midprice without food and beverage tier was forecast to grow by 3.6 percent this year, the largest for any tier and more than double the 1.5 percent growth rate of the overall U.S. lodging industry. The upscale tier had the second-highest growth rate, which Hanson said also indicated some trading down from the luxury tier.
"There clearly is some narrow banding in trading down," Hanson said. "It's a direct response to the cumulative growth of average daily rate."
A recent National Business Travel Association/Best Western survey of 104 travel buyers showed 70 percent had used more midprice properties in lieu of upscale properties in their hotel program to save costs. About one in five of them began employing that strategy with their 2008 hotel programs, the survey said.
"Costs have most definitely gone up again this year, and buyers are looking at where they can find the savings," said Priscilla Campbell, practice leader of hotel advisory services for American Express Business Travel. "The most logical place to turn is some of these more moderate-type properties."
Movement from luxury to upscale and upper upscale has been a focus for Rick Wakida, global travel manager for Gilead Sciences. While the program once featured such preferred properties as the St. Regis in Washington, D.C., most of the company's bookings are in no higher than the upscale category, he said.
"Part of the development of the hotel program has been to move the luxury properties—not that we were seeing a lot of them—pretty much out of there," according to Wakida. "I don't know that we're pushing down to the midscale levels, but there definitely has been a pushing down of the category of hotels." Gilead also uses some midprice properties in its program, particularly in its home base of Foster City, Calif., Wakida said. As an alternative for savings, however, the company has been looking at getting more extended stay property usage, he said.
In negotiating 2008 hotel programs, trading down was a higher concentration for some industries than others, said Mary Ellen George, general manager of BCD Travel's consulting subsidiary Advito. Generally, companies in the manufacturing and industrial segments were more aggressive in trading down within their hotel program, while such segments as the pharmaceutical industry—of which Gilead is a part—were sticking with the upscale tier.
The push for trading down is coming from two directions, as illustrated by a hotel negotiating roundtable recently conducted by Business Travel News
(BTNonline, Nov. 19, 2007). Pfizer director of global travel Phil Dunphy said he was pursuing via Advito a trading down initiative for his 2008 program per a directive from executive leadership, moving from five-star to four-star properties and perhaps even three-star where Pfizer had used four-star properties. Meanwhile, Estee Lauder Cos. director of travel services Cynthia Shumate said the midprice tier is growing in her program because the travelers were responding to what they saw as a more business-friendly environment there.
Advito's George said it is generally either travel managers or their consultants looking to trade down as an easy way to respond to more general directives for cost-cutting, she said.
In some cases, travel buyers have overhauled policy to support trading down, American Express' Campbell said. "Policies are becoming more focused," she said. "Travel buyers are moving from very vague suggestions to stronger language and stronger enforcement."
PwC data indicates the supply of the midprice without food and beverage tier will increase by 4 percent this year, the same rate as the upscale tier and double the overall U.S. lodging industry growth rate. Meanwhile, brands within the tier have improved amenities—adding hot breakfasts and more widespread Internet access, for example—and as another selling point to travel buyers, the brands usually make those amenities inclusive in pricing, said Dorothy Dowling, senior vice president of sales for Best Western International.
"The midprice tier has really risen to the challenge," Dowling said. "Essentially, the product offering is less differentiated between midprice and upscale."
Illustrating the trading-down trend, Best Western saw 30 percent annual increases in its corporate room nights in both 2006 and 2007, according to Dowling.
An argument against trading down had been that it could hurt a corporation's competitiveness in job recruiting, as a potential hire might be turned off by a strict travel policy. With activity in the midprice tier, however, that way of thinking is fading, American Express' Campbell said.
"It's not completely gone, but now that travel buyers have more options to choose from, it's not as much of a stigma," she said. "There have been a lot of improvements made in the tier."
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