In February, a
handful of DHL board members traveled to Miami, some from out of the country.
Weeks in advance of the meeting, the CEO's executive assistant had reserved
rooms at the Hilton Garden Inn Miami Airport West, a preferred property in DHL's
travel program, and used the CEO's corporate card to guarantee the booking.
With the travelers
set to arrive on a Friday, the shipping and logistics company's travel
management company called the hotel on Thursday to confirm the reservations and
to notify the hotel staff that the travelers were VIPs.
Everything appeared
set.
Until the board
members arrived to discover some of their reservations had been canceled earlier
that day. No more rooms were available, and the hotel offered little help
finding alternative accommodations.
The DHL travel
program members learned firsthand what happens when record-high hotel occupancy
meets increasingly aggressive revenue management techniques, and they're not
alone. Buyers and revenue management experts said last-minute cancellations by
hotels, while not widespread, have become more common as spare rooms have
become scarce and no-shows threaten hotel revenue.
"We had one
incident [in May] in D.C. where our traveler's reservation was canceled by the
hotel the day before arrival," said Financial Industry Regulatory
Authority corporate travel services manager Carol McDowell. "The traveler
never received notice, but fortunately he checked their website beforehand and
found it canceled."
McDowell said the
reservation was made at a longtime preferred property months in advance. The
hotel offered no reason for the cancellation, but FINRA's TMC was able to get
the room, which had more than doubled in rate, reinstated for the traveler at
the original price.
In DHL's case, it
turned out the CEO's card used to guarantee the booking had been replaced. The
hotel canceled the reservations after a test charge on the old card was
declined. "He updated his travel profile [with the TMC], but it didn't
occur to him that he needed to redo all the hotel reservations he'd already
made, too," said DHL regional category manager of travel services Michelle
Hunt. "It didn't occur to anybody because we've never come across this
before."
The property made no
attempt to reach out to DHL or its TMC before it canceled the reservations. The
board members sought alternative accommodations, but the Miami occupancy rate
that month was 87.6 percent, according to STR, and one traveler had to drive
more than 50 miles for a vacancy.
"It blew my
mind that they were VIPs, that we called and spoke to the front desk the day
before and told them, 'VIP. Do not walk. Do not displace,' " Hunt said. "The
hotel acknowledges that they were all marked VIP, but when they go to run the
credit card, they don't look at those notations. They just ran the credit card,
found out it was declined and then canceled the reservation."
Though hotels have
long reserved the right to validate cards that are holding reservations,
multiple travel managers told BTN they recently have noticed an increase
in the number of hotels clearing cards before arrival.
"It does not
surprise me at all that hotels are taking this stand," said The Linde
Group corporate travel manager PJ Scala. "Let's face it: They are holding
a lot of cards right now. … They want to cancel at the last minute when there
is a problem, but [they] charge a penalty when a traveler cancels at the last
minute. While capacity is on the supply side, we are all going to be dealing
with new sets of rules."
Applied Systems Inc.
senior travel coordinator Rachel Sylvester said reservation and cancellation
policies have gotten so strict that hotels are charging cards at least one or
two days before arrival.
Erik Browning, vice
president of business consulting for hospitality/gaming at The Rainmaker Group,
a revenue management solutions company, also has heard hotels are validating
cards more frequently. Hoteliers also have told him that as occupancy has
increased, no-show rates have grown.
"As hotels are
getting busier, there are more and more sold-out days," Browning said. "People
are likely making reservations at multiple hotels. If their preferred is not
available, they book elsewhere, and then when their preferred hotel opens up,
they forget to cancel the other booking. Little things like that just kind of
add up."
As Hunt was still
working through the incident in Miami with Hilton reps, a second DHL traveler,
this one traveling from Australia, arrived at a Hampton Inn in Plantation,
Fla., to find his six-day reservation canceled. The hotel said his card was
invalid and workers had left a voicemail for him. The traveler was midflight,
however, and the hotel did not contact DHL or its TMC. In this case, the
traveler's card actually was valid, so the hotel rebooked him at the property,
though in a smoking room.
In May, it happened
again. A DHL recruit booked for a Tuesday night at Houston's Comfort Suites
Bush InterContinental Airport arrived to find no reservation because an airline
card had been used to hold the booking. The property did not contact DHL or its
new TMC, Short's Travel Management, to get new card information.
A travel manager for
another company, who preferred her name not be used, said an international
traveler in her program arrived in New York City last April to discover his
booking had been canceled by a Hilton Garden Inn because the card used to hold
the reservation had expired. The hotel did not attempt to contact the traveler,
his company or the TMC, and the property had no more rooms available.
The properties that
canceled the DHL reservations cited no-show costs as justification. "I
understand their perspective and what they're trying to do," Hunt said. "I
just don't think there's any uniformity around what's being done. If the
booking method is from an online site, maybe they do have a higher percentage
of no-shows and that's what they're trying to combat, especially when they're
in a sold-out situation. But if it's coming under a corporate rate from a TMC,
it is unlikely that there's going to be a no-show on that reservation, even if
it's not a preferred hotel."
Hunt is right about
the lack of uniformity. More frequent card validations form just one piece of
the changing revenue management landscape in the hotel industry. When it comes
to revenue management, franchised properties run by an individual owner or
management company have latitude in what strategies and policies they
implement.
"The brands
have practices, which are different than policies," explained Bjorn
Hanson, clinical professor at New York University's Tisch Center for
Hospitality, Tourism and Sports Management, "meaning that a local hotel
can vary what it does."
A New Era Of Yield Management
Airlines have used
yield management strategies to maximize revenues for decades, while hotels
have, for the most part, been playing catch up.
"For almost
every other product out there, when you've purchased it, you've committed to
buy it," said Duetto co-founder and CEO Patrick Bosworth. "With an
airline ticket, if you decided you didn't want to travel, they may credit the
[ticket amount] back to you, but there's usually some sort of a fee attached to
it and you have to reuse that money with the airline, whereas hotels have
historically had an incredibly flexible cancellation policy. Usually within 24
hours of arrival, you can cancel with no fee whatsoever, and in many cases even
if you just no-show without telling the hotel, they wouldn't charge you."
In January, however,
Marriott International and Hilton Worldwide both enacted stricter cancellation
policies, stating reservations not canceled at least 24 hours before scheduled
arrival would be subject to a penalty of one night's room rate. "Our cancellation
window … was 6 p.m. the night of your stay, which just actually means you can
cancel until the absolute last minute," Marriott CEO Arne Sorenson said
during an April earnings call. "In a high-occupancy market, that created
greater risk of overbooking. [It's] harder to predict, harder to revenue
manage the hotels."
Other revenue
management strategies include overbooking, segmenting inventory to limit
discounted business, implementing minimum-stay restrictions and reducing the
volume of discounted business in favor of higher-rated retail business.
"When you have
fixed-price contracts, it incentivizes the hotel to do whatever they can to try
to eliminate as much of the demand as they can that's at a very low fixed price
in favor of much more lucrative demand that's coming last minute on their own
website or through other channels," Bosworth said. "Anytime you can
be selling a room, let's say, for $499, it's painful to be taking a room at
$199 through a corporate contract. So obviously, it creates a big incentive for
the hotel to look for different strategies to try to improve that mix of
business."
Keith Kefgen, CEO
and managing director of Aethos Consulting Group, which conducts executive
searches within the hospitality industry, has seen a huge push for revenue
managers. "[Revenue manager] is probably the No. 1 position that we're
doing searches for in the next 12 to 18 months, more than any other position,"
Kefgen said.
One reason hotels
have gotten more sophisticated about revenue management is that it took the
industry much longer to increase rates during this cycle than in previous up
cycles.
"Coming out of
the recession, the expectation, like in most periods of recovery, was that the
discounted business was going to recede much more quickly than it did,"
Bosworth said. "On the leisure side, it took longer for hoteliers to get
pricing power than they expected. Occupancies came back much stronger for
longer than [average daily rates] did, so when hoteliers realized that, now
there's an increased focus on trying to figure out how to get the price up."
Add inflation,
increased expenses, commissions for intermediaries and capital costs, Browning
said, and "hotels are under pressure to recoup those losses and get at
least back to historical levels."
Fighting Back
STR, PKF Hospitality
Research, and PricewaterhouseCoopers all predict occupancy and ADR's up cycles
will persist for another few years, which means hotels will continue to hold
the cards. But while hoteliers look to raise revenue, there are some things
corporate travel buyers can do to meet the challenge, and even fight back, as
they begin the hotel request-for-proposals and contracting season.
"A lot of these
things can be addressed in the RFP," said Travel and Transport general
manager of partner solutions Donna Brokowski. She recommends buyers push for
last room availability, though properties that have been amenable to it in the
past may not negotiate it with occupancies as high as they are.
She also insists
buyers negotiate for 70 percent to 80 percent of total inventory at a property
and, if possible, conduct monthly audits to make sure the negotiated rates are
available.
"This year, we're
making it a standard practice to conduct monthly audits," Brokowski said. "We're
catching hotels on a monthly basis. What we thought we'd find is certain brands
that do it more or regions. But it's across the board that we find hotels that
are noncompliant."
Because individual
properties can set their own policies about reservations and cancellations,
former president of Scholar Consulting Debi Scholar recommends adding a terms
and termination clause into an RFP. Scholar used to include language in a hotel
group's contract that the hotel must make confirmed contact with the traveler's
company before canceling any room or meeting space.
Individual travelers
can use status and loyalty membership to avoid being walked or having their
reservation canceled ahead of time because of overbooking. According to
Bosworth, it makes a difference to hoteliers. "Some of the loyalty
programs specifically guarantee that you would never be walked and that they'll
always have a room available for you," he said.
Hunt plans to add
cancellation terms to her hotel RFP for 2016. After her experiences this
spring, she has opened the lines of communication with hotels by ensuring
contact information is available, as well as with her travelers and TMC to
prevent future headaches.
"We have put
communication out internally that if your credit card has expired, you must
update future reservations you've made with hotels because they may cancel them
if they can't get an approval on an expired card," she said. "We've
also recommunicated to our travel agency that if somebody does not have a
credit card for car or hotel reservations for guarantees that they cannot use
the airline billing card because it will cancel."
This report originally appeared in the August 2015 issue
of Travel Procurement.