American Express on Jan. 1 will replace its fixed-rate hotel consortia program with a flexible system intended to provide corporate clients with hotels' best, unrestricted rates available through any channel. In response, a second mega agency, TQ3 Travel Solutions, said it expects this month to add flexible rates to its consortia program, while retaining a fixed-rate component.
The impact of the Amex move on travel buyers with large programs mostly depends on the direction hotel rates take in the coming months, since these buyers typically use consortia rates to benchmark negotiated rates and to fill in rates in destinations where they may not have sufficient volume to warrant negotiated rates. Buyers who manage small to midsize programs have more at stake in the move to a floating system since they are more likely to rely on consortia versus negotiated rates.
"The prior program was created at a time when there wasn't a lot of volatility in the market," said Andrea Levine, vice president of strategic resources management at American Express Corporate Travel. "By contrast, now is a time of significant change, so we believe it is best for our customers to provide a system that changes with the changes in the marketplace."
The unrestricted rates are in sharp contrast to many of the discount rates available on third-party Internet sites that have restrictions not suited for business travel. "Some of the so-called Web bargains come with a lot of strings attached to it," Levine said. "What we're providing is a no-strings-attached program where you don't have to book three weeks in advance or jump through other hurdles to get these values."
For their part, hotels have questioned the mega agency's pricing intentions. Sources told BTN that American Express was demanding a fixed percentage—said to be up to 20 percent—off rack rate for including properties in its program. Levine declined to comment on any aspect of the firm's pricing strategy with suppliers, citing competitive considerations.
TQ3's position is that there is a role for both fixed and dynamic consortia rates in the market. "Customers have told us they want to have access to a variety of rates," said Mike Koetting, TQ3 senior vice president. "Not every rate is going to be right for every traveler in every situation. But they want options, the way they do with airfares."
TQ3's rate choices will include "fixed rates where there is little risk to travelers in terms of cancellation fees, etc.," Koetting added. Yet, restricted rates also are part of the plan. "Then at the other end of the spectrum, there are opaque rates, where travelers don't know where they're staying, or what we call penalty rates, where travelers either have to pay in advance or pay a penalty, if they make a change or cancel."
Koetting praised Amex for taking the initiative. "In this sense, American Express has done a good thing because they've recognized that we need to provide clients more than what the hotels traditionally offered, which was a single fixed rate for the entire year," he said. "The rate came without any fences. For that reason alone, you can understand why hotels naturally would make it one of their more expensive rates. After all, it shifted all the risk to them."
The announcement of the American Express move comes in the wake of Marriott International's decision to forego fixed consortia rates as part of a larger rate parity program
(BTN, Nov. 10). In a greater sense, though, both the American Express and TQ3 efforts, as well as Marriott's, are responses to the impact the discount merchant model sites have had on hotel pricing, particularly the transparency of rates.
Levine said the American Express rates may not change daily but "are meant to be as real time with the marketplace as possible." Travel managers no longer will have to be concerned that employees are spending work time searching for hotel deals on the Web. "We deliver the best unrestricted rate available," she said.
Wendy Nathan Blaney, manager of travel services at Johnson & Johnson, last week said she did not expect floating rates to create a significant problem in terms of budgeting and forecasting. She was concerned, however, about buyers' ability going forward to use consortia rates for effective benchmarking.
"Buyers need to know that their negotiated rate floats at the same percentage discount off the consortia rate throughout the year," Blaney said. "It's especially challenging for buyers with multinational programs when they're doing global bids to ensure the negotiated rate is consistent in relation to the consortia rate."
Blaney had not been informed of the coming change and said American Express provided her with a set of consortia rates earlier this fall when she began putting her 2004 program out to bid, but doesn't know "whether those rates now are correct or not."
Blaney questioned American Express' timing in launching the program, considering that by early December most buyers' hotel programs for 2004 already are set or close to it. "It would have been helpful if they had gone to their customers before this and given them some warning," she said.
According to Paul Keung, executive director of equity research for CIBC World Markets, independent hotels and small hotel companies are most vulnerable to Amex pricing pressure. "At the end of the day, they are most likely to go along because they have no choice." Larger brands that have stronger central reservation systems are less susceptible to the change. "They can fill up more rooms themselves. They have a better handle on their pricing," said Keung, who covers lodging, leisure and travel services industries.
At the PhoCusWright Executive Conference last month in Orlando
(see story), an executive from La Quinta Inns, a midprice hotel chain, described the Amex move as "indecent," noting that after a few years of "declining room sales from American Express, American Express wanted us to give deeper discounts and rates and pay steeper fees in lieu of commissions without really any promises of more volume."
When asked to elaborate on their objections to the proposed pricing arrangements, however, LaQuinta retreated. Underscoring the power that American Express wields in the marketplace, a spokesperson said the executive had spoken inappropriately and that LaQuinta had apologized. In a statement, she said the chain remained "committed to the program and our relationship" with the mega agency.
Unlike American Express or TQ3, two other providers of consortia rates—Radius and WorldTravel BTI—are retaining fixed rate programs for 2004. Though here, too, it is not strictly business as usual. "Rates appearing in our directory are fixed in that they're the highest that hotels can charge our customers as preferred rates," said John Melchior, executive vice president of Radius. "Those rates may fluctuate, but at least there's a ceiling in place that customers know rates can never go above."
A similar ceiling is set at WorldTravel BTI, which allows hotels in its program the right "to float or flex rates, provided they don't go higher than the maximum negotiated consortia rate," said Kim Kearns, WorldTravel BTI director of hotel relations.