Travel management companies last week said that as many as 75 percent of their clients have delayed signing their 2003 negotiated hotel contracts, hoping to wrest every possible dollar from negotiations with the struggling hoteliers.
At this point in the bid season in most other years, rate issues would have been resolved four-to-six weeks earlier. The gamble, however, could prove critical to buyers. Typically, hotels need the month of December to load the hard-fought rates into the global distribution systems to ensure that buyers have the new rates available for booking by Jan. 1.
"In other years, more companies would have finalized by this point," said Karen Richard, managing partner for hotel solutions delivery at Eclipse Advisors, a division of Rosenbluth International. "By Dec. 1, we'd be looking to send out acceptances and start rate loading, but in a number of our programs, we're still in round three of negotiations."
Many buyers went into the bid season expecting to get aggressive rate decreases. "In the first round of negotiations, if we didn't see what we felt was a fair decrease, we were very aggressive in going back to the property," Richard said. "Consequently, there have been two or three rounds of negotiations where in other years there might have been just one."
Richard said approximately 35 percent of her clients had signed off on their agreements, while 65 percent had not—more than twice the usual number. "In most other years, the percentages more likely were reversed." However, she does not anticipate there being a round four. "We're at the point now where all the cards are on the table. For the majority of our programs, I don't think there will be further negotiations. Things should wrap up in the next two weeks or so."
Unlike previous years, buyers understood that hotels would ask for something in return for aggressive rate cuts. "Both buyers and sellers were much better educated this go-round," said Keith Boccuzzi, vice president and general manager of TQ3 Maritz Travel Solutions northeast region. "Buyers were looking for aggressive rates, but realized they'd often have to narrow down the number of hotels they worked with in a given city. Otherwise, they wouldn't be able to deliver the marketshare gains the hotel companies were seeking."
Seventy-five percent of Carlson Wagonlit Travel clients have not yet finished, said director of hotel solutions for North America Dan Leh, without drawing comparisons to previous years. Of the 30 accounts still waiting to wrap up negotiations, "We'll finish most before Dec. 31, but that doesn't necessarily mean the hotels are going to load those rates before the end of the year." Leh attributed the delay to a late start in the request for proposal process. CWT recommended that all rate negotiations conclude by Oct. 1, precisely to allow adequate time for rate loading.
Similarly, many American Express Consulting clients took the opportunity to modify their hotel policies this year, which accounted for the delay in the final rate decisions, according to manager Ruth Philpott. "We're still in the midst of the process with more clients than in other years. But with changes in policy, the changes need to be in place before you can proceed with an RFP," she said. Changes typically entailed adding more teeth, "moving more toward mandates."
Philpott used trading down as an example. "The whole subject of moving from one price-point hotel to another for some clients could be a policy issue," she said. "Consequently, getting approval internally for the change would have been the client's first priority."
For such buyers as Kevin Maguire, Tokyo Electron America travel manager, the delay in finalizing rates was unavoidable this year. He does not anticipate signing off on rates until the first week of January. "It hasn't really been about the negotiations going back and forth more times, but a matter of how much managed travel has changed this year," he said. "The impact Web rates has had was one thing and the amenity question was another. How important are amenities versus the cost of the room night? In other words, we needed to know exactly what charges hotels would waive and then the relative effect of that on the rate. From Tokyo Electron's standpoint, we just wanted more bang for our buck than we'd gotten in the past and that meant negotiations took a bit longer." Maguire is concerned about the effect of the late finish on rate loading. "But these concerns take second place at this point. The stakes simply are too high not to make sure all the loopholes in the negotiations are closed and all the details favorably resolved."
From the perspective of the individual property, sales managers have had nothing to lose from continuing to work with clients, regardless of how protracted the process might be. "There's been some noticeable drag this year," said David Chu, director of sales at the InterContinental The Barclay New York. "Buyers seem to be delaying, because the longer they hold out, the more anxious they feel the supplier becomes to reach a conclusion. Certainly, there's also the sense that the longer they wait, there's the chance the price will drop further."
By contrast, Chu said there were other buyers who, in the face of the uncertain market, wanted to lock in favorable rates when the opportunity was there. "These clients wanted to sew up the negotiations quickly. They knew that if the market in a particular city started to strengthen, hotels suddenly would be in a position to be a bit more demanding on rate."