BTN editors recently discussed the state of hotel negotiations with travel buyers Clive Armitage, AstraZeneca director of travel, meeting and fleet purchasing; Mary Savoie-Stephens, PeopleSoft senior travel manager; and Yasuo Sonoda, Macromedia travel manager.BTN: How important has the ability to deliver marketshare become in your hotel negotiations?
Clive Armitage: We've become very conscious of having to drive consolidation. We still have a ways to go, but, in some instances, we've been successful in driving more business to fewer suppliers, which translates into greater marketshare for them. That's our whole philosophy. Last year, we removed somewhere between 50 and 75 hotels from our program.
Yasuo Sonoda:: It's very important. We're cutting back on the number of hotels in each city, but, even more to the point, we can go to each of the hotels we're considering and share with them the kind of compliance numbers we're able to deliver. Because of my company's travel policy, we're able to ensure a high degree of compliance. Consequently, I can say to the hotels that, if they're selected for the program, the marketshare will be there.
From the hotels' side, certain properties are so concerned about us hitting our marketshare targets that they've begun tracking our performance on a quarterly basis. It used to be that this subject only came up once a year, but no longer.
Armitage: In theory, having fewer hotel partners should mean greater marketshare. However, we're less able to mandate where people stay. In fact, among our travelers there still are some customers out there who like to book where they want to stay, rather than where we recommend. Yet, even then, by narrowing the number of preferred suppliers, we have a better chance of hitting our goal.
BTN: How deeply have you cut in certain markets?
Armitage: It depends on the city. In some large cities, we might have had 10 hotels and the number is down to seven, but you also can carry consolidation too far. You have to be realistic in such a city as Chicago, for example, where logistics drive where travelers are going to want to stay. Just two or three options in Chicago won't do. What we've done in destinations such as this is get much more specific as to where our business centers are, then we can select the right hotels and structure negotiations with those hotels much more strategically.
Mary
Savoie-Stephens: Not only have we tightened up the number of hotels per city, but we've developed a much more methodical way of negotiating with hotels. This has meant coming into the negotiation with better quality, more detailed analysis of our travel volumes than in the past. At the same time we cut the number of preferred hotels in a city, however, we increased the number of hotels in the program twofold because we began managing the program on a global basis this year. That has meant working closely with key individuals in the local markets to understand which hotels are most convenient, where people presently are staying and so on. In many cases, there were local agreements in place that we made part of global agreements, so some of our hotel partners ended up with greater marketshare, which made them very happy.
Sonoda:: Another consideration affecting marketshare for us was being able to direct our meetings business to the same hotels that were in our transient program. As a result, wherever possible we've tried to choose hotels that have sufficient amounts of meeting space, so we don't have to include other hotels just for meetings.
BTN: Have you gone to lower price points because of the economy or added more price points in a city? Similarly, have the higher price hotels come back with rates that used to be from a lower price point?
Savoie-Stephens: Certainly, this year has been a unique year for negotiations. In all my years in travel management, I've never seen higher price point hotels prepared to negotiate so aggressively for business. You know there's a tremendous amount of rate compression going on when you can negotiate a five-star property for what used to be considered a three-star rate. At the same time, though, you have to look at more than just the price of the guest room, meaning you have to look at such factors as the cost and availability of parking, restaurants, room service and so on.
Armitage: On the transient side, we had success negotiating with four-star properties, getting them to come up with rates that were as competitive as possible. I think to say it's been a buyer's market is a reasonable statement to make.
BTN: Buyers have reported being approached by their hotel partners with repeated offers to renegotiate. Has that been your experience?
Armitage: We won't get into that. The hotel negotiation process is laborious enough not to do it any more frequently than once a year.
Savoie-Stephens: I'd say once a week a hotel in our program calls or e-mails me saying they want to lower our rate. What a lot of buyers forget is that renegotiating rates means making sure those new rates get loaded accurately into the GDSs. And rate loading has remained a chronic problem, particularly when it comes to nonpreferred hotels loading squatter rates in the system.
Sonoda:: We've dealt with the rate loading problem head-on this year and had some success. Two hotels in our program were delinquent getting rates loaded. We told them if they didn't take care of it by such-and-such a date, another preferred hotel in their market would get all our business. That got them to move in a hurry.
BTN: Are there any amenities that especially are valuable to your travelers that you've had success either getting the charges eliminated or reduced as part of rate negotiations?
Sonoda:: High-speed Internet access is the value-add at the top of our travelers' list. Every hotel in our key cities has to have it and be prepared to negotiate any charges. Other value-adds that are important to us include town car service to our office locations and workout facilities. In fact, we'll avoid hotels that don't offer these amenities where we have other options.
Armitage: From our perspective, high-speed access is important, but only to some travelers; others don't require it much. A lot of travelers go on trips lasting only one or two days and don't necessarily take their computers with them. The value-adds we look for are upgrades to the concierge floor, which typically includes breakfast. That's a cost savings. Access fees for the phones are another amenity that we clearly try to negotiate. In some cases, we've been successful, other times we've had to bite the bullet. Phone access fees have become a major industry issue.
Savoie-Stephens: Getting breakfast charges included in the hotel rate has an added benefit. When it's incorporated into the rate, then it's 100 percent deductible versus only 50 percent when it's not included. Consequently, it really can be a significant cost savings. Yet, high-speed access charges also are a concern. Fees really can add up for stays of a week or longer. For 2004, I'll be looking very closely at hotels that provide complimentary high-speed.
BTN: Many buyers have been alarmed at the growth in popularity of reduced hotel rates on the Internet during the past 18 months. Are you seeing your travelers going to these Web sites to compare rates?
Armitage: It depends on the city. If we have negotiated rates in specific cities, then we don't see that. For other destinations, some people do check the Web sites, but we have certain parameters on quality. Also, we don't always recommend booking strictly on the basis of the lowest rate.
Savoie-Stephens: In terms of policy, we haven't formally addressed the issue yet. Travelers basically are required to book a room through the preferred travel agencies around the world, so essentially we're saying no to Web rates. There's no question travelers are beginning to consult the discount Web sites, especially if they're in a fixed budget type of situation. As a result, I'm having many more discussions about why it's important to use the preferred hotels at the negotiated rate.
Sonoda:: We certainly don't allow bookings through the discount merchant model sites. My understanding is that with these sites, you don't get a receipt from the hotel itself, which means you can't produce the actual invoice for IRS purposes.
Savoie-Stephens: Another concern is that the traveler pays upfront. Most of these sites require total prepayment. Therefore, you have to be careful about cancellations. More times than not, business travelers have to change their reservations, often at the last minute, because their plans change in ways they can't control.
Sonoda:: The company ends up reimbursing for hotel bookings before the trip has taken place. In these situations, the company too often ends up responsible for those charges, rather than the traveler, which we don't like.
BTN: Yasuo, to your point about the credit card receipt showing the Internet site rather than the actual hotel. Does that also make it a tracking issue?
Sonoda:: Definitely. We need to know which hotel our traveler is booking. Safety and security generally are very important parts of the message we're trying to get across to travelers right now, and the use of Web rates plays right into that. The whole driving force after 9/11 has been to tighten security procedures and be able to track travelers' whereabouts. This is the prime reason we've wanted people to book through the travel management company.
BTN: How has this resonated with travelers?
Sonoda:: Prior to 9/11, they might have had a few gripes that the company was too eager to keep tabs on people, but Sept. 11, 2001, changed all that. They are more than happy now to give us the information because they know what it was like in the days following the terrorist attacks. The panic button was pushed. Folks were concerned, and their families were concerned.
Armitage: Likewise, after 9/11 we revisited the entire safety and security issue at the request for proposals level
(see story). Overall, we began examining the security procedures in place at the hotels in a much more detailed way than we ever would have previously.
Savoie-Stephens: We're definitely working a lot closer with our global safety and security department, but safety and security also is an area covered by the RFP we began using as part of the new global hotel program. We use the standard module approach that is promoted by the National Business Travel Association (see top story, page 12). Safety and security is covered in its own module. And if there are still other concerns, there is a user-defined module that let's you ask additional questions.
BTN: A related issue to Web rates for buyers is that they are not able to get credit for these stays toward the volume projections they've made to their hotel partners. How big a concern is this for you?
Armitage: It's really part of a larger issue for us. Hotels have been the slowest in putting systems in place to track—and give credit for—these stays. Even more irritating, on occasion we don't even get credit for stays booked by calling the hotels directly. This is why we'd like to see the entire process centralized into one tracking source, which preferably would be the travel management company. Then, the credit card data could serve as a backup. We would know with a much greater degree of certainty where the volume is coming from.