Buyers Minimize Hotel Bids

As many buyers finalize their hotel bid lists next month in anticipation of the negotiations that lead to 2003 rates, they are determined to keep the number of hotels invited to bid this year to a minimum. By keeping the list as tight as possible, they are better able to drive market share to the preferred suppliers in their key destinations and, in return, more likely to negotiate favorable rates.

Meanwhile, hotels increasingly are eager to be invited to bid. Those already in a corporation's program want to remain there. Those not included want to be. Their chief concern is being shut out of the company's program in its key cities, if not altogether.

Two basic realities going into the 2003 bidding season are that travel volumes remain down at most companies and hotel companies—facing significant shortfalls in room revenues—are at a loss as to when they can expect business travel to rebound to some sense of normalcy, if not to 2000 levels.

Buyers Wendy Nathan, manager of travel services at Johnson & Johnson, and Sean Curley, corporate travel associate at Ford Motor Co., said they were spending more time fine-tuning the bid list this year. "When we compile the list, we intend it to be an open procedure, but given the state of the economy, there has to be a sound rationale for any hotel being invited to bid," Nathan said.

"We want to create an opportunity for every hotel that has a valid interest in bidding to be able to do so," Curley said, but Ford expects hotel volume to be down 20 percent this year over 2001 and doesn't expect demand to rise appreciably, if at all, in 2003.

Consequently, there is no point in a hotel bidding for a place in Ford's program, if the location isn't clearly convenient to where travelers need to be. "Hotels have to understand what our business needs are in their area, what the demand for rooms is likely to be," Curley said. If the projected volume doesn't warrant it, accepting a bid from that property doesn't make any sense. In this way, buyers can keep a lid on the size of the bid list and, ultimately, be able to drive greater market share to a select number of suppliers in return for consideration on rate.

"We're going to try to keep the bid list tight to deliver on these market share goals," said Terry Sullo, manager of travel and meeting services for Akamai Technologies. "This helps ensure we've got the most bargaining power on rates."

At Lockheed Martin, Claudia Benotti, business manager for hotels, meetings and groups, is looking to limit the number of hotels bidding in specific cities as the program grows. "We're looking to narrow the number of hotels in individual cities, but we're still planning to negotiate rates in a larger number of cities—to over 100 cities in 2003," she said. The increase is a more accurate reflection of Lockheed's travel patterns: "Travel is largely project driven, so providing coverage in this many cities can be like a moving target."

Given its merger with Compaq Corp., Hewlett-Packard must adjust its travel program. "We understand a number of office locations will be closing, but we don't yet know which ones," said Audrey Hemphill, who manages the transient hotel program. "In terms of the bid list, this creates a challenge because it's tough to come up with accurate volume projections. At the same time, we're not looking to appreciably expand the list."

For hotels that had been preferred providers in either the Hewlett-Packard or Compaq programs, the move creates uncertainty. "There's bound to be overlap in key cities," Hemphill said. "Certainly, suppliers will be eager to know if they're in the consolidated program."

Further complicating the bid-list process is that many buyers are under pressure to trade down in price point as a result of cost-containment initiatives. Typically, trading down means switching from full-service to midprice brands.

At Credit Suisse First Boston, the hotel program always has included upper upscale and deluxe properties, and that is hardly going to change, according to Erin Barth, vice president of global travel. "But we're interested in hearing about creative alternatives from our hotel partners," she said. Far-reaching cost-saving initiatives that include travel were announced in mid-2001 and again in early-2002. "Our online booking tool already displays hotels in a destination by price with those offering the lowest rate listed first." Credit Suisse expects close to 700 hotels to express interest in bidding on its business this year.

Akamai's Sullo will try to add some second-tier properties but not many. "A number of our first-tier hotels up to now have shown they'll match the lower rates because they don't want to lose the business," she said. Managing the bid list proactively to deliver market share can yield buyers a favorable rate in the short term, plus protect their position for the future. "After all," Sullo said, "when times get good for the hotel industry again, which they will, you want to be remembered as a good customer."