Buyers Must Strategize To Combat Room Cost Hike

<H1> Buyers Must Strategize To Combat Room Cost Hike</H1>By Amon Cohen

<I>London </I>- If travel purchasing is a war on costs, then one of the bloodiest conflicts in the past year has been against rising hotel prices in Europe.

Corporate buyers are reporting increased tariffs of 10 percent or even more, with the worst battleground being London. According to the recently published Eurocity Survey 1996 from management consultancy Pannell Kerr Forster Associates, average room rates increased by nearly 11 percent in 1995, to $174. Anecdotal evidence suggests that there has been little or no let-up this year.

In many other parts of Europe, it is a similar story, particularly in Scandinavia, where average rates rose from $115 in 1994 to $127 in Sweden last year, and from $99 to $107 in Finland, according to PKF.

There has been one major exception to the trend, and that is recession-hit Germany. "Everywhere in Europe has been good except Germany," said Inter-Continental Hotels joint managing director Robert Collier.

With that sort of fight on their hands, travel managers have had to devise novel strategies to keep their budgets from becoming casualties of the price onslaught. Some methods are tried and tested; others are novel, but like any sound military operation, they are based on one fundamental principle-intelligence.

"You have to get a handle on your information, and in hotels that has always been more difficult," said Derek Jewson, London-based head of purchasing for Unilever. "If we have a good information system, we can interrogate it and come up with some very clear objectives."

This is much more than an academic exercise for Jewson: It is the key to saving hundreds of thousands of pounds for his company. Unilever spends about $11 million on hotels throughout the United Kingdom, of which $3 million is spent by the head office alone on London properties.

With proper information, Unilever can now analyze how many hotels it uses in London or any other city and use the data to leverage greater discounts by consolidating spend with fewer hotels. The other great secret, said Jewson, is to buy forward, much in the same way that tour operators secure low prices by guaranteeing to take a set allocation of rooms.

"We give a commitment to hotels," Jewson said. "They know they can get better rates from companies that are smaller than Unilever, but they know they will get the business from us when times are bad as well as good."

Just as any airline corporate deal has to be backed by an effective travel policy, so too do travelers need to understand that they are required to use a smaller number of preferred hotels. It is vital, according to Jewson, to communicate clearly to travelers what they can and cannot do. At the same time, the travel manager must ensure that the preferred hotels are attractive enough to get travelers buying into the approved list. "We give them a choice, but we limit that choice," Jewson said.

A similar strategy to Jewson's has been adopted by Gunnar Andersen, Norwegian travel manager for Scandinavian oil company Statoil. He, too, is a great believer in management information and forward buying.

"Corporate travel managers should be very strict on statistics and find out a long time in advance what sort of volume of travel there will be from employees," he said. "They can then try to convince the hotels that they have volume to sell which is real, not theoretical."

That much said, Andersen has felt largely powerless to control price rises in London. The U.K. capital is a seller's market because it has an average occupancy rate of 82.5 percent, according to PKF-the highest of any major city in Europe.

"We have taken body blows from the increases in the United Kingdom," Andersen said. "We had to go thoroughly through our strategy for rates in the U.K., but in the end we had to accept that we are more in the hands of suppliers than we were before, and we had to agree to increases."

However, Andersen is not being defeatist and has taken note of the apparent success of a London room-buying consortium formed by the Norwegian Berg-Hansen Travel Agency; 35 of the agency's clients have banded together to gain volume discounts. "That is something we might do in the future," Andersen said.

Someone who is not planning to make any significant changes is Ilya Dales, who manages travel for Euretco and is chairman of the Dutch Association of Travel Managers in Industry and Commerce. Dales has seen little change to his hotel bills over the past year and attributes this success to his use of hotel reservations agency Booking Services International. "Many people in our association are using BSI," Dales said.

Jewson is another in the growing band of believers in hotel booking specialists. He uses one called First Option, a company that has grown from four people two years ago to 58 today.

First Option claims to handle about 1,000 bookings per day and offers two basic services: negotiating standard discounts that it offers to all clients-typically, 5 to 15 percent per room-and spending three months compiling vital management information for new clients, many of whom have no idea how much they spend on hotels.

"When we ask a company if they know how much they spend on air, they say yes, but if we ask them how much they spend on hotels, they say they don't know," said First Option operations director Pat O'Brien. "I find that generally the larger the company, the less they know."

After completing an audit of a client's hotel information, First Option negotiates volume deals with fewer hotels and uses standard discounts in cities where the client has few room nights. "I don't think travel agents have the time, the expertise or even the desire to do this," O'Brien said.

Frankfurt-based Elaine White, president of travel industry consultancy Global Group, agrees that specialist hotel agencies have a use, but only up to a point.

"They are good for small to medium-size companies, but large companies can get the same rates themselves and save even more money by cutting out the middleman," she pointed out.

Even more dramatically, big companies are starting to make deeper savings by negotiating deals not with individual hotels but with the same chain throughout Europe.

"It is mostly the chains that have experience doing this in the U.S.-companies such as Hilton, Marriott and to some exent Ramada and Choice," White said. "Corporates are getting not pan-European rates but pan-European discounts.