Buyers Prioritize In Preparation For Tough RFP Season

<B>Buyers Prioritize In Preparation For Tough RFP Season</B>

By Bruce Serlen

As they prepare for the hotel RFP process that gets underway in the next two months to determine 2001 rates, travel managers around the country said they expect overall negotiations to be difficult.

Because their hotel programs don't tend to be large enough to warrant national account status from the major hotel companies, some buyers said they end up negotiating mostly at the local property level with both chains and independent properties. Consequently, they largely rely on personal relationships built up over time with the hotels they identify as preferred providers. In this way, they will try to get consideration on availability and favorable rates.

Not surprisingly, at the heart of that good relationship is buyers' ability--proven over time--to deliver the volume promised in return for rate concessions. To these buyers, last room availability (LRA) would be a welcome benefit. On the whole, however, they said they aren't always given the opportunity to negotiate it. Midweek nights remain in high demand in many key markets. As a result, these buyers said they often are frustrated by sell-out situations at the properties they want in those locations.

Buyers whose annual hotel spend is relatively low, in particular, said there wasn't much leeway for negotiation on rates in years past. Accordingly, they intended again this year to try to negotiate amenities, ranging from complimentary breakfast and parking to having telephone access charges waived.

Once they accept the negotiated rates, these buyers said they face another challenge: being sure the rates are promptly loaded into the GDSs. Otherwise, the correct rates won't be there when travelers start to book reservations starting on Jan. 1, 2001. Some buyers said they had trouble getting 2000 rates loaded, ostensibly because of concerns over Y2K readiness, and were prepared to be particularly vigilant this year. Others, however, said they didn't expect any special problems.

At Tokyo Electron America, a networking solutions company, one of travel manager Kevin Maguire's key destinations also is one of the country's tightest hotel markets: San Jose, Calif., the heart of Silicon Valley. "We bring close to 20,000 room nights to San Jose and bring another 20,000 to Austin, Texas, which is where we have our headquarters. Because rooms are so scarce in each of these markets, we'd like to have LRA, but we're unable to get it," he said. Among the other 19 company locations where Tokyo Electron's 850 travelers go, Maguire is able to negotiate LRA, but it is less valuable to him there than in the high-demand cities. Nationwide, he expects 35 to 40 hotels to be in the program next year. His total annual hotel spend is approaching $7 million.

Partially because of this frustration, Maguire this year prefers to negotiate directly with individual hotels to forge a personal relationship. "We've done away with the formal RFP process entirely," he said. "It was becoming too time-consuming. Most questions on the standard form didn't apply to us. In fact, in most cases we already knew a lot about the hotels we were interested in. So, to streamline the final selection, we just want to proceed to the rate negotiation and volume projections."

Another travel manager, Laurie Belanger of Domino's Pizza in Ann Arbor, Mich., also is determined to simplify the process this year. "The standard RFP form is too lengthy," she said. "Our primary concerns are basic: a rate we can live with, the safety of our travelers and being able to negotiate blocks of rooms at certain peak periods of the year."

Of the 96 hotels in approximately 40 destinations in the Domino's program, "most seem to like us for steering clear of the form," she said. "Time is money for them, too. They prefer a simpler approach that is less time-intense."

Beyond rate, Belanger said there were a handful of amenities she would look for in putting together this year's program. "A shuttle bus from the hotel to the airport and area businesses is a priority because convenience is so important to travelers. When a hotel says it can't go further on rate, we try to negotiate getting guest rooms upgraded to business suites, or see if the property will provide complimentary breakfast."

While negotiating LRA isn't an obstacle for her, Belanger said she expected that seasonal rate differentials would be a sticking point. "We're looking for one rate all year long. Otherwise, administering the program gets too complicated," she said. "The way hotels define the seasons is so variable anyway. Often, it differs by region."

From her perspective, the hotels she deals with aren't as customer-oriented as they once were. "It's important to have personal relationships in this business," she said. "But the hotel sales reps come and go with such frequency that it's often hard to build rapport."

One of the trends travel management consultants are seeing this year is buyers including fewer hotels from within a given destination in their programs. "More and more of our clients are looking to leverage their spend in a destination," said Julie Hylton, director of hotel management consulting services for American Express Corporate Services. "They're choosing to do this by concentrating on fewer hotels and thereby driving more room nights to these select properties," she said. "For their part, hotel companies are highly receptive since they're interested in gaining market share, that is, a greater percentage of a client's total business in a destination."

Hylton anticipates seeing clients partnering with hotels more closely this year. "In the end, the effect of the negotiation will be a trade-off. The hotel will provide you with a certain rate if you can deliver on volume. It comes down to policy. How well the client delivered on its volume commitments this year--and how much that commitment will grow--determines the flexibility going into this year's negotiation," she said.

Accordingly, building compliance with the hotel program is crucial for Robin Buzzeo, corporate travel manager at Taro Pharmaceuticals in Hawthorne, N.Y. Buzzeo will work with 50 preferred hotels and 100 travelers this year. Her annual hotel spend is under $1 million. "Especially for a small program, you lose credibility with your hotels if you don't deliver on volume projections," she said.

Because the hotel program has the strong backing of the company's senior management, Buzzeo virtually can assure the 50 hotels "close to 98 percent compliance" this year. Consequently, the hotels she deals with are much more likely to be flexible in negotiations than if compliance was a concern. As an added inducement to cooperate, Buzzeo puts the participating hotels "first on my list for group business."

In July, American Express Corporate Services announced its preliminary data on what U.S. hotel rates travel buyers can expect to be offered for next year. The numbers indicate a significant increase of 4 percent to 6 percent across the board. The projected increases, however, are not as great as those that were put in place in 2000, when the range was 5 percent to 7 percent. To be sure, increases will vary market by market, depending on supply and demand. There is not much appreciable increase expected in supply, and demand growth will continue to be strong, if not increase further. Rates in such markets as Boston, New York, Philadelphia, San Francisco and San Jose likely will increase at the high end of the scale.

Occupancy figures for the first half of 2000 bear this out. According to Smith Travel Research, occupancy reached 63.5 percent in the first six months, an increase of only 1 percent over the same period last year. Yet average room rate rose to $84.88, representing growth of 4.4 percent. RevPAR, a critical industry measure of price and occupancy, grew 5.4 percent.


<B>Supplying the demand</B>

Room supply growth, meanwhile, slowed to 3.2 percent in the first half of this year, down from 4.2 percent for the same period last year. Demand growth, however, jumped to 4.2 percent, up more than 30 percent from last year's figure, said Mark Lomanno, Smith Travel Research president.

On a market-by-market perspective, New York City occupancy soared 5.7 percent, to 82.9 percent in the first half of this year. Similarly, occupancy in San Francisco/San Mateo rose 7.4 percent over the same period, to 80.9 percent.

Bill Amaral is one travel manager whose company--Level One Communications, a semiconductor supplier in Sacramento, Calif.--does a lot of business in a high-demand area: Silicon Valley. In fact, Level One's parent, Intel Corp., is based there. Accordingly, LRA is a particular issue for Amaral this year. "Without LRA, it's hard to get a room anywhere in the Bay Area," he said. "We lost the one rate where we had LRA, and we'd like to have it again. At the same time, if you're able to get a heavily negotiated rate overall, that sometimes can outweigh the value of having LRA."

By contrast, Amaral said that because he drives a lot of volume to one hotel in Sacramento, LRA was included. "We worked hard to maintain an especially good relationship with this property. Clearly, it paid off."

Often, underlying the LRA issue is confusion over how the term is applied. "You have to be sure you and the hotel sales rep have the same definition in mind," said Melissa Arnold, travel coordinator for Hancor, a drainage products firm in Findlay, Ohio. Of the 25 hotels in 16 destinations that comprise her program, Arnold said most have negotiated LRA in the past, and she expected that would be the case this year.

"We define LRA to mean all rooms at the same class," Arnold said. This would exclude, for example, club-floor rooms, deluxe rooms and suites. "When we can't get a reservation through the GDS, we'll call the hotel directly and are usually able to get it resolved," though she noted that midweek reservations are increasingly difficult to secure. Arnold has 150 travelers in her program and an annual hotel spend of under $1 million. Beyond rate, Arnold tries to negotiate hotel telephone access charges. "Some hotels will work with us on this, but others still take a hard line," she said.

According to consultant Julie Hylton, buyers should expect LRA to remain a hot issue in negotiations this year. Like Arnold, she stressed the importance of arriving at a mutually agreed-upon definition of LRA before negotiations get too far along. "Hotels should describe their policies in as much detail as possible," Hylton said. "The yield management systems in place at the hotels have become very sophisticated, and they're able to manage the inventory in regard to LRA very precisely."

As an alternative to the standard RFP form, Rose Alvies, travel coordinator for ING Security Life, a financial services firm in Denver, developed a one-page variation this year. "It gets right to the point," she said. "We ask for it to be returned in three weeks, which seemed like the right amount of time."

Most valuable for Alvies in the process is having a positive track record with the individual properties. "Occasionally, we'll be included in the hotel chains' national accounts program. But this year we expect to work more at the local property level," she said. "That way, we have more success negotiating better rates as well as extras, such as complimentary parking and breakfast."

Alvies won't negotiate LRA this year-for a simple reason. "We found that when we had LRA, we didn't tend to get as low a rate. So, we'd rather deal with not being able to get a room on an occasional night or two than pay a higher price for all nights across the board."

Travel managers need to be realistic about LRA, according to Cynthia Betzner, Houston-based director of travel for Kvaerner, a Norwegian engineering and construction company. "Where we don't have the volume, we don't have huge expectations that we're going to get LRA," she said, referring to the 300 hotels in the Kvaerner program. "Clearly, we're still in a seller's market for hotels this year. Negotiations are difficult. Most hotels are not willing to budge when it comes to allowing the buyer to get better value." Betzner's annual hotel spend is $2.5 million.

Depending on the chain, she said, Kvaerner may or may not be included in a national sales program. "To a large degree, we will negotiate on a regional basis this year because we want the local business units to feel they have some buy-in," she said.

Tokyo Electron's Maguire agreed it would be a seller's market again for 2001. "Often, you get the sense that negotiated rates don't even matter," he said. "You negotiate a rate, but then when travelers try to book a room, they're told that if the property is 80 percent or 90 percent full, the negotiated rate doesn't apply."

Minimum-stay booking restrictions also can be built into the GDS that the travel buyer is unaware of. The same applies to restrictions on arrivals and departures and blackout dates.

"The traveler is told that no rooms are available for Tuesday or Wednesday nights. But if the traveler requests a room for Monday through Thursday, there will be space available," Maguire said. Similarly, he cited trouble with single-image inventory, where the GDS showed the property as sold out on a given night, but when the traveler called the property directly, he was told a room was available. "It's scenarios such as this that are embarrassing for the travel department," he added.

In anticipation of adding new hotels to, and dropping others from, Tokyo Electron's program in 2001, Maguire will adhere to three overall criteria. "First, if there's been a dramatic increase in the negotiated rate, that would be reason to reassess the property," he said. The second determinant revolves around location: "Because the location of the property in relation to travelers' business is so crucial to driving compliance, we always look to see if new properties might have opened that are closer to specific addresses. Should a new property come on the market that fits this description and the rate is roughly equal, there's a good chance we'd switch."

Maguire's third criteria concerns service. "This covers the spectrum from the cleanliness of the room to a hotel not honoring a reservation. "We listen closely to the feedback of our travelers and will drop hotels from the program if the negative comments we get are serious, and frequent, enough," he said.

In his Austin headquarters location, Maguire's need for hotel rooms is so great, he expects to increase the percentage of corporate housing units he contracts for this year. As an alternative to traditional hotels, the corporate housing takes some of the pressure off the local hotel market. "We expect to recruit a large number of new hires," he said, "and that means a significant amount of relocations. We use corporate housing accommodations to satisfy this extended-stay demand."

There's also an economic benefit. "Day in and day out, the corporate housing arrangement proves more cost-effective for us," Maguire said. Rather than house employees in these units for extended stays, it's possible to rotate transient travelers in and out of them. In this case, though, the need for such back-up services as housekeeping increases proportionately.


<B>Locked In and loaded</B>

If the actual negotiating process takes place in September and October, that leaves November for the buyer to notify the hotel that its rates have been accepted, and December, ideally, for rates to be loaded into the GDS for 2001. Indeed, by December, travelers already are booking room reservations for travel in January. Yet, buyers said it doesn't always work this way.

"This is certainly the schedule we prefer," said Connie Cousino, supervisor for corporate travel for Holnam, a building materials manufacturer in Dundee, Mich. "If rates aren't loaded in a timely way, it creates confusion for travelers and you start off the year on the wrong foot." Cousino has 30 hotels located in 25 destinations in her hotel program. Annual spend on hotels is approximately $1 million; 500 travelers participate.

According to Melissa Arnold, rate integrity is definitely an issue for her in some instances. Travelers may not always know what the correct rate is supposed to be when they book, and when they find a rate in the system, they assume it's the correct one. The entire first quarter of the new year can go by before incorrect rates are identified and removed from the system.

If it takes weeks--or even months--for approved rates to be loaded, it creates an unfair advantage for the hotel. "Many hotels assume we either don't understand this aspect of administering the program or won't bother to check. They assume that the travel agency is responsible for following up, none of which is true," Robin Buzzeo said.

Systematic and consistent follow-up is key. "It takes time and energy, but if you don't show willingness to follow up to make sure the right rates are loaded, the hotels won't be as rigorous about it as they should be," Cynthia Betzner said.

Buyers must be very clear and, if necessary, forceful. "Come Jan. 1, you need to see the rates in the system, plain and simple," said Level One's Amaral. "Some hotels seem to think that date is negotiable, but it's really not.