Consolidation By Buyers Extends Reach To Upscale

<B> Consolidation By Buyers Extends Reach To Upscale</B>

By Lynn Woods

A softening of hotel demand in some markets, combined with corporations' continual focus on cutting travel costs, is renewing the trend toward consolidation of preferred hotel suppliers. Some companies are even negotiating with the upper-tier properties used by top management, a segment that traditionally hasn't been managed at many companies. "For the last three or four years, the hotel market was tight, which kept hotel companies from taking on large volumes of business, such as meetings," said Tom Wilkinson, president of Travel Management Group in Washington, D.C. "But the market is loosening up a smidge, so now companies can get into properties and have the option of consolidating."

Another factor is the cost-reduction steps many high-tech and financial companies have taken in response to financial difficulties affecting their industries in the second half of last year, noted Steve Goodling, director of marketing in North America for Shangri-La Hotels & Resorts. "Senior management has been focused on how to reduce costs," he said.

However, even companies that have been riding the economic crisis with ease are keeping a tight lid on their costs, anticipating that the good times won't last forever, noted Nathalie Lissinna, manager of corporate hotel programs at American Express Consulting Services Group. "The corporate culture is changing, and cost cutting is the buzzword. Companies are leveraging their existing relationships with the five-star chains. We're finding a select group of companies are doing a two-tiered approach in their hotel programs."

Added Julie Hylton, director of hotel management at American Express Consulting Services Group, "In the past, VIPs did their own thing. But now travel managers are trying to get their arms around that piece and manage it."

Executives at five-star chains confirmed the trend. "A lot of corporations are segmenting travel into the VIP area," said Mark Sternberg, director of corporate and travel industry sales at Four Seasons. "It's been going on for quite a while, but it's picking up more speed due to mergers and acquisitions. People are sensitive to cutting expenses, and while a lot of companies have allowed their senior people to go wherever they like, that's changing."

He added that "some markets are in a stronger position to negotiate than others. If a company would like to consolidate its hotels for senior management and it could generate incremental business for us, we'd be interested in negotiating." In the average market, "we'll talk to a company when it can bring at least 50 room nights a year to a particular property."

Mark Ferland, vice president of sales and business development at Ritz-Carlton, said his firm has negotiated rates with more than 50 companies. "If a company only has business in New York, Boston, Washington and San Francisco, we may work with them, but the program won't be as aggressive as it would be for companies doing business in Asia or the Southeast."

Ferland said Ritz-Carlton actually had fewer "partner accounts" than in the past, due to mergers and acquisitions in the corporate world. "With consolidation, we might now have one partnership rather than three," although this did not reflect any loss of market share.

For those companies who don't bring in the volume for discounted rates, Ferland added that Ritz-Carlton could tailor a service-driven program. "If a company can't give us the volume, but it will give us the upper 10 percent of its management, we'll profile the VIPs before their arrival."

Large, multi-brand chains also are seeing the advent of more programs that include negotiated rates for the luxury brands in the chain's portfolio. "With the various mergers and acquisitions, we have seen larger corporations tending to leverage these new relationships," said Roberta Rinker-Ludloff, vice president of global sales at Starwood, which includes W Hotels and the St. Regis/The Luxury Collection of hotels. "This allows for some discounted pricing at all of our brands. Companies can come to us to negotiate for their luxury brands, even if there's not a lot of volume at that tier. Collectively, it may add up."

She added that "in our key cities we have negotiated with some key corporate customers for our Luxury Collection hotels, including the St. Regis in New York. In a high demand area, if the corporation can help fill the shoulder season and weekends, it gives them leverage." In some cases, Rinker-Ludloff added, corporations might do better with the rates negotiated through their travel management company.

Last year, a San Francisco-based travel manager put together a two-tiered program after negotiating discounts with the Four Seasons and Ritz-Carlton properties used by its senior executives. "We ran reports on the properties and chains used by VIPs and saw the numbers," he said. "Because we were dealing at the national sales level, we could extend the program to properties in other cities. We got bigger breaks at large-volume cities, such as Washington, D.C, and smaller discounts where the volumes were less."

One factor that helped the negotiations was the company's decision to print a separate hotel directory for VIPs. "By putting the hotel in our directory, we could tell the property it might get more of our senior people," the travel manager said.

Another company that recently put a two-tiered hotel program in place is Pilkington plc. Global travel supplier E.J. Hewitt said she just finished negotiating with Forte Hotels, which has resulted in the company consolidating its preferred hotels in London from more than 90 to just six premier properties.

In consolidating its hotel program in Europe, where the company is based, Hewitt said getting a handle on the data has been a big priority. "In Europe, the air is a big chunk, and hotel programs are not always the first priority. They're not as easy to track." In an attempt to get better data on hotels, Hewitt's company recently changed its travel policy, requiring travelers to book their hotels through American Express, the company's worldwide travel management firm.

She also is employing Amex's TripPower tracking product in Europe, which the company has used to track the data for its hotel program in the United States. "We've set up a person in Europe who's the pivot point for American Express," she noted. "He'll be collecting the data from European companies and tracking the numbers in the various local currencies."

Indeed, Hylton at American Express said that "U.S.-based companies have done a good job of getting their arms around U.S. properties. Now they're expanding outside the U.S." She said more data from the card vendors was making this possible, as was the fact that negotiations generally are easier than for air because travel managers can use "central points of contact." For air, they often have to negotiate on a country-by-country basis because of different government regulations.

"We can bring players together, leverage on worldwide volume and partner with chainwide contacts," she noted.

Melanie Gilmore, corporate travel administrator at USAGroup, a student-loan underwriter based in Indianapolis, said her company consolidated its hotels for a different reason: room availability. "We narrowed our preferred properties to two hotels, Crowne Plaza and Hampton Inn, because before we couldn't get a room. Now our hotels will guarantee a room 48 hours out."

She said the negotiated rate at Crowne was $95 and at Hampton Inn, $82--great deals considering that no hotel in downtown Indianapolis charges a standard rate of less than $100.

Many companies, however, continue to negotiate with individual luxury hotel properties, even here in the United States, rather than chains, because they just don't have the volumes.

"We're not big enough to negotiate chainwide discounts," said Tom McCabe, director of travel management at EG&G in Wellesley, Mass. "We're better off negotiating with individual properties."

EG&G's recent acquisition of a division of PerkinElmer, a global manufacturer of precision instruments, has resulted in an additional $12 million spend in T&E--approximately $2.5 million of which is slated for hotels--that could strengthen the company's negotiating clout. However, McCabe noted that "it's an increasing part of our culture that we don't differentiate hotels for senior executives"--with a few exceptions, such as an analysts' meeting, in which travelers would stay at New York's Millennium hotel rather than the Holiday Inn.

McCabe said his company renegotiated its hotel rates two years ago, reducing its program from 85 properties to 25 and opting for corporate rates available from its agency, American Express. "It's been such a seller's market over the last three years that we've found the American Express rates were better than the rates we were offered," he said.

In hot markets especially, negotiating with top properties can be difficult for all but the biggest players. But when business is down or a property is brand-new and trying to establish itself in a marketplace, sometimes companies can luck out and get a great deal. One travel manager noted that when Ritz-Carlton opened in northern Virginia seven years ago--the last hotel to be built in a spate of new hotel construction--rates were as low as $90 a night.

On the opposite side of the globe, Asia has been a steal; companies don't have to bother with a two-tiered program to take advantage of the best hotels. "Right now a variety of expense budgets can afford to stay with us," said Goodling at Shangri-La Hotels & Resorts. "A five-star hotel in Bangkok is cheaper than the Holiday Inn in San Jose."

But the depressed economy, which has enabled middle managers to experience CEO-style luxury, isn't the only factor in this democratization; distance is another. "If you're flying 12 to 15 hours, you have management support for 'nice.' We haven't had a lot of people say, 'Put the VIPs here and everyone else over there.' "

However, Goodling predicted that the rock-bottom rates will disappear over the next year as the Asia's economy improves and rates head upward.

Elsewhere in the world, the high occupancy levels of many five-star properties have made it difficult even for the biggest corporations to get a deal. "As long as wealthy travelers are happily paying the $440 a night, there's not much pressure on the hotel owners to change," said Burke Stinson, travel manager at AT&T. "Our goal is to consolidate hotels at the large chains, rather than use the independent hotels, which aren't that aware of business travelers."

Furthermore, the culture at many corporations has shifted toward a cost-saving consciousness that frowns on the use of five-star properties altogether, even by top management.

"Three years ago, we switched from a three-tiered program to a one-tiered program," said Stella Bugtas, global leader of the hotel program at IBM. "One program is more flexible and democratic. But we do have limits on what the spend is by city. If you go over the cap, the division manager must approve it." She added that IBM had consolidated its program in the United States. The number of properties vary by city, although generally one hotel accounts for 1,000 room nights' worth of business. Bugtas said IBM's preferred hotel chains include Hilton Hotels and Swiss&ocirc;tel. "We don't use Four Seasons or Ritz-Carltons in the U.S.," she said.

Hewlett-Packard also has shied away from a two-tiered program. "We have a hotel directory of preferred properties ranging from economy to upscale," said Richard Del Colle, HP's corporate meetings program manager in Burlington, Mass. "We can generally find suitable business rooms that meet the needs of most travelers within major hotel chains. We've been focusing on negotiating the total revenue we can bring to a chain by combining transient and group travel."

Wilkinson said his firm advises its clients against two-tiered programs. "They are too hierarchical, and you risk alienating a lot of people," he said. A better way to manage hotels for the top people is to "do customized negotiations based on the trip, rather than the chain. If you rent the top floor of the Regent, try to get a deal," he suggested. Especially if your CEO stays at the hotel every six months.

And value continues to be the driving force at many companies. "I've never talked to Ritz-Carlton," said Kathryn Christy, corporate travel manager at Aspect Telecommunications in San Jose. "They've never come down in price enough." Christy is focused on moving share to the Crowne Plaza in White Plains and the Sheraton Suites in Chicago, which, while "not a hotel I'd usually go after, is right across from the parking lot of our offices. That means our travelers don't need to rent a car, they can take the shuttle bus from the airport."

The Crowne Plaza, she said, "is a nice hotel at a good dollar rate, an economical hotel that our top people wouldn't be embarrassed to be at."

In negotiating a deal, Christy researched the rate at two-star properties, such as Courtyard by Marriott, and proposed those amounts. Although Crowne Plaza wouldn't come down to the Courtyard rate, she said the tactic was effective in bringing down the overall price.

And she hopes to do even better next year. "They pay attention if they see you can shift market share," she said. "So many companies really can't.