Travel managers are voicing their frustration with American Express and TQ3 Travel Solutions' decisions last month to phase out fixed hotel consortia rates in 2004 in favor of flexible rates that potentially could fluctuate daily. Initial objections range from possible cost increases to new challenges in benchmarking, budgeting and forecasting.
Buyers at small to midsize programs are most affected by the Amex and TQ3 moves, since they tend to be more dependent on consortia rates. Regardless of the size of their programs, buyers said the change from fixed to flexible rates might make them reevaluate the overall role consortia rates play in their hotel programs. To at least one buyer, this would mean adding more negotiated rates, thereby sidestepping any dependence on consortia rates.
"We depend on the consortia for rates at hotels where we don't have the volume to merit the workload that's entailed in negotiating a company-specific rate," said Cynthia Gillen, director of procurement and travel management for BDO Seidman LLP, in Chicago. "The consortia rate traditionally has represented a substantial—and stable—discount. That's the key word, 'stable,' for the discount off regular corporate rates. Do we put business in a hotel because it's a consortium partner and we know the rate? Yes, we do. They're an important part of my program, and they're taking that floor away."
American Express this month replaced its fixed rate program entirely
(BTN, Dec. 8, 2003). The agency argued that more dynamic pricing is better suited to today's volatile marketplace and that the sophisticated technology exists to support this kind of pricing model.
TQ3 Travel Solutions is testing a fluctuating approach, while retaining a fixed rate component
(BTN, Dec. 8, 2003). The fluid pricing component is scheduled to take effect in March.
Marriott International, meanwhile, earlier announced that it was curtailing its consortia rate program, effective this month, as part of a broader rate parity initiative
(BTN, Nov. 10, 2003). The move affects all Marriott brands except Ritz-Carlton and Ramada International.
"We only have a negotiated rate in 12 cities this year, which are our top markets," said Cheryl Geib, national travel and meeting manager for Grant Thornton LLP in Oak Brook Terrace, Ill. "Consequently, we depend on consortia rates elsewhere, which works out to about 60 percent of the time, if not more. It's significant for us, but the change to dynamic pricing comes at a time when a lot of other distribution channels are emerging that offer flexible rates as well."
Geib said discount rates available on the Internet could lessen her dependence on consortia rates. "Web specials might reduce use of consortia rates further, even though we know there are going to be restrictions. There are just many more options for buyers today when it comes to those cities where you have too little volume to warrant a negotiated rate."
Dynamic pricing means rates might go down, depending on market conditions, or they may rise.
"With the economy being a question mark right now and demand remaining soft, the new pricing model may work to a buyer's advantage in that consortia rates may float down more than they float up," said Brian Nichols, hotel and ground transportation manager at Deloitte Services LP in Wilton, Conn. "If the economy turns, however, it can be to the hotels' advantage because they then can bump the rate up more often, rather than being locked into a ceiling of a flat consortia rate."
Faced with the possibility of rates escalating, buyers still would have options. "The consortia always has been the fall-back rate. It stands to reason rates could go higher in certain instances," said Bill Davidson, manager of corporate travel and meeting services for International Sematech in Austin, Texas. "If it reaches the point of being noncompetitive though, we probably would look to book another property anyway."
In another sense, buyers of small and midsize programs have less at stake than larger programs precisely because of their modest size.
"Smaller accounts are more concerned with managing their day-to-day programs," said Larry Austin, head of Austin Travel, a Melville, N.Y.-based corporate travel agency, who said dynamic pricing is potentially a desirable goal. "Certainly, these accounts want the best hotel rates, but it's the larger accounts that have more at stake financially. For them, it's a major problem: Budgets are greater so there's more at stake."
Given the difficulties buyers already have in effectively tracking traveler stays and, consequently, costs, adding flexible pricing creates further uncertainty. "Once you remove fixed rates from the equation, we're told rates will fluctuate, depending on market conditions, but there's no way that's verifiable," Gillen said. "A lot has to be taken on faith."
It will be in the buyer's court to track. "Right now, we don't necessarily have the time or resources to track how the fluctuating rates are applied. It's not clear how agencies propose to track these rates on behalf of their customers," Gillen added. "Is it going to have a financial impact on us? I'd say yes."
It is Gillen's belief that, for corporate travel buyers, "advance knowledge is control, power and the ability to manage your spend." Changes in pricing such as this take away the advance knowledge. "Travel buyers will no longer be able to project and manage their spend effectively."
Benchmarking also is impacted. "We typically use consortia rates to benchmark our negotiated rates, so it's an issue if you don't have access to consortia rates that are consistent," said Tara McGuinness, program manager for American International Group in New York.
Negotiated rates tend to be flat or minimally seasonal. "When consortia rates mirror that, it gives buyers an easier benchmark to value your negotiated rates," Nichols said.
Budgeting and forecasting similarly become more complicated. "Budgetary models would change. In the past, if you checked a rate two months out, for example, you could see what the consortia structure was and budget appropriately," Gillen said. "Now if the booking is made two weeks out, the consortia rate may show as significantly different."
Buyers traditionally wanted to know what the rate was for the year so they could budget accordingly. "It definitely increases the workload. It takes the ability to budget and project away from corporate travel management," she said.
The move toward fluctuating pricing has made Yasuo Sonoda, travel manager for Macromedia in San Francisco, question assumptions underlying the consortia pricing concept. "If your travel agency is doing its job, it should be running reports on the percentage of times you end up using the consortia rate," he said. "The lesson is, if you're relying on consortia too heavily in a certain market, it may be an indication you need a negotiated rate in that market. That way you'll have more control because there'll be no question of what rate you're entitled to."
As buyers are forced to deal with more fluid rate models—both in terms of consortia rates and the Internet—a new skill set may be required.
Sonoda said, "It becomes all about reacting quickly, analyzing data and seeing where you can save money."