Major hotel consortia are beginning to issue rates for 2004 that appear to be on the rise, reversing the course of the past couple of years and introducing upward pressure on corporate rate negotiations.
Business Travel News has learned that consortia rates forecast by ABC Corporate Services and TQ3 Travel Solutions will increase between 2 percent and 5 percent, compared with 2003. WorldTravel BTI said that the consortia rates it soon will issue will be flat.
Even though the hotel consortia rates—which travel buyers often use to benchmark their negotiated rates—are likely to rise, at least one source has predicted that negotiated rates will continue to fall
(BTN, Oct. 20). The higher consortia rates reflect hotels' increasing desperation to see revenue gains after two years of depressed pricing.
Any discrepancy between the consortia rate and negotiated rate forecasts underscores the premium that hotels place on dealing directly with individual buyers. Unlike corporate negotiated rates, there are no clearly defined volume projections offered in return for a consortia rate and fewer travel policy mandates to ensure delivery of those projections to hotels.
"Hotels are even hungrier for volume right now than they have been," said Kim Kossl, director of global hotel programs for TQ3 Travel Solutions, which is projecting consortia rate increases in the Americas of 3 percent to 5 percent over last year. "The return of the business traveler has taken longer than expected. They're just hoping to regain some of the monies lost over the past few years."
As with any extended pricing program, rates can fluctuate by market. "Among U.S. markets, two of the strongest consortia increases will be in New York and Chicago," said Tiffany Topcik, vice president of hotel and supplier relations for ABC Corporate Services. "In both cases, the environment has been soft during the past few years. Chicago also has seen a lot of new hotels come into the market recently." ABC projected average consortia rate increases for U.S. hotels of almost 2 percent, while non-U.S. hotels are expected to hike rates almost 3 percent. Running counter to the overall trend, consortia rates at San Francisco hotels, which have under-performed since the burst of the dot-com bubble, are expected to drop almost 5 percent, compared with 2003.
In setting consortia rates, hotels are asked to determine prices in July of one year that will be in effect until the end of the following year. "Because they're pricing so far out, they're forced to hedge their bets," said Kim Kearns, director of hotel relations for WorldTravel BTI, which expects 2004 consortia rates at U.S. hotels to be flat with 2003. "Early indications this summer were that hotels' performance in the major markets was starting to strengthen, but the hotels remain guarded. They've tried to offer rates that will be accepted into the consortia programs. But if the market does continue to take a positive turn, they don't want to be in the difficult situation of having offered rates that were too low."
In addition to benchmarking against 2004 consortia rates for negotiations, buyers book these rates, which are available through their travel management company, when it is cost efficient.
"A selling point for any consortia or other agency program is that it's there as a support and fall-back option to larger companies' negotiated rate programs," said Ruth Philpott, manager of hotel programs for American Express Consulting. "For small to midsize programs, it can be the sole savings program available to them." Amex declined to reveal its expected consortia rates for 2004.
Large-program buyers typically negotiate rates in their top cities and supplement them with consortia rates in other cities. "Clients also can have chainwide discounts in place, depending on their volumes," Philpott said. "Even with a chainwide deal, however, there likely will be secondary or tertiary cities where travelers need to go, but where the chain doesn't have distribution. So there's still the need for a consortia program to fall back on."
By contrast, buyers at small to midsize programs almost invariably lack the volume to warrant getting negotiated rates in most cities, no less a chainwide deal. Therefore, they are even more dependent on consortia rates. "Typically, these programs cross many brands and many markets," she said, "so there's more than likely a selection option for travelers."
Some buyers expect to use consortia rates as a safety net. Connie Cirillo Freeman, director of global travel management and human resources procurement for Pitney Bowes in Stamford, Conn., expects to negotiate individually with 40 to 50 hotels for her 2004 program. "They include our headquarters city and represent the largest concentration of our hotel usage," Freeman said. "Beyond that, we'll rely on our agency's consortia rates."
Likewise, Sue Wiese's program at Acxiom in Conway, Ark., is too modest to have negotiated rates in more than seven cities. "As a result of consolidating the program in the past few years, we've cut down on the number of hotels we're working with in each market," she said, "so we use the agency program as an important back-up source."
According to ABC Corporate Services' Topcik, the process of getting hotels to commit to consortia rates for 2004 was considerably more complicated than in other years. "There were more variables, which made budgeting for the hotels more of an issue," she said. "That led to some tough decisions as to where they were going to distribute their product and what the appropriate rate should be for each distribution channel."
The proliferation of discounted room rates on the Internet became a factor in discussions in the same way Web rates penetrated other aspects of marketing hotels. "The Web situation—with its dynamic pricing—has affected every aspect of hotel negotiating," TQ3's Kossl noted. "Hotels are starting to recognize they need to offer us flexible rates on top of the traditional consortia rates for consortia programs to remain viable."
Hotels chafe specifically at the inroads made by the discount merchant model sites. "They place a tremendous emphasis on putting the merchant models into their proper slot, but they're frustrated," Topcik said. "They're intended for use by leisure travelers, not on Monday, Tuesday or Wednesday night, which are the core business travel days."
At the same time, hotels understand that any movement toward floating rates, which like discount Internet rates are subject to change on a daily basis, may not sit well with buyers. "Hotels have begun to talk more about floating discounted rates, but there's a built-in conflict," said WorldTravel BTI's Kearns. "With fixed rates, buyers are able to do their forecasting and budgeting. Once you move to a more flexible model, that planning becomes much more difficult."
Philpott warned buyers about drawing too close a correlation in benchmarking negotiated rates against consortia rates. "You can't necessarily assume that because your consortia rate went up or down X percent, your negotiated rate has to go in the same direction," she said. "There are different yield buckets at a property. Sometimes, rates are determined on the property's own business mix and revenue projections. Consortia rates, for example, might go up to make up for offering much lower negotiated rates to select corporate accounts."