Several corporate travel buyers are foregoing the standard hotel request-for-proposals process and seeking to extend 2005 negotiated terms and rates into next year, in addition to deploying such time-tested tactics to secure favorable rates as limiting the number of preferred hotels in certain markets. Such negotiating approaches, if successful, initially would keep rates flat, despite the consensus among hoteliers and analysts that corporate negotiated rates will increase sharply—by double-digit percentages, according to some estimates.
"The advice that we've been giving is to expect the 7 percent to 10 percent to even the 15 percent range we've been quoted by some of the hotel chains," said Kim Maschoff, WorldTravel BTI Travel Procurement Solutions director of hotel business consulting, of negotiated rate increases for 2006. "It will vary by market, by tier and by client. Those that have had significant volume, perhaps over the $50 million range, you could say that their inflation is going to be in the 4.5 percent to 5 percent range."
Choice Hotels International senior director of travel industry sales Christine Chippindale early this month said that of the 30 RFPs that had come in, six asked to extend 2005 rates into next year. "They say, 'If you extend our current rate into 2006, we'll accept your hotel in our preferred hotel program,' " she said. While each request for an extension has varied, Chippindale said some are asking the hotel company to extend rates only through the first quarter of 2006, when a more formal bidding process and rate negotiation will take place. "More hotels will be willing to hold the rate under those circumstances," she said.
InterContinental Hotels Group said it has seen similar activity in the past, not as a means to secure lower rates but rather as a way to buy time while negotiations continue and rates are loaded. "While we're in the negotiating period, we will allow rates to sell into the next year and we usually maintain those rates at least through the first quarter, unless the client absolutely says, 'No, we don't want those old rates,' " said InterContinental Hotels Group director of sales, operations and planning Doug Abbott. "It has not been a negotiating tactic, it's just something that has happened every year that we tend to do. We have a decent chunk of clients who wait until the end of October, middle of November and they don't wrap up negotiations until January or February. It could be 20 or 30 percent of clients that do it that way. I don't think they're trying to take advantage, it's just the way that timing works out."
Although hoteliers may consider obliging requests for rate extensions, some sources said the practice, if a strategy to keep the lid on rates, only would postpone the inevitable. "Of course, you could have significant savings in the first quarter," TPS' Maschoff said. "The challenge is you have to do this negotiating at some point and the rate increase in the second quarter could nullify any savings in the first."
PricewaterhouseCoopers already forecasted record-high average rack rates of $89.97 this year, and the growth is expected to continue through 2007. "At a growth rate of 4.3 percent, this is the strongest increase since 2000, when the rate was 5.4 percent," the report said of average daily rack rates.
Bjorn Hanson, head of the hospitality and leisure practice at PwC, this month continued the assertion that companies will have a hard time toeing the line with hoteliers. "2006 corporate negotiated rate increases in general will be much larger than 2005," he said, warning that hotels "are looking for this to be their biggest rate increase in four years. Some are trying to make it the biggest increase in corporate rates ever." Hanson added that PwC is in the midst of putting together an analysis of the corporate market and the specific increases buyers can expect.
Although American Express has not yet forecasted 2006 rates, the company last week said average hotel rates booked by its clients increased in the second quarter this year from the same period in 2004. "The international booked rate increased to $214 from $195, while the U.S. domestic booked rate increased to $135 from $128," American Express said in a statement.
The growth spurt, hoteliers contend, will continue.
"We are expecting higher negotiated rates for next year and not from a position of price-gouging. That's not what we're about," said IHG's Abbott. "Corporate travel continues to grow in terms of demand and the supply has not increased. We find ourselves at an odd point because in the last few years, demand was slow to grow and because of that supply got kind of choked off. Now, the supply has not been able to catch up with demand, which has powered back." Although Abbott said that at this point it is too early to determine to what extent rates will increase, he said, "It really depends on the location and the client going into that location, but we do expect it to be higher."
Hilton Hotels Corp. was more specific. "I do believe we're going to have higher rate increases than we've had in the past four years or so," said Denise Lodrige-Kover, Hilton vice president of business travel sales. "In some cities, quite frankly, we're going to be able to get double-digit rate increases and in other cities there will be rate increases certainly, but not as high."
Some buyers, such as Altria's manager of meeting planning and hotel program John Lowry, have been able to minimize increases with hoteliers
(BTN, Sept. 5), yet, given the state of the market and the supply and demand issues at hand, many buyers have resigned themselves to the prospect of increases for 2006, but to varying degrees.
"We do expect to see some uptick, but I don't think we'll see the same uptick as projected right now," said Kevin Maguire, travel manager at Tokyo Electron America. "Corporations need to push back. Corporations have to say, we're willing to give you a fair deal—underline fair."
"I'm expecting negotiated rate structures to be significantly higher," said Cindy Gillen, director of procurement and travel management for BDO Seidman LLP. "There are cities where last room availability is worth having and we've been discussing a lot whether it's worth paying a little more for LRA. That's a decision that will have to come up more frequently this year. In certain markets, it's very important."
Tina Itschner, corporate travel and purchasing manager for HNTB, is limiting hotels in certain markets to ensure the best deal possible as well as encouraging travelers to use preferred suppliers to deliver volume. "We expect there will be a slight increase in 2006 rates," she said, adding the company is trying to curb the level of rate increases. "By moving market share, our opportunity to maintain lower cost increases. We are working towards a strong communication campaign to educate travelers on the importance, when selecting a hotel, of utilizing the company preferred hotel versus the traveler-preferred hotel when at all possible."