Europe Offers Buyers Scant Relief Of High Hotel Rates

The approach of the annual National Business Travel Association convention heralds the hotel request for proposals season for the coming year. As buyers settle down to read the runes for 2006, they see that it threatens to prove the most expensive year since the peaks of 2000. "The economy is coming back in most of the world. We expect next year to be tough, to say the least," said TQ3 Travel Solutions hotel sourcing consultant Espen Kristensen.

Much of the concern for buyers will focus beyond the United States. Marriott's second-quarter figures showed that while the group's average daily rate shot up 8.2 percent in North America compared with the same quarter in 2004, it rocketed by an even more remarkable 13.6 percent in the rest of the world.

Such boom Asian markets as China and India have played their part in the heavy rate increases, but more established European and Middle Eastern regions also are seeing some impressive surges. The consensus among both buyers and sellers is that fewer deals will be available in 2006, but those corporate clients that continue to deliver business to hoteliers will be rewarded with more limited rate increases. With Marriott stating its intention to raise revenue per available room by 7 percent to 9 percent over the next 12 months, any rises limited to the rate of inflation could be considered a significant achievement.

However, European buyers with well-managed hotel programs expressed confidence they can pull it off. "Two chains have already confirmed they will keep us at the same rate for next year," said Calin Schiau, Geneva-based travel and entertainment procurement manager for tobacco company JT International. "Hoteliers are keen to get us in their program because when we travel, we travel well. I am convinced we can get no more than half the increases that hotels will make to their other rates."

Linda Robertson, London-based business travel services manager for British American Tobacco, is bullish about her expectations for the U.K. market. "In the provinces, I expect rates to stay the same, if not drop because more choice is available to me this year [around BAT's key destinations]," she said. "London hotels will try to increase their rates, but I will fight that quite heavily after overproducing on our agreements. Having said that, for travel managers looking to introduce a new hotel program, it will be difficult. This is where the long-term relationships come through. We didn't kick hotels when they were down; I would like to think we will see them return the favor."

Robertson's observation that anyone building a new program will find 2006 tough drew support from other European hospitality professionals. The same likely is true for companies that do not produce enough volume, according to John Licence, vice president of sales for Europe, the Middle East and Africa. "Some hotels will be looking at which companies are really producing enough to earn a discount and the level of discount they should be given," he said. "If a hotel gave deals to 50 corporate customers in 2005, it may only give them to 30 next year. We manage 250 accounts globally at Marriott. I don't see that diminishing, but below that level is where the number of clients will contract."

Licence added that hotels are more vigilant about weeding out clients that fail to meet targets. This is a recurrent claim by hoteliers, but experienced buyers know most properties usually back down and give yet another chance to non-performing customers. However, Kristensen backed Licence's assertion, warning that buyers will have to be more diligent about honoring commitments. "We are seeing a lot more half-yearly reviews where hotels are changing the rates if customers are not delivering," said Kristensen.

Hospitality professionals in any case are finding that the imperatives that drive buyers are widening beyond forcing down the room rate. This is manifesting itself in several ways, one of which is using the relationship with a hotel to secure availability when cities are full midweek. "This year, corporates are concerned about guaranteeing space as much as they are about rate," said Licence. "Last year, it was all about rate."

A strengthening global economy also means many buyers have stopped downgrading class of accommodation. Marriott has seen the downward move through its brands grind to a halt, although it has not started moving the other way. Instead, said Licence, growth is consistent in all segments.

Paradoxically, loosening the focus on rates is helping travel buyers with their programs. Security is taking another leap up the agenda for companies and the need to track travelers is strengthening control over travelers' choice of hotels and booking channels. "Compliance should go up as a result," said Kristensen. "We are starting to see clients mandate bookings for the first time."

Although rates generally can be expected to rise substantially in 2006, there will, as always, be significant variations across Europe and the Middle East. Corporate travel practitioners and analysts made the following predictions for next year:

United Kingdom

Until last month's bombing of the public transportation system, London had been tipped for some of the strongest rate growth in Europe. According to the consultancy PKF, an occupancy rate of 82.5 percent helped the average room rate strengthen to £115 (US$200) in June 2005, 4.5 percent higher than June 2004, and was expected to do even better in the months ahead. Following the bombings, all bets are off. Madrid recovered quickly after its attacks in March 2004, but the threat of a sustained bombing campaign in London could prove a deterrent to overseas leisure visitors, thus easing rates for business travelers.

The rest of the U.K. is less vulnerable to a fall in overseas visitors. On the other hand, it had been prepared for a less stellar performance than London. According to PKF, regional U.K. rates rose 3.5 percent in June 2005. The same again for the next 12 months does not sound unreasonable.

France

Rate is showing limited signs of growth for the first time in four years, but is not forecast to increase dramatically.

Germany

A similar situation, with small rises but no sign of a return to its high historical ranking in rates tables. Rates in Berlin are struggling after a succession of hotel openings.

Amsterdam, Copenhagen, Zurich

These cities are doing well and rates are accelerating.

Central Europe

Marriott is only expecting revenues to rise 4 percent to 5 percent in much of this region, compared with a 7 percent to 9 percent average worldwide. Overcapacity is depressing rates in Warsaw, Budapest and Bucharest.

Athens

Oversupply following the 2004 Olympics also is pegging rates in the Greek capital.

Moscow

Expect very stiff increases well into double-digit percentages. A surge in demand prompted by a fast-recovering economy is coinciding with a shortage of demand following the recent closure of several Soviet-era properties.

Middle East

Expect similarly steep rate rises Demand is growing fast and hotel owners are showing unflinching unanimity in moving up prices.

Corporate discounts are proving extremely difficult to secure, with hoteliers in Dubai and Doha proving the most hard-line.