Healthy Economy Does Little To Help Hotel Negotiations
<B>Healthy Economy Does Little To Help Hotel Negotiations</B>
By Bruce Serlen
As with so many other industries, U.S. hotels have been the beneficiary of this country's prolonged economic expansion. Growing each month since March 1991, the economic boom is unprecedented in U.S. history. For hotel chains in every segment of the industry, this generally has meant high occupancy rates, healthy ADRs and strong RevPAR. Yet storm clouds have been sighted that could affect the industry for the rest of 2000 and 2001.
For corporate travel buyers, a hotel industry that's a bit less robust conceivably could make for a better negotiating posture. After years of stiff hotel rate increases, there are signs those rates are beginning to soften. The supplier's market may not be over, but buyers at least may be approaching the downside. At the same time, however, if the national economy falters substantially, the fortunes of travel buyers' own companies stumble as well. Hence, no one really benefits.
With this as background, the hotel companies that appear in the 2000 Top U.S. Hotel Chain Survey are a litmus test. The annual survey assesses corporate travel buyers' satisfaction with hotel chains at every level. Satisfaction is measured on a range of specific criteria--including ease in arranging individual and group travel to availability of in-room and business amenities, effectiveness of the corporate rate program, helpfulness of staff and the overall relation between price and value.
So what are the storm clouds that could mar present industry optimism? PricewaterhouseCoopers' Bjorn Hanson, head of the hospitality and leisure practice, said the rate of RevPAR growth actually declined in 1999, as it has every year since 1996, as the rate of room supply growth has increased. What's more, a negative gap between supply and demand growth is expected to exist through 2001 before evening out as the rate of supply growth decreases, according to Bear Stearns lodging analyst Jason Ader.
In terms of new development, Insignia/ESG Hotel Partners senior managing director Jim Burba anticipates the supply of new hotel rooms coming on line this year to slacken to 140,000--down from 150,000. "Yet, big picture, 140,000 new rooms is quite substantial and nothing to sneeze at," Burba said.
These reservations aside, the lodging industry remains healthy overall at least for the short term. "In key business markets especially, hotel chains are determined to maintain their market share, which means remaining competitive in terms of negotiating rates," said Alison Guilbeaux, manager of business development, corporate hotel programs, for WorldTravel Partners in Atlanta. "Yet, if supply is tight and demand high, hoteliers will ask for--and get--the rate increases they're looking for."
With corporate travel a crucial component of their business strategy, chains report corporate transient and corporate group account for 80 percent or more of room bookings. "It's the engine driving the car," said one hotel exec.
Chains at every price point remained eager to negotiate contracts with travel buyers in 1999, but how much flexibility did they really bring to the table?
"Much depends on the particular market you're bringing travelers to. Rates are softening in some markets, but others remain as tight as ever," said David J. Vahala, who manages corporate travel for Itron, a provider of advanced systems for utilities in Spokane, Wash.
"Silicon Valley? Good luck. Softening rates here in Spokane? Absolutely," said Vahala, who is also president of the local Inland Northwest Business Travel Association.
"If we are seeing any flexibility, it's on the transient side versus group," said Louise L. Belanger, who manages corporate travel for Domino's Pizza in Ann Arbor, Mich., and is also president of the Michigan BTA. "Volume is still the key determinant, however."
While the chains encourage national accounts, a national contract for hotels still means something different to different segments of the industry. In reality, these contracts are more prevalent in certain segments than others.
At the deluxe, upper upscale, upscale and midprice with food and beverage chains, for example, a national contract could be truly national. In the midprice without food and beverage, extended stay, economy and budget sectors, by contrast, a contract is more likely to be negotiated by a national sales team, but really focus on specific properties at the local level.
After all, if a buyer is bringing high volume to a particular property because the property is in close proximity to a company manufacturing plant or office, it makes sense to keep the negotiation local.
Scale is also a factor. Given their size, companies such as Marriott International, Starwood Hotels & Resorts Worldwide and Hilton Hotels Corp. can negotiate with chains at a range of price points all in one umbrella "national" negotiation.
Speaking of size, given the growth of extended stay properties, this year's rankings include both upscale extended stay and midprice extended stay listings. Indeed, most of the chains listed in the midprice category, including Wellesley Inns & Suites and Candlewood Suites, are new to the survey this year.
In addition, a chain occasionally makes a reappearance in the survey. Rosewood Hotels & Resorts is a case in point this year in the deluxe segment. Even though it has relatively few properties, Rosewood scored a usage rating of nearly 20 percent, assuring it a position.
Changes in standing within the categories always are watched closely. Yet with a few exceptions, the changes in standing are relatively incremental. The exceptions are described in the accompanying stories. In most cases, the degree of difference distinguishing one chain from the chain ranked directly above or below it in a category is often so modest that it can be seen as splitting hairs.
Talking to hotel chains that figured in this year's survey, the number one recurrent theme is customer service.
"We built our reputation on providing high levels of service to the business traveler, and intend to continue fine tuning that approach," said Mark Ferland, vice president of sales and business development for Ritz-Carlton Hotel Co., which placed at the top of the deluxe category this year. "As the demands of business travel get more pronounced, the need for appealing surroundings and high-end amenities--including technological amenities--grows proportionately for the sophisticated business traveler."
This same customer-driven orientation can be found at the other end of the industry spectrum, if in more modest circumstances.
"Our business guests, who tend to work for small businesses, are looking for a warm and friendly reception and that's what we aim to provide," said Tim Shuy, vice president and brand manager for Econo Lodge, which ranked near the top in the survey's budget category. "Typically, our business guest has driven many hours before stopping for the night, so that warm greeting is particularly welcome."
The service argument, however, only resonates so far with corporate travel buyers. "All the high-end chains, regardless of category, seem to claim they offer the most personal service, so it doesn't really mean very much," said Florence Behal, who manages corporate travel for a division of the Harland Corp. in Lake Mary, Fla., and is president of the Central Florida Business Travel Association. "Certainly, business travelers are more sophisticated today and expect better service."
"Many of the service extras sound very nice, but, in fact, our typical traveler doesn't need them," said Courtney Linley, travel manager for the Fireman's Fund Insurance Co. in Novato, Calif. "We look for cleanliness, safety and an atmosphere that meets the traveler's needs. Frankly, keeping within budget is an issue and service amenities tend to drive up rates," added Linley, who is also president of the Bay Area BTA.
Service aside, other recurring themes expressed by the chains include: meeting customer expectations; aggressive expansion plans, both nationally and internationally, (often through franchisees); and the effect of the Internet.
For travel buyers, the proliferation of hotel brands, not to mention brand extensions, at various price points continued in 1999. This proliferation is a cause of concern to many analysts. It also creates a raft of branding issues as chains seek to differentiate themselves successfully to the corporate travel buyer in a highly competitive marketplace.
On the consolidation front, major player Starwood Hotels & Resorts Worldwide still is absorbing its acquisition of the ITT Sheraton and Westin Hotels & Resorts Worldwide brands. Though it did have time to launch a new business hotel brand, W, in New York at the very end of 1998 and in other first-tier U.S. business destinations through 1999. Starwood chairman Barry Sternlicht has described W Hotels as a "mix of style and substance," unusual for a business hotel, but which seems to be key to the brand identity.
In December, Starwood reorganized its North American operations, moving from a geographic focus to one that is brand-driven, which likely will affect how it approaches the corporate travel buyer. Also in 4Q99, Starwood announced it was shedding $500 million in hotels by second-quarter 2000.
At year-end, the Hilton Hotels Corp. completed its $4 billion acquisition of the Promus Hotel Corp., giving the new and improved Hilton access to Promus' multitude of brands. Senior vice president of sales Steven Armitage said there are no plans to eliminate any of those brands and added that corporate travel buyers will receive even closer attention.
As with most other industries, the hotel business--at every price point--is dealing with the impact of the Internet and the emerging challenges of e-commerce. While different chains reported increased booking activity through the Web at year-end 1999, it's still a relatively small percentage of total sales. Prospects for the future, however, are another matter.
"Companies with established brand identities will derive great benefit out of the Internet," said Hyatt Hotels Corp. president Scott Miller. "Otherwise, it's going to be difficult to establish a brand in an e-commerce world."
"Right now, the industry is in a transition in regard to the Net," said Karen Rubin, senior vice president for HVS International, a hospitality consulting firm. "Many business travelers might use the Web for information, but then call the 800 number or a travel agent to book. That's likely to change as they grow more comfortable with the technology.