Hotel Negotiating Preview

<B> Hotel Negotiating Preview</B>
<I>Agents Tell Availability, Rate Tales For '99</I>

By Maria P. Vallejo

Travel agencies finishing up most of the bidding process for 1999 hotel contracts this month reflect a preview of what corporate travel buyers can expect during their negotiations this year.

Agency buyers expect rates to rise between 5 and 10 percent depending on property location, given the overall healthy state of the hospitality industry.

Agency consultants negotiating preferred programs for themselves and their corporate customers also pinned down the hospitality industry's take on volume requirements for preferred rates, year-round negotiations and multiple-year contracts.

Unlike their acceptance of rising rates, some travel companies are becoming increasingly adamant about receiving last room availability guarantees. Using an in-your-face negotiating style, some travel agency hotel programs require last room availability from all properties listed in their hotel directories.

Last room availability has been one of the most difficult negotiating points during the last few seasons, because hotels have garnered high occupancies from customers paying full rack or corporate rates. Although occupancies in urban markets are expected to drop this year and in 1999, that might not yet mean easier negotiating for companies (see story, page 8).

For buyers from the large agencies, hotels may be more willing to surrender last room availability because of the large aggregate volumes they can deliver, agency negotiators said. Indeed, they noted, travel agency hotel programs may be the only source of last room availability in some key markets for many smaller volume companies and firms that have limited room nights in a given location.

"Last room availability is a critical component to our program specifically because we have many clients that might not have their own negotiated program in place," said Shannon Rigby, director of hotel relations at World Travel Partners in Atlanta. "They are really relying on us to give them a rate program that they can count on."

Hotels must offer last room availability to be included in World Travel Partners' Global Travel Management program. WTP and 29 partnered agencies around the world create a program that includes 4,000 hotels in 27 countries.

Regardless of the size of some agency programs, though, they too are being shunned by some hotels on this issue. While some hotel companies believe the industry should move away from offering the controversial point at all (<I>BTN,</I> Aug. 3), agency consultants said it is here to stay, and predicted that hotels not offering last room availability will find customers moving their business to other chains.

"It's still a very strong issue," said Linda Baygents, manager of Corporate Maritz/Internet Hotel programs at St. Louis-based Maritz Travel Co. "There are about two hotel chains that are opting not to participate and for those taking that road, it would behoove them to offer last room availability in the future. It's going to move someone who would normally stay at that hotel and make them go to another hotel because the preferred rate is not there."

Maritz also requires last room availability, but will make exceptions for some hotel properties, Baygents said.

This season, hotel companies are offering creative alternatives to straight last room availability. American Express Travel, based in New York, received hotel bids offering rates with and without last room availability, said Angela Cook-Gasparro, director of the American Express consulting services group for hotel management and publications. Clients could then choose a higher rate that included last room availability guarantees, or a lower one that did not. Other hotel companies offered last room availability up to a certain occupancy level as another option--as until their occupancy reached 75 percent, for example, Cook-Gasparro said.

Just as most travel managers expected last room availability negotiations to become increasingly difficult this year, they also anticipated that hotels would use consolidated volume as a key point in determining whether to offer a preferred rate. For most travel buyers, this belief rings true. Many hotels, especially those located in primary cities, are upping their room night requirements for preferred rates, agency insiders said.

Many hotels in New York are requiring at least 1,000 promised room nights before they will consider giving a preferred rate, Gasparro said. Chicago and San Francisco properties also are following suit.

In other areas, room night requirements are significantly lower, but can still pose a difficulty for some individual firms. Hotels are requiring a minimum of 250 room nights before considering a company for a preferred rate, according to Erin Lee, Rosenbluth International's global hotel consultant. These companies turn to agency hotel programs that can guarantee them some discount in those hard-to-negotiate areas. The Rosenbluth Guaranteed Inventory program provides those discounted rates to its customers with limited volume.

Going against most industry experiences, Maritz's Southwest regional hotel program coordinator, Laura Thompson, is finding some hotels willing to put aside volume for loyalty when giving discounted rates. Some companies with small volumes still can get a preferred rate if they agree to shift a certain percent of their area's business to a particular property.

"They're offering loyal clients reduced rates, and they don't really care about the volumes of the accounts," Thompson said. "They treat you like a valuable customer because most of the market share is going there."

When basing rate discounts on factors other than volume, these hotels are taking into consideration a company's use of food and beverage and meeting space services. The unforeseen expansion by some technology and other firms into multimillion dollar companies is another reason why hotels have given out lower rates to smaller volume firms.

"They don't know who the Microsofts are. The Microsofts are moving in leaps and bounds. A small account could produce a lot of volume in the future," she said.

While these tactics may work well for companies with a history of hotel use, newly established firms with scattered volume need to take a different approach in negotiating rates. Some hotel companies, such as Promus Hotel Corp. in Memphis, are negotiating preferred rates based on a company's overall volume used across the brand, Thompson said. This allows startup firms to pay preferred rates in many destinations where they may only have a few room nights booked per year.

Even more rare, some travel agency consultants said their clients are not so concerned about rates because of their premium level of travel. Instead, they are concentrating on in-room amenities and overall service.

"It's not so much the price, but their ability to work" in their rooms, said Pamela Marcus, World Travel Specialists Group's vice president of marketing. "These people are there doing their work, and they have to do that 24 hours a day. We're more concerned about the facilities being available than the specificity of rate."

World Travel Specialists Group, based in New York, has negotiated with some European hotels to guarantee their travelers a guest room upon arrival regardless of the time of arrival, Marcus said. These rooms provide long-haul travelers a place to freshen up before rushing off to an early meeting. The group also has negotiated away telephone charges, an amenity many travel buyers are seeking. The agency primarily negotiates with Four Seasons, Hyatt and Ritz Carlton properties.

Despite their customers' nonchalant attitude about preferred rates, World Travel Specialists negotiated up to 42 percent off rack rates in some locations, Marcus said. This discount is even more significant in light of the fact that many of their clients have limited volumes in most properties.

These travelers may not bring a large number of room nights to a hotel, but they are using more services than the average customer, said Paul Metslaar, World Travel Specialists' CEO and chairman. Their travelers are usually advertising executives, lawyers, management consultants and other senior managers who take advantage of the business center, room service and other hotel services.

Not all RFPs and bids focused on last room availability and rate discounts based on volume. Maritz's Thompson is stepping outside of the box for her clients by winning two-year contracts with some hotel companies and planning to test contract negotiations outside of the normal season.

About 10 percent of the 400 contracts returned to her this season have agreed to two-year deals that include properties in primary cities, including Dallas, Houston, Los Angeles, New York and Washington, D.C., Thompson said. Hotels give a static rate for both years, but the deal often requires the companies to show a long history of commitment and loyalty to the hotels. The two-year price is often slightly higher than that being quoted for one year.

Such long-term contracts, which have been tried more often on the meetings side of the house than the transient side, "do require a commitment from the company and from the hotel," Thompson said.

"Two-year contracts are very political because they require a heavy commitment," Thompson noted. "They are very difficult to secure because it takes tremendous volume and a tremendous relationship with the hotel."

Maritz in 1999 also will try to negotiate preferred contracts outside of the traditional August-to-October season. It's considering launching a beta test that would send out RFPs in the beginning of 1999. "I want to go outside the traditional RFP year," Thompson said. "I want to go to matching the client's fiscal year."

Companies capable of negotiating during the off season are expected to receive more personalized attention because hotel representatives will not be wading through a sea of RFPs.

But negotiations based on the corporate customer's fiscal year may well end during the hotel's peak season, when its IS staff is likely to be pulled into working on other projects. In such a case, hotels may not be able to input the prices in time for travelers' use, Thompson said.