Hotel Programs Grow: Buyers Enter Deals W/ Smaller Chains For Availability

Facing a potential shortage of hotel rooms in 2005, travel managers are reversing a three-year trend of consolidation by expanding their hotel programs in key markets. Consequently, buyers are walking a fine negotiating line between the major multi-brand hotel companies and small and midsize hotel companies. The latter are prepared to cut attractive deals, customize service and offer value-add amenities that amount to additional savings. Yet, the large hotel chains—the biggest beneficiaries of corporate hotel program consolidation in 2002-2004—have become accustomed to the marketshare gains they enjoyed during the lean years and will not surrender them without a fight.

"You've got to have the coverage you need. From the direction the market is heading, we're not going to be able to rely on the major brands, so that's an opportunity for smaller hotel companies and independents," said Patricia Carlin, manager of global travel and card programs for Sybase in Dublin, Calif.

A chainwide deal with a big-brand hotel company may be at the heart of a buyer's program, but there now is greater opportunity to fill in with other types of properties. "If demand continues to increase in our key markets, as seems to be the case, we're going to look more to the one-offs, especially if the location is right and the rates are attractive," said Terese Fiore, director of corporate travel for Genzyme in Cambridge, Mass.

Even during the downturn, buyers were savvy enough to have a mix of large and small hotel companies in their programs, according to Yasuo Sonoda, travel manager at Macromedia in San Francisco. "Even more so now, you don't want to have all your eggs in one basket. It's important to have the necessary availability, but it's also good from a negotiating point of view. You can drive a better deal," he said.

Small program buyer David Abboud agreed. "A company like mine is always going to have different leverage with a small or midsize hotel company than with one of the majors. They're just more eager for our business. They'll be more flexible, especially outside of the United States," said Abboud, who is travel manager for energy consultants Solomon Associates in Dallas.

Cindy Shumate, travel manager for Estee Lauder in New York, in 2005 will include small or independent hotels for one aspect of her travel program. "For product launches, for example, we want to align with hotels that have an ambiance in keeping with our products. Even though we have a chain deal in a city, we'll be sure to include them," she said. By having one set of negotiated rates in place, she is able to use them more if the need arises in other aspects of her program.

A potential stumbling block for buyers is that small and midsize hotel companies, as well as independents, have less name recognition with travelers.

"We negotiate in a particular market where travelers currently are booking, but if they're not already staying there, they often resist making a change," said Christi Hedrick-Waters, hotel program coordinator for EDS in Plano, Texas. It's a problem Marriott, Hilton and Hyatt do not have because their names are widely recognized.

All the same, Hedrick-Waters said she will add independent hotels to her 2005 program because it makes sense from a negotiating perspective. She and Shumate spoke this month at the National Business Travel Association meeting in Orlando.

The U.S. lodging industry started to see a return in demand, fueled mostly by increases in business travel, in the fourth quarter of 2003 and demand has continued to grow this year.

"Conversations with operators indicate that reservations, tentative bookings and call-in activity have accelerated during the past two months," lodging analyst Harry Curtis of J.P. Morgan said. He expects buyers to face stiff negotiations this fall for 2005 rates.

Small and midsize hotel companies base their appeal to buyers on a combination of rate, service and location. "Being midsize, we try to bring a custom solution to the table. It's an orientation we don't think our larger competitors necessarily can match," said Tom Chevins, senior vice president of sales and marketing for Omni Hotels, which has 40 hotels. "In some cases, but not always, the client has a global deal with a large chain and uses us to supplement the program. In other cases, we're the leading supplier. Much depends on where the buyer needs the extra room nights. Because we're in New York, San Francisco, Boston and other key business locations, we're well positioned."

The flexibility extends to rate. "Even though talk is widespread about rate increases for 2005, we take our cue from the buyer. Some want us to be rate friendly, while others are willing to accept more of an increase in return for including a needed amenity," said Stephen Baker, vice president of sales and marketing for North America for Millennium Hotels and Resorts, which has 13 U.S. properties.

"We don't have a big branded strategy the way the large companies do," added David Fine, vice president of sales and marketing for 27-property Sonesta Hotels & Resorts. "It's not just about getting a rate increase this year. There's not the same pressure. It's more about building a relationship with buyers for the long term."

Unlike large hotel companies, which have thousands of properties, smaller companies are better able to impose uniform service standards. "Buyers can have a greater comfort level that the services and features we offer will be there as we promised," said Monica Lowry, vice president of national sales and marketing for 20-property Larkspur Hospitality.

There always will be buyers who exclude smaller hotel companies from their programs strictly because of their size, acknowledged Mark Ginna, vice president of national sales for 20-property Loews Hotels. "If it's a program we want to be in, however, we're open to working some special deal to gain exposure," he said.

Pricing strategies at the major brands tend to fluctuate more with the market because of their size and power, according to Christine Lawson, vice president of sales at the 38-property Kimpton Hotel & Restaurant Group. "Many of the major brands lowered rates dramatically during the difficult years, but there's no way they can maintain those rates and be profitable," she said. "We chose to keep rates more stable, so we aren't under the same pressure now that demand is returning."