Hotels Spiking Rates, Limiting Corp. Inventory

Hotel chains are pushing for substantial rate increases and are reducing the number of corporate deals they are offering as they negotiate with buyers for 2006 contracts.

Bjorn Hanson, head of the hospitality and leisure practice at PricewaterhouseCoopers last week said that while average daily rates overall are expected to increase on average by 4.7 percent next year, corporate customers, particularly those favoring higher-tier hotels, will be at the mercy of even greater increases in the 5 percent to 5.5 percent range. Although some hoteliers and industry watchers forecast double-digit percentage increases in certain markets, most in the industry agreed that negotiated rates will be greater for 2006.

"Overall, corporate rates will increase slightly less than average daily rate, but because corporate travel is focused in some of the higher-priced segments, those will achieve higher increases," PwC's Hanson said. "We think corporate rates are going to increase between 5 percent and 5.5 percent. Luxury will be an order of magnitude more than that, at 6 percent to 6.5 percent."

He added: "More than ever before, it's important for corporations to attempt to concentrate demand and occupied rooms in a smaller number of hotels to gain that bargaining strength."

That is, for companies able to secure negotiated contracts.

Marriott International officials told BTN that the chain expects 2006 corporate negotiated rates to jump by 7 percent to 9 percent and offered troubling news for smaller companies: The chain is limiting volume available to the corporate sector, with a preference for larger clients who have demonstrated the ability to deliver negotiated volumes, said Amy McPherson, Marriott executive vice president of sales and marketing. As such, McPherson said corporate transient business would comprise a smaller percentage of company revenue and room nights in 2006.

Tom Chevins, senior vice president of sales and marketing at Omni, said the company also is considering limiting inventory on the corporate side. "At the end of the day, our business is a little bit different because we have perishable inventory and fixed capacity," he said. "It becomes difficult when you know you can sell a room to someone else for a higher price and you choose not to. We need to try to balance and maximize the opportunity based on the market and the needs of the customer."

Cynthia Gillen, director of procurement and travel management for BDO Seidman LLP, last month said she was concerned whether large hotel chains will even work with her midmarket firm and it appears—at least in some cases—her fears are founded.

"Some chains that are taking a very bullish approach are limiting the number of contacts that they are even willing to offer to below five," said Kim Maschoff, WorldTravel BTI Travel Procurement Solutions director of hotel business consulting. "They're saying, 'We only want to have two contracts here.' Everything is going to be very market-specific. That's the challenge and this will be one of the challenges that we will have this year."

"Low-volume corporate accounts may see very high increases," PwC's Hanson said.

Robert Steiner, director of procurement for Fair Isaac Corp., estimated that lodging rates at his company this year were up roughly 3 percent to 5 percent over last, and given the market, should continue upward.

"It depends on the region itself and then how much you've been committed to your local properties, how well you've done in the past and how you've performed," he said. "If you're a brand new client, the odds are you're going to be paying the going rate in that area."

Yet, rates ebb and flow with the laws of supply and demand. "Now you have more heads than beds," Steiner said. "It's the whole supply and demand thing. People are traveling more, they're willing to pay more."

Other hotel fees are expected to drive corporate costs even higher.

"Room rate will only be part of how hotels are trying to increase revenue," PwC's Hanson said. "It will be on other services, whether that be use of business centers or fitness centers, breakfasts or meeting rooms and such. Negotiating a bigger package would be a wise approach this year."

Runzheimer International last month released a T&E spending forecast which pegged lodging spend among U.S. corporations to increase by 12 percent. "Hotels continue to enjoy heavy occupancies, with many markets realizing occupancy rates well into the 80s and more," the travel management consulting and research firm said in its forecast. "2005 also saw a resurgence in corporate meetings—all good news for the industry and business as a whole. However, the math is simple—high occupancy rates equal increased room rates. 2006 should continue to be a profitable year for many hoteliers."

To offset the expected increases, Runzheimer said travel managers likely would emphasize supplier negotiations and consider "non-standard" lodging, including company-owned dormitories.

Additionally, Runzheimer suggested travel buyers also look at "lower-rated property types."

"Instead of attempting to negotiate a $175 room down to $150," Runzheimer said, "consider the use of an alternative suburban property available at $100."