Travel buyers last week said hotel companies, in a panic to be included in 2002 corporate programs, were building into their bids a rate review three or eight months into the new year, enabling the hotels to reduce rates at that time if market conditions have not improved.
This significant departure from the norm has piqued buyers' interest, but it also has aroused some confusion as to the logistics of the offer.
"It's been such a strange negotiating season already, with the economy and the effects of Sept. 11," one buyer said. "To now throw in the prospect of short-term rates makes this year's negotiations even more bizarre."
Proposals to allow rate reviews have included a range of trigger points. "Hotel sales managers have told me they'll revisit rates after six or eight months," said Kevin Maguire, travel manager for Tokyo Electron America in Austin, Texas. "The rates they're offering are lower than I expected, but the hotels remain very concerned about getting—and keeping—whatever market share they can in a given market."
Buyers who are offered the shorter expiration date option find the development appealing in theory. "In this economy and our desire to realize additional savings, the opportunity to see lower rates would be hard to resist," said Donna Reidy, manager of travel services for Ryder in Miami.
At the same time, however, buyers expressed some exasperation. "You'd like to get the lower rate upfront, especially if the hotels are prepared to offer it later in the year anyway," said Debbie Shircliff, manager of domestic corporate travel for Thomson Multimedia in Indianapolis. "What's more, hotel programs are hard enough to manage as it is, when rates are in place for the entire year. With different expiration dates, it makes the program that much more difficult to administer."
Buyers said they wanted to believe they already had the best rates in place. "Sure, the idea of getting to revisit rates is always at the back of every buyer's mind," said Richard Del Colle, global hotel program and meetings manager at Hewlett-Packard in Burlington, Mass. "But we believe we already have favorable rates locked in for the year, given that hotels started coming to us as early as June with offers of lower rates."
Shircliff said her preference always had been to negotiate a two-year agreement, but that the market had become too volatile for that this year. "The risk you run with that kind of guarantee is that rates can drop significantly. It's to your advantage, of course, if your guarantee is still under the market," she said.
The promise of rate reviews hardly is being extended consistently across the industry. "Not all hotels are pursuing the practice to an equal degree," said Bjorn Hanson, global industry leader for the hospitality and leisure practice at PricewaterhouseCoopers in New York. "One large multibrand company has been notorious for extending the offer, while another large, well-known multibrand company is determined to hold the line," he said. Hanson declined to identify those companies.
As is always the case, the more a buyer can move market share in a given market, the greater the negotiating leverage. At Ryder, Reidy for the first time is working with a consolidator on the company's most frequently visited cities, while she negotiates directly with hotels in less high-demand destinations. With fewer room nights at stake, she said she was less likely to be offered rate reviews by hotels in these markets.
Rick Wakida, U.S. travel manager for Vodafone Americas Asia region in San Francisco, understands why hotels would use the possibility of further rate reductions as a lure to be included in companies' preferred programs. "If they're not included in the program from the onset, it's harder to gain entry as the year progresses," Wakida said. "At least if you're a player in the program, you can benefit from volume increases that might occur as the year goes on."
Rate reviews notwithstanding, the hotel still has to be the right fit for the particular company. This means location, amenities and overall quality. "If you're not convenient, you're not going to be in the program, and if you are convenient, you'd already be in the program," said Carol Ann Bakeman, corporate travel manager of AECOM Technology Corp. in Los Angeles.
Wakida said hotels also were revising downward the consortia rates they offer. "Many buyers use consortia rates to benchmark their negotiated rates, so this has created another element of uncertainty this season," he said.
Another issue, rate loading, remained a major concern for buyers. "Getting rates loaded in a timely way is already an issue when rates are in effect for an entire year," Shircliff said. "What do you do when the rates change midstream? What assurances are there that revised rates will get loaded correctly? We're already monitoring rate loading closely; this scrutiny will only increase."
Nothing is more frustrating for buyers than having travelers inadvertently book rooms at the wrong rate. It also adds to the problem of squatter rates getting populated into the system (BTN, May 7). Additionally, "for agents taking the booking, no less for any online directory a buyer may provide to travelers, there'll likely be more confusion as to what the correct rate is," Wakida said.
As hotels increasingly used rate this year as bait to gain market share, buyers cautioned that they still valued long-term relationships. "Hotels that wouldn't work with us when the industry was strong are now trying any strategy—rate reviews included—to get a foot in the door," Tokyo Electron's Maguire said. "But where will we be when the economy strengthens?"