Hotels Want Less

<B>Hotels Want Less</B>
<I>Hospitality Cos. Tell Buyers To Reduce Their Volumes</I>

By Amon Cohen

Hotel companies are telling clients to reduce rather than increase their corporate deal volumes in an astonishing reversal of established travel management practice. With key business cities on both sides of the Atlantic full from Monday to Thursday, hotels are switching off corporate rate business that they believe inhibits their quest to maximize yields.

Travel managers are reacting by adopting a wide range of tactics to prevent accommodation expenditures from shooting through the roof. These include seeking guaranteed allocations, directing business away from preferred hotels on off-peak days, moving to lower-grade accommodations where supply is greater and simply negotiating corporate rates at more hotels in the same city.

This last method is an antithesis to the mantra uttered time and again during the past decade of consolidating with fewer suppliers to gain leverage through greater volume. Only as recently as September, Hogg Robinson sales and marketing director Chris Fry was telling a Business Travel International client conference in London that corporates were failing to consolidate their accommodation expenditure as efficiently as air spend. Reducing the number of hotels they use, he said, "should be high on the priority list for the next 12 months."

One of the first public revelations that hotels are looking for less rather than more corporate business came last month during the ACTE Global conference in Amsterdam. During a session on global hotel programs, Starwood Hotels & Resorts vice president for global corporate travel David Ogilvie told the audience that "more business is not always a good thing. We have met some companies recently and told them we are getting too much business from them. We have to be up-front and business-like about it. Last week, I got a client to agree to do 50 percent less with us at a certain property next year," Ogilvie said.

In subsequent inquiries by BTN, all the travel managers contacted said they had experienced this phenomenon and it was clear that Starwood is by no means acting unilaterally.

"Two different hotels belonging to two different hotel companies have said to me, 'the truth is you are doing so much volume that you are hurting our average room rate,' " said Mark Williams, Americas travel leader for PricewaterhouseCoopers. Microsoft similarly is finding that its high demand is making it hard to negotiate with hotels near its Redmond, Wash., headquarters.

Over in Europe, BAE Systems travel procurement manager Ray Wooldridge said, "It is definitely happening. Hotels are telling me they can't afford to give us our rate. It is getting to the stage where there are not enough beds around and it is becoming very much a supplier's market."

Similarly, Alice Buss, corporate travel manager of ING Bank in the Netherlands, said, "Yes, we have been told we do too much business. It is a question of yield management. Loyalty toward the corporate client is very dependent on how the market is."

Nora Buysschaert, global procurement manager Europe for Merck Sharp & Dohme, also fingered yield management systems as the catalyst for the new hotel economics. "It is more and more difficult to negotiate corporate rates with hotels because of yield management," she said. "The hotels know at exactly what rates they have to sell the rooms." As a result, she is finding global distribution systems increasingly are saying rooms are not available at the corporate rate while inventory has been retained to sell at higher prices.

Speaking shortly after ACTE Global, Starwood's Ogilvie expanded on what has happened. He attributed the problem to the huge dichotomy in demand between weekends on the one hand and the peak days of Tuesday and Wednesday plus, to a lesser extent, the Monday and Thursday shoulders on the other. It does not make business sense to set capacity at Tuesday and Wednesday levels, since that would leave too many rooms empty the rest of the week. Consequently, supply on peak days is too low. In key cities, therefore, giving too much away at the corporate rate means that the hotel company cannot earn as much as it would from the average achieved room rate.

Deciding whether to scale down corporate client volumes is a delicate balance, according to Ogilvie.

"You have to look at each case individually," he said. "Is the client providing a higher number of rooms on shoulder and off-peak nights? What kind of global business is it doing? What is the client doing in our need cities? There are customers to whom we will have to say that in certain cities we cannot do business with them or will have to reduce it.

"The travel manager understands this but their bosses or travelers may not understand, because it is a reverse economy of scale situation," Ogilvie continued. "We also have to be very careful because we have to offer a certain amount of flexibility. We do recognize that at some point there will be another economic downturn but because we offer a 100 percent perishable product, we have to maximize revenue while times are good."

Cities with exceptionally high demand, Ogilvie said, include New York, San Francisco, described by PwC's Williams as "a disaster," Boston, London and Paris. Other European cities that are regularly full during the week include Amsterdam, Brussels, Stockholm and Munich.

As for how companies should avoid a corporate rate cap, the solution as far as Ogilvie is concerned is to establish a quid pro quo by delivering volume to hotels where they need it. He suggested travel managers ensure that they give both their transient and meetings bookings to the same supplier. "Show us you have the ability to drive meetings business into our need hotels at need times," he said.

For some travel managers, however, the answer has been less rather than more consolidation. "We are trying to prevent problems by having a good spread of hotels so that we do not overdose on one property," said Alice Buss. This is easier said than done when location dictates that a particular hotel is the obvious choice. "We tend to send first-time and one-time travelers and visitors to other hotels," Buss said.

Buysschaert also is increasing the number of properties in her program. "Normally we have four hotels in each city but we are now extending that number," she said. "My recommendation is to go to more hotels and to lower-cost ones." Supply has increased in the three-star sector in Europe, thanks to such hotel groups as Accor, and Buysschaert finds that availability is better as well as the cheaper prices off-setting the price hikes in the more expensive sectors.

Although Buysschaert increasingly is using Accor, she said the group cannot give her good-quality data. This is speeding up her introduction of a corporate payment card as an alternative method of gathering management information. Buysschaert particularly is keen to have good data so she can introduce another solution: securing a guaranteed allocation of rooms for her travelers from key hotels.

Wooldridge also is embarking on allocations at BAE Systems. Like Volvo (BTN, Sept. 4), he is using a specialist hotel booking agency--in Wooldridge's case, a company called BSI of Somerset, England. "The hotel booking agent has been useful in getting us allocations," he said.

Ogilvie gives only a qualified welcome to allocations, or allotments as they often are called in the United States.

"We are getting more customers asking for allotments with releases at 48 or 72 hours," said Ogilvie. "We will work with some of our most preferred customers on this but we cannot give it to everyone."

Another option open to corporations--especially large ones--is to stand firm, as Mark Williams successfully managed to do on behalf of the two hotels that tried to cap PwC. "The one hotel has great seasonality, so we took a higher rate in the high season and a lower rate in the low season," he said. "The other one is in New York and has high demand all year round but we stuck it out and they decided to hang in with us at the status quo."

Williams believes that a growth in hotel capacity and the likeliness of an economic downturn will lead to the situation easing, a view supported by Melvin Gold, director of London-based PKF Hotel Consultancy Services. "What is happening is a sign of the times and the imbalance in the supply/demand relationship," he said.