Marriott Sees Demand Rise: Hotel Co. Puts Squeeze On Market Share, LRA

In the toughest hotel negotiating season for buyers since 2001, Marriott International has focused on marketshare gains and held the line on last room availability in light of increased midweek sell-outs. Marriott also has reshuffled the responsibilities of its national salesforce in response to buyer requests for more personal attention. The largest of the U.S.-based, global multi-brand companies, Marriott is a bellwether for the industry.

"Demand clearly is going up. Hotel companies including ours are seeing rate increases, but it's market-sensitive," said John Marriott III, executive vice president of Marriott Lodging. "Negotiations have been productive. Corporations understand that demand is going up from all sources. Market share is a point we still feel strongly about. We've looked for buyers this year who will move market share. Otherwise, there's little motivation to offer an account attractive rates. We look at the overall value of an account, which goes beyond simple volume. By value, we mean factors such as market share, rate, travel patterns and length of stay."

The industry's emphasis on market share—as opposed to the number of absolute room nights—began during the 2001 to 2003 downturn, but hasn't shown signs of letting up in the recovery.

The benefit to hotels is twofold. "With a limited number of rooms being booked on a given night, you increase bookings at your own property at the same time you keep share from the competition," confirmed Jim Young, senior vice president of global distribution for InterContinental Hotels Group.

Marriott said he was sympathetic to buyers concerned about availability. "For accounts where last room availability is really important, we offer an LRA provision, but expect to get a good rate for it," he said. What that rate premium might be depends on the market. "Unlike some other hotel companies," Marriott said, "we don't tend to draw distinctions between different room types in negotiating LRA. We're going to be honest with buyers. If there's a room available, short of suites and concierge level rooms, we'll offer it at the negotiated rate. We're not going to say no to a buyer's travelers as long as LRA is in the agreement."

With rates dependent on an account's projected volume, local market conditions and other factors, exact percentage increases vary widely. Through September, Marriott's negotiations with buyers resulted in average increases of at least 3 percent to 5 percent. This is consistent with the range Pricewaterhouse-Coopers and PKF Consulting this summer said would be the norm for 2005 negotiated rates industrywide.

"There are going to be instances where increases are higher," Marriott said. "Rates in key cities, where the rebound in demand has been greatest, being most likely to be above the average."

Buyers, primed to expect rate increases, last week said negotiations were going better than expected. There have been exceptions, however. "A few hotels are trying to make up in one bite for revenues lost during the downturn," said Kevin Maguire, travel manager for Tokyo Electron America in Austin. "We were prepared for increases, but they have to be reasonable."



Biggest Cities Buyer Challenges

The biggest challenge has been the gateway cities. "It makes you step back and strategically figure out ways you can better leverage your volume in smaller cities to benefit you in the big cities," said Yasuo Sonoda, travel manager at Macromedia in San Francisco.

Small and midsize buyers tend to have less leverage because their volumes are lower, so they also are least likely to get the personal attention from their hotel partners that comes from having national or global account status. Marriott this year has taken steps to allow national account managers more time to work with buyers.

"We've made changes to free up their time, allowing them to focus more on managing accounts day to day, which is their forte," Marriott said. "Pricing is now the responsibility of revenue management managers, while administrative functions are handled by others. It enables our salesforce to go out and work with the large corporations more aggressively, but also to expand our penetration into smaller accounts."

The increase in demand at Marriott has affected group as well as transient bookings. "Business has improved on both fronts. Transient has come back and, as it has, the mix of business has shifted a bit, but we're still going after group aggressively. It's a core business for us," Marriott said. "Considering the upward pressure on rates, some accounts are trying to leverage their combined group and transient spend, but our philosophy is to work with buyers however they like. Within an organization, different people often handle transient and group, so we're organized to handle it either way."

Marriott last year moved from fixed to dynamic consortia pricing and is sticking with that approach for the 2005 negotiating season. "Some hotel companies still publish static rates for the travel management companies and consortia," Marriott said, "but at Marriott, if a rate has changed and is out of sync with market conditions on a given night, we give the traveler the benefit of the change. When we adopted this approach last year, it was a major industry change. Bookings that come to us through that distribution channel are up significantly where they had been flat, and other companies are starting to follow us."