New Game Rules: More Volume, Fewer Properties

<H1>New Game Rules: More Volume, Fewer Properties</H1>By Linda Humphrey

Some hotel companies are capitalizing on the healthy demand for rooms by backing away from chainwide negotiated rates this year, focusing instead on high-volume deals that involve fewer properties.

Chainwide agreements became the rage about four or five years ago, "when the industry lost $5.7 billion, and we wanted to take every room night we could get our hands on," said Kevin Kelly, the managing director of business travel sales for Hilton Hotels Corp.

In those years, "we'd say, 'here, take the whole chain,' " agreed Hyatt's John Lavin, assistant vice president of individual travel. "But not many companies truly have business for every hotel."

Hotels now are in an excellent position to take a heavy-handed approach with corporate buyers who cannot deliver high levels of market share.

Nineteen ninety-six will mark the sixth consecutive year of growing occupancies-the longest such streak since 1946, according to PKF Consulting (See chart, Page 1). In addition, average daily room rates this year are growing at twice the pace of inflation, and should mark the fourth consecutive year of room rate growth in excess of inflation, PKF projects. Other signs of a strong market include the highest profit margins and the greatest revenue growth since 1960.

For the travel manager grappling with hotel deals, these changes translate into a new set of rules.

Holiday Inn, Marriott and Westin, which had never granted chainwide agreements, are nevertheless ousting companies from hotels they aren't delivering on.

"An individual hotel will look at all the companies they've negotiated with, and those who are not delivering on the agreements will be the first to go," said Richard Hanks, Marriott's senior vice president of sales.

"Preferred customers and travel managers need to understand that the hotel industry has never seen a time like this before," Hilton's Kelly said. "They have to be flexible. We're asking them to understand that the way we're pricing our product is different from a few years ago. We are out of the business of chainwide discounts."

At the same time customers line up to pay rack rate, many hotels seem to be steering away from their so-called preferred clients.

"The hotels are in the driver's seat, which is fine, but some of them are really taking advantage of the situation, and the word 'partnership' is out the window," said Cindy Scanlon, travel manager for Philips Medical Systems.

This attitude stems not so much from chains as from specific properties, she said. "Rates are skyrocketing," she said. "It's almost like they can't wait until the current contract is finished, because they know they can get higher rates. And customer service is out the window. Our people are being walked at a property that gets 500 room nights from us."

Hotel companies concede that as rates go up and customers seem willing to pay them, they are narrowing their list of preferred-rate clients.

"You can definitely put us in the column of those who are being more selective about our negotiations," said Westin's Marsha Massey, director of business travel sales and marketing.

Massey said a that few years ago, "we were lax. Back when we were all scrambling a bit more for business, it was easy to sort of skim the surface and perhaps not be as diligent in asking our customers to adhere to our mutual agreements."

Now, Westin might find that a company with 20 agreements is actually putting volume into just 10 of them, Massey said. When this happens, the chain suggests that the client access preferred rates through its agency rather than striking a deal directly for those 10 hotels.

Holiday Inn Worldwide has recategorized its 700 global accounts, giving 60 key status. Those accounts typically have preferred rates in fewer than 35 destinations, although several mega-companies have deals with hundreds of Holiday Inns. Key accounts also are granted 5 percent off the local corporate rate at Holiday Inns in destinations where they do not have a preferred rate.

"We're asking for more commitment now, for more market share," said Tim Hamid, Holiday Inn's vice president of key account sales. "Unlike six years ago, when we gave corporations a rate and hoped for the best, this year we're defining market share. We'll say, 'if you want a deal, what are you giving us back?' "

Focusing on key accounts also results in more personalized service, Hamid said. "It's not just about rate. Our corporate customers are telling us, 'these people get reimbursed for their rate. You've got to recognize them and take care of them.' "

Negotiations also are becoming more individualized, Massey said. "We have to know what the customer's priorities are, because if it's rate, then we're going to limit the availability of that rate," she said. "If it's availability, we might talk to them about what we can do to make the rooms more available, but they'll probably pay a premium for that, because there are 10 more people lined up willing to pay more to have it."

To combat the rate hikes, Philips' Scanlon, who has partnered with Holiday Inn, Hilton and Marriott, will launch a campaign this fall to urge travelers to check into midpriced hotels-such as Fairfield Inn, Holiday Inn Express and Courtyard by Marriott-in cities without preferred properties.

"Our problem is that we don't have a lot of top cities with a lot of volume; our volume is spread," Scanlon said. "So that's where the agency will come in and try to sell down. We're going to do a big campaign to make everyone aware that our rates are going up and ask travelers to help out."

Hyatt, meanwhile, offers to fit pricing to certain groups within a corporation, such as interview recruits, Lavin said. "We'll say, 'for your recruits, we'll give you $85, and for the other travelers $125.'"

Even if the market swings back to the buyer, chainwide agreements probably won't come back into play, Hilton's Kelly said. "I always say to customers that it doesn't matter if I give them a 50 percent discount in every destination; it's not going to help them if they can't get their travelers to use the hotel that has the discount," he said. "Then no money is saved for the company, and the overall goals and objectives of the hotel program aren't met.