One-On-One: Hotel CEO Sees Rates On The Rise

With 90 properties concentrated in the United States, United Kingdom and Asia/Pacific, Millennium & Copthorne Hotels for 2005 has created special pricing strategies for travel buyers with extensive global programs. CEO Tony Potter last month briefed BTN hotel editor Bruce Serlen on meeting these accounts' multinational requirements.

BTN: Are corporate clients more interested in negotiating globally, regionally or on a property-by-property basis?

Tony Potter: It's a balancing act. Buyers often have to balance global sourcing requirements with the specific situation in local markets, so for 2005 we've developed pricing and an organizational structure to more effectively deal with it. It's critical for 2005, because demand is back, availability is becoming an issue on peak nights and rates are rising.

BTN: Many U.S.-based buyers describe their programs as global, but there's a subsidiary office in London or Hong Kong, for example, where the program is managed regionally, if not locally. Is this changing?

Potter: Yes and no. The number of big-volume accounts that truly negotiate on a global basis is limited, but growing. Even with global customers, you still sometimes have to strike local deals for particular business segments. While our brand is not as powerful as Marriott or Hilton, individual hotels have a local following for corporate business, so corporate rates will be struck and agreed upon locally. In addition, you often find companies contract globally for their corporate movements, but want to contract locally for their meetings business.

BTN: How does this play out in the negotiations that now are underway?

Potter: It's a two-pronged approach. We've restructured so that our main sales effort is concentrated at the hotel level, but in key areas such as New York, London and Singapore, we have global sales and marketing directors. Hotels work closely with the global team, so we actually talk to the buyer on both levels. A global team member can do a deal with a major account, but the individual hotel is responsible for developing a local relationship with that account as well. Buyers are reassured because there's a backup.

BTN: How so?

Potter: A lot of global buyers want to do the deal with the global team because it's most time-effective, but need that local connection in place. Otherwise, the overall relationship with us doesn't work. Given the different cultures, it's easy for miscommunication to occur, so clarity and consistency are important. On a day-to-day basis, the U.S. team leader has a counterpart in Europe as well as Asia. The three link up. They have a database that logs all activity, so they all know what's happening.

BTN: Are there other ways buyers today can benefit from the rate transparency of the Internet?

Potter: Definitely. We know, for example, that the first three weeks of January are not going to be busy in London, so we decided to make a really good deal available for our global accounts now. It's a version of dynamic pricing that allows hotels to react to changing market conditions. It's preferable to hotels panicking at the last minute and trying to buy in business until volume returns. For a corporate-oriented hotel, rather than play around in the leisure market midweek, it makes more sense to approach your business travel customers and offer them a deal. They can benefit from the unexpected savings, and it might mean an upgrade for some of their travelers.

BTN: What alternative does a midsize hotel company such as Millennium offer buyers?

Potter: Many large-volume buyers will have a chainwide deal with one of the major companies and then look to smaller players to fill in. We understand that, given their distribution. There's nothing wrong with being number two in certain circumstances. There still are going to be destinations, though, where the number-one chain doesn't have the right location for the account, or can't handle the amount of volume. In those cases, a niche player can do very well.

BTN: Now that demand is returning, many small and midsize buyers are concerned they will not be able to grab the attention of the major chains.

Potter: These size accounts have become a main target for us. Many small, quality accounts actually are ready to pay a higher rate because they know they haven't got the buying power. It's one of the reasons we shifted manpower this year to the local level. We visit them, something our larger competitors often don't have the staffing to do. There may be no one actively managing the account, making sure availability isn't a problem and that rate loading is taken care of properly. You just have to be clear who's doing what. The local team at the hotel might target a backyard of a half-mile radius of the hotel. That might sound limited, but depending on the city, there may be a significant number of companies with offices within that distance.

BTN: What makes an account worth chasing: Room nights, the number of hotels it uses or the number of markets?

Potter: Actually, small and midsize companies can be fairly global themselves. You can take what starts as a local account and, providing you're getting good intelligence and using it properly, develop it into a global account. It's wrong of a hotel to say an account has to be a certain size before it gets global status. If someone gives us 500 rooms at a relatively high rate and they're using 10 global locations, that's a worthwhile account to manage. In fact, if you're not running a convention hotel, which in most cases we're not, it's the kind of profile you need in the hotel to make it work as a transient corporate hotel. The downside of this approach is that it takes time to hunt and to farm these accounts.

BTN: Will demand rebound to a seller's market level?

Potter: To some extent, the market is always under control of the buyer, because at the end of the day the buyer is the end user and we're very customer-focused. The hotel industry in general has gone through three years of incredible stress. Clearly, that has started to improve. We definitely have seen much stronger demand in the past three months than there has been for some time. There's some differential market-by-market. New York and London are extremely strong, and have been gathering pace for most of this year. In New York, demand is outstripping supply. The same has not been happening in all areas of continental Europe. There's been a big bounce in Asia because the comparison still is to a low base. The difference in Asia is that the bounce has been driven by occupancy. We are just beginning to see the first shoots of rate improvement in Asia. The bounce had to be driven by volume before we saw price increases.

BTN: Do you anticipate hotels asking for, and getting, significant rate increases for 2005?

Potter: In the past three years, a lot of buyers reduced their number of hotels in a market, going from five to two, for example. In return, we've given them highly attractive rates. As demand has returned, however, they are giving us many more room nights in the key cities than originally projected. Consequently, we're in a situation where we may have too much volume out at a low corporate rate.

BTN: Does that justify raising rates?

Potter: Possibly, but we're not in the business of deserting customers that have been good to us during the difficult times. Ironically, there have been instances where the rate has been so attractive that a corporation that projected giving us perhaps 3,000 rooms now is delivering 7,000 rooms at the lower rate. Negotiations in those cases are difficult. This is one reason why we think the real price impact might not be felt until 2006.