2017 Hotel RFP Season Gave Some Power Back to Buyers

The 2017 hotel RFP season proved more favorable for buyers than in recent years, as corporates saw softer rate increases than projected and a slightly more amenable negotiating climate as the season progressed. "We saw a really big shift to a buyer's advantage in most of the markets, much more so than we thought we would," said Eric Jongeling, director of Americas hotel solutions for Carlson Wagonlit Travel.

Year over year, CWT clients saw 1 percent to 2 percent average daily rate increases in both the U.S. and Canada. On the West Coast of the U.S., clients experienced ADR increases of 3 percent to 7 percent, which were still below CWT's initial projections. Rates in Latin and South America declined 2 percent to 4 percent year over year. Results in Europe and Asia/Pacific proved to be a mixed bag, as rate increases sat between 0 percent and 2 percent in both regions. Middle East hotel rates plummeted between 6 percent and 8 percent.

The season also provided a better climate than in previous years for small and midsize enterprises. "Volume still rules and large programs are able to see the highest level of discounts," Jongeling said, "but there's more of an opportunity for smaller types of programs to have their voices heard."

CWT's results are on par with the rate increases BCD consultancy Advito reported. Advito/BCD clients saw ADR in North America increase an average 1.3 percent year over year. Rates also increased slightly in Europe (0.9 percent), the Southwestern Pacific (1 percent) and Africa (0.3 percent) and remained flat in Asia. ADR declined in both Latin America (2.2 percent) and the Middle East (6.1 percent). Like BCD and CWT, HRS reported increases late last year.

Key trends and takeaways from the power shift from sellers to buyers:

The Marriott-Starwood Merger Loomed Heavy

The recent merger of Marriott International and Starwood Hotels & Resorts had little impact on the 2017 hotel RFP season, according to Advito senior director and global hotel practice leader Marwan Batrouni. Nevertheless, "the Marriott-Starwood consolidation is on everyone's mind. Everyone is trying to anticipate how things are going to come together next year."

While there were no direct changes this RFP season as a result of the merger, Jongeling said, Marriott did seem more accommodating than in seasons past. Last year in a white paper on the Marriott-Starwood merger, CWT reported that during the 2016 hotel RFP season, Marriott International declined to bid 18 percent of the time, twice as often as Hilton Worldwide and more than three times as often as Starwood. This year, Marriott responded "to more of our bids more quickly and with more frequency than they historically had," Jongeling said.

Negotiating Proved Valuable

The 2017 hotel RFP season played out in the shadow of a shifting hotel cycle, broad economic uncertainty and an unprecedented U.S. presidential race. Had buyers settled at the prices proposed at the start of the RFP season, they would have missed out on opportunities to save as the season progressed. "Where we started with the initial bid from hotels was pretty much in line with our expectations," Jongeling said. "Then, as we went through negotiations, we saw significant declines from that initial bid across the board globally."

Advito saw similar results, according to Batrouni. At North American hotels, for instance, the average initial offer proposed was 2.4 percent higher than the existing contract, but the final average increase came in at 1.3 percent higher. Similar results played out across all other global regions.

Dynamic Pricing Didn't Quite Arrive

With the hotel cycle shifting and a strong desire on the part of both hoteliers and buyers to shorten the negotiating season, 2017 had been shaping up to be the year of dynamic pricing. That's not how it played out.

Jongeling said that in spite of heightened conversation around dynamic pricing going into the season, it didn't take off. "The [programs] that were always doing it continue to do it," he said. "Others are looking for opportunities on where it makes the most sense. It's really shifted from an overall looking at dynamic to 'OK, where's my best opportunity to have a fixed negotiated versus a dynamic?'"

Batrouni said Advito and BCD took steps last year to make dynamic rates more attractive for clients going forward. The company now collects and tracks market information, auditing thousands of properties on a monthly basis for best available rates. "Dynamics rates have always been somewhat of a mystery," he said. "If a program is going to be offered 15 percent off of BAR, what does that really mean? Now we have access to a full year worth of data where we are capturing best available rates, and we can immediately go back and apply that 15 percent discount to what we captured to be able to inform clients of what it means in terms of rate to have that discount."

Buyers Really, Really Want a Shorter RFP Season

Batrouni and Jongeling both said there was a push from corporate clients to experiment in the 2017 RFP season.

Advito saw promising results from a new "fast track" method. Using the previously mentioned market data and a client's existing negotiated rates, it sent the specific rates the client wanted to pay to the key properties in the program's key markets. Properties that accepted moved to the fast track and were highly considered when it came time to make final acceptances. "This is the first year where we are going through a fairly robust analysis up front and coming up with the right, realistic rates that we go in and request before the RFP process even begins," Batrouni said.

CWT said there was a renewed interest for two-year agreements from clients trying to avoid the annual RFP headache. "We have reasons behind why it hasn't worked in the past," he said, citing rate changes that often lead either the supplier or the travel buyer to prompt renegotiations. "But I know that push to do it is going to continue to happen."

Jongeling said corporates included fewer preferred hotels in their programs, instead switching to rate caps per market. That reduces the number of RFPs a program sends out and comes off as more traveler friendly because it allows more choices for where to stay.