Initial 2012 Hotel Rate Negotiations Prove Challenging

Early rounds of hotel negotiations this year have presented buyers higher rates and fewer amenities. As a result, many are exploring alternative strategies to generate savings from their hotel programs.

Hoteliers are making good on their top executives' promises to raise corporate rates by mid-single-digit percentages. Advito vice president Bob Brindley said hotel chains generally have been pushing rate increases between 6 percent and 12 percent, though he expected negotiations to bring those down to between 2 percent and 6 percent.

"Looking at 2012, we're slowly continuing—and faster in some developing markets—to get back to volumes we saw in 2008" Brindley said during a recent conference held in Dallas by The BTN Group. "Demand is continuing to increase, and almost no capacity is coming into the North American and European markets."

CWT Solutions Group reported that North American rate increases proposed to its clients have averaged about 8 percent, and much higher in such high-occupancy markets as New York, San Francisco, Ottawa and Toronto.

In Asia/Pacific and Europe, hotels are proposing rate increases averaging between 5 percent and 10 percent, according to CWT. In such key markets as Paris, London, Singapore and Hong Kong, hotels are asking for rate increases ranging between 10 percent and 15 percent.

The CWT Solutions Group report noted that rate proposals in South America cover a wide spectrum, from low-single-digit percentage increases to as much as 40 percent in some Brazilian cities, where strong demand has prompted some hotels to decline bidding on corporate business altogether.

Several large-market travel buyers said they expected their own rate increases to be more moderate. Schlumberger North America & Marine travel manager Veronique Howard, for example, told attendees at the Dallas event that after a request for proposals, hotels offered 2012 North American rates that are 1.6 percent higher than negotiated 2011 rates, but the company planned to counteroffer and "reduce that number through more amenities. About 85 percent of [the hotels in] our program include all amenities."

CWT noted that hotels this year generally are taking a harder line on amenities. North American hotels more frequently are including in negotiated rates breakfast or Internet, but not both, while European hotels are leaving those amenities out of first-round negotiations altogether, placing the impetus on buyers to push for them in the second round.

Some buyers said they are considering alternative negotiating strategies to derive savings. Speaking this week at a BTN Group travel buyer forum in New York, Deloitte senior manager of travel procurement and operations Brian Nichols said there is no "magic nugget" that will help buyers during a lodging industry up cycle.

"It's usually a combination of focusing on the core business activities that you do in any normal year, and maybe do them a little bit better, and then make some slight adjustments and fine-tuning," he said.

For Nichols, that has meant consolidating sourcing around the globe and using that larger combined volume as leverage. At the same time, he said the firm is emphasizing what makes it attractive to hotels: longer average stays, for example, and a pattern of increasing travel over the past decade.

Dan Baillie, who recently became senior category manager of travel at government defense contractor DynCorp International, told Dallas conferees that he is consolidating hotel use to a few properties in such key cities as Washington. "If you look at our hotels on a map of D.C., it's like you took a paintbrush and have little spots of hotels everywhere—no big blob, just a bunch of little dots," Baillie said. "I'm focusing on picking those spots away and [consolidating to] four or five properties."

Phillip Peña, senior vice president and global head of the hotel and ground transportation programs for Citigroup, said he expected his hotel program to benefit from negotiating off-cycle; Citi runs its hotel program from April to March rather than the standard calendar year.

"This time of year, companies on-cycle start sending out acceptances and declines, so hotels know at this point which programs are in and which ones are not," Peña said at the New York event. "If a key hotel program is missed, all of a sudden hell is going to break loose, and the GM will be trying to fill that business for next year. If they can get a program like ours in the off-cycle, we can be more competitive with how we present our pricing."

Off-cycle negotiations have proved particularly effective in New York, where the first quarter typically is a slower time for hotels, he said.

GlaxoSmithKline sourcing group manager Paul Plank, whose hotel program operates on a June-to-May cycle, said the economy this year is prompting him to reach out to more hotels than usual. GSK procures hotels through an auction program with set ceiling rates. Next year, the company plans to invite more than 2,400 hotels to participate, up from about 1,800 this year.

Plank said he hopes that strategy, combined with the leverage of GSK's volume, would stave off significant increases. "In 2011, we were told to expect a rate hike, and we took an increase, but it was marginal," he said. "We reduced costs in [U.S. headquarters city] Philadelphia, though they increased in [global headquarters city] London. I'm not going to say we're not concerned, but we're inviting more properties than we've ever invited before, so the extra competition should help."