Winning the Hotel Negotiations Game for 2023

Suppliers have pricing power, for now. Experts dish on what’s working for current negotiations, and when to leverage the biggest power move: walking away.

With business travel rebounding at a solid pace in 2022 and shifting power to the supplier side, many travel buyers expected significant rate increases after hotel negotiations for 2023, and many got them. Add inflation to pressurize 2023 deals, and experts told Travel Procurement this year’s negotiations are intensely rate-focused. 

The Hotel Rate Environment

According to hospitality analytics firm STR, U.S. hotel market rates this year not only surpassed 2019 pre-pandemic highs but also broke some records. STR reported incremental rate increases across U.S. hotels’ average daily rate and revenue per available room, first setting new benchmarks in July, then climbing again each month through October when ADR and RevPAR (among U.S. hotels) increased 16.8 percent and 14 percent over 2019 levels, respectively.

Several major international hotel companies in their respective third-quarter investor calls projected average daily rates would continue increasing into the fourth quarter of 2022, and likely beyond, including corporate rates.

Marriott International CEO Anthony Capuano in the company’s third-quarter earnings call alluded to higher corporate rates in 2023. “The early results look positive for at least high single-digit year-over-year rate growth,” he said in early November. Considering the consistent rate increases the industry is seeing, Capuano’s assessment may not come as much of a surprise to corporates.

And despite rising rates, business and group travel demand persists, forcing corporates’ hands when it comes to securing accommodations. 

“The business travel component of our guest mix continues to approach historical levels and accounted for approximately 30 percent of stays in the third quarter,” Choice Hotels CEO and president Patrick Pacious said during the company’s third-quarter earnings call in November. “Our strongest occupancy growth during weekdays in September year over year was on Tuesday and Wednesday, illustrating the strength of returning business travel.”

And while hotels want and need to play in the corporate space, they may not feel obliged to extend deep corporate discounts into 2023. 

“Hotels are getting really picky. … They’re not giving rates to everyone,” Advito and Stay by BCD Travel VP and global hotel practice leader Laura Kusto told Travel Procurement. 

Even large corporate travel programs have been surprised by difficulties. Flight Centre Travel Group chief experience officer John Morhous during a session at a PhocusWright conference in November said that corporate buyers “have an expectation—they have a large spending power and can negotiate big discounts, but they’re just not materializing in today’s world because capacity is constrained and the world is different.”

Speaking to Travel Procurement at the Global Business Travel Association convention in San Diego in August, Hyatt Hotels Corp. VP of global sales Gus Vonderheide said corporate business remained important, but when it came to competing for that business, “It’s time to kind of get a little swagger back.” 

Approaching the Table

BTN’s 2022 Hotel Survey, fielded in September and October, showed a whopping 87 percent of travel buyer respondents expected rate increases going into 2023. Thirteen percent predicted their rates would rise by more than 10 percent; 45 percent of respondents forecast increases of 5 percent. 

So how can buyers optimize their leverage, and should anything else be on the negotiation table in a suppliers’ market? Here’s what experts had to say as they see what’s working—and what’s not—with corporate hotel negotiations now. 

Know your markets. Buyers need to maximize leverage where they can, said Kusto, and that means getting a close read on the local markets, including pricing and inflationary pressures. “Understand those trends in the market. Get your hands on some data. … [It] has never been more important to negotiate where you have leverage, and you [must] have a good business case.” Goldspring Consulting partner Neil Hammond agreed, adding that the variance in market recovery has been the biggest challenge for buyers and suppliers to resolve in 2023 negotiations and should inform every decision.

Have a smart data strategy. Buyers will need more than market data. They’ll need to have a good handle on their own volume data and forget about relying on 2019 volume reports. Projecting future volume from 2022 data has been key. Hammond advised buyers to limit their hotel volume data analysis to the months where travel activity had ramped up—for many companies, that started in April or May.

“We’ve looked at or adjusted the numbers to reflect that [in] January and February really there wasn’t a lot of data out there,” said Hammond. “For some we’ve just really considered April and forward on an annualized [basis]. We wanted to present the best numbers, and obviously the most reflective numbers of what’s really happening.”

HRS Group SVP global supplier relations Lukasz Dabrowski reminded buyers that they need to look at data outside of the TMC if they want to find their true volumes, since at least some portion of business travelers continue to book hotels outside the preferred channels. “The most precious data comes from the actual payment statistics. … [It allows] us to really see where the leakage is happening, where the traveler is going versus the negotiated program,” he said. Buyers should not only analyze that data but also be willing to learn from it as they take their travel business into each market.

Hotels are getting really picky. … They’re not giving rates to everyone. 

- Advito's Laura Kusto

Consolidate the hotel program. Going in strong with volume and location data and market knowledge will help buyers consolidate their programs, if they didn’t do so during the pandemic. HRS recommends taking an approach that is “all about convergence,” said Dabrowski. “Looking into all categories of hotel spend—transient, long stay, meetings and groups and truly showcasing it to the selected strategic partners—[so they] understand the value of what we are referring to as the total account contribution.” Suppliers then can respond to demand across multiple verticals, he added. 

Don’t get tied to one type of rate. Landing on a rate type, whether it’s dynamic, fixed or a dual-rate that uses a fixed rate as a cap—depends on the local market and travel program demands. While Hammond said it was hard to make a blanket statement, he has seen “a lot of bids that were [last-room availability] coming in from suppliers as non-LRA, especially internationally.” 

But he said buyers should consider those terms “to avoid cases with LRA closeout and avoid cases where the traveler is seeing lower rates in the market.” He also said dynamic rates would be a safer bet with more reliable savings and value in certain markets. 

“Certain hotel chains are focusing static rate on their top tier properties and wanting to tier their offers down, and we tend to agree with that approach,” Hammond said.

If a fixed rate is on the table, be sure both parties agree on the meaning of LRA and non-LRA, according to Tripbam CEO Steve Reynolds. 

“Last-room availability in my mind as a buyer means I’m going to get this static rate on the last room at that hotel. The hotel thinks they’re going to give you that discounted rate on the last room [they] want to give you at that discounted rate,” he said.

If moving with dynamic rates, figure out an audit strategy, added Reynolds. 

“The challenge is every single booking potentially has a slightly different rate,” he said. “If I have a static rate, I can look through a spreadsheet and … every time I see [that price] I know I got my discount.” 

But when it comes to dynamic rates it’s not that simple, he said. Some hotels may even offer special rates that aren’t visible to the public, which may be higher than the best available rate, according to Reynolds. 

“So when you apply your 20 percent discount, you only get 10 percent savings or less,” he said. “There’s a lot of that going on.”

Leverage relationships in a big way.  Buyers should know up front which hotels to spend time with. It won’t be all of them. “Most travel managers have direct relationships with their top hotels. That’s where [they] should have a fixed LRA rate,” Kusto said. Buyers should take a note, however, if their “top” hotel isn’t responsive. 

“Is the hotel making time for you? There has never been a better year to use that as your test,” she said. “If a hotel’s not willing to make time for you, maybe it’s worth having a conversation with them and articulating that this hotel matters to you.” 

Knowing which relationships to fight for versus which ones to walk away from can streamline the entire travel program, saving both sides time and money on future negotiations.

Know what to push for beyond rate. Buyers and managers fight for all sorts of amenities, but are travelers using them? The truth is, it’s difficult to track. If you don’t know if travelers are using parking or breakfast, it might be time to cut them from the menu. More important to programs, but also harder to get this year, will be consideration on cancellation policies. 

“We are seeing hotels take a stronger stance on the cancellation policy—same-day, especially,” Kusto said. “They’re pushing back on that a lot, like 24- to 48-hour minimum.” 

When the Timing Isn’t Right

While pent-up demand from leisure travel helped the industry recover in 2022, some analysts project business travel will continue gaining momentum as the leisure boom subsides. This could shift some power from suppliers to buyers in certain markets. STR showed business and group travel for its the top 25 markets in October hit higher occupancy and ADR than all other segments, “reflecting continued improvement” in the corporate travel space.

“Keeping a pulse check on business demand versus leisure [is important]. I think we’re going to see leisure kind of subside a little bit,” Kusto said. 

“I think the first quarter [2023] is going to be kind of the canary in the coal mine,” according to Tripbam EVP of hotel solutions David Mollov. This could open up an opportunity for buyers to bide their time with 2023 negotiations, he said. 

“When hoteliers are being bullish about expectations of the future, don’t take them,” Mollov said. “If hoteliers are being foolhardy [with] what they’re asking for from a buyer because they’re expecting the future to be rosy forever, just say no. Come back to the table [at] the first quarter of the year and then start negotiating when [we think] it’s going to be much more favorable negotiating environment.”