Singapore Hotels Assess Reverse Auctions

Hotels in Singapore question the long-term impact of online reverse auctions on the viability of hotels, their infrastructure and their service. But that hasn't stopped multinational business travel buyers in Singapore from exploring their options as they try to find new ways to cut costs because of slowing economies in the countries where their head offices are based.

However, hotel representatives in Singapore said they too were under pressure to return profits to investors under the same tough economic conditions and so far have resisted participating in reverse auctions. They said auctions have not worked in Singapore or Hong Kong, but have been effective in Bangkok and Shanghai, where the prices of some room rates have sunk to levels that have sent shock waves to the heart of the Singapore-based regional headquarters of a number of big hotel groups.

Reverse auctions consist of properties auctioning their rooms to the highest bidder, as opposed to travel buyers issuing requests for proposals on which the hotels bid.

Unheard of rates, such as the US$33 a night achieved by one multinational's reverse auction in Bangkok recently—where the average corporate rate usually is US$152, according to American Express—aren't helping Singapore hoteliers to embrace the idea either. Hoteliers said such low rates were unsustainable and they preferred the request for proposal process instead, because "it's not just a numbers game."

Singapore-based Doris Goh, regional director of sales for Mandarin Oriental Hotel Group, was not alone when she said reverse auctions were difficult for the hospitality industry to justify. "We are also challenged to sustain growth, otherwise our shareholders are going to say, 'no point in investing,' " said Goh, who also is the educational representative on the Asia Regional Council of the Association of Corporate Travel Executives. "I think a lot of companies have to understand that, and what we can do is proactively look at how we can help one another," Goh said, adding that hotel deals should not be just about cutting costs, because rates in Asia already were "considered very cheap."

Like other regional hotel representatives in Singapore, Goh is concerned about head office logic, which dictates that because life is tough at home, employees in Asia must try to squeeze more out of suppliers in Asia. "Asia is already contributing to the bottom line," she said. "Where travel spend is concerned, I think we already have reached rock bottom."

Mandarin's Goh said the industry actively had been helping clients reduce their costs for at least the past two years, which was what prompted the wider use of RFPs in the region. Christine Hodder, director of marketing at the Four Seasons hotel group in Singapore, agreed with Goh. She said hotels were uncomfortable with reverse auctions, which had a lot to do with the way they were conducted.

"I do not think they will work until the system is sorted out," she said. Hotels may not welcome reverse auctions, but buyers in Singapore have not ruled them out. Denis Choo, Singapore-based contracts procurement manager at Shell Oil, watched with interest the result of a reverse auction in Bangkok conducted by his colleague, Chaiyutha Lertpachin, contract procurement manager for Shell Oil. Choo said the Bangkok reverse auction was a trial before it was rolled out to other parts of Asia. But he noticed that hotels found it strange and new. "They found it a bit bewildering at first, but we were happy with the results," Choo said. Lertpachin said the auction in Bangkok was successful and he was looking forward to conducting similar auctions in more cities in Thailand, before subsidiaries rolled out reverse auctions in other parts of Asia.

"In the past, for example, we used to pay US$67-plus a night for a four-star hotel in Bangkok," he said. "Now we get to pay the same price for a better room at a five-star hotel." Still, he said, preparation was important. "We visit hotels and then we look at the rooms, because we have to pre-qualify the hotels," Lertpachin said. "You have to make sure you are comparing apples with apples."

While the object of a reverse auction might be to find the lowest price, Lertpachin said Shell might opt for the second or third lowest price rather than the lowest. He said he was looking forward to introducing reverse auctions to other travel suppliers, such as car rental operators, as soon as Shell Oil's current car rental contract expires.