The days when travel buyers held the undisputed upper hand over hotel groups look, for the time being at least, to be over. Experts from different sectors of the industry see this year’s negotiations as likely to be the sharpest since pre-recession days.
Margaret Bowler, HRG’s director of global hotels relations, said with understatement that the talks were likely to be “interesting” while Ross Hosking, executive VP global sales for the Wyndham Hotel Group, more dramatically described them as “the most contentious for years”, when both spoke at the GTMC’s autumn conference in London this week.
There are a number of factors complicating this year’s talks. In 2009, after the collapse of Lehman Brothers in September 2008 and a catastrophic fall in business travel as recession shrunk the world economy, the situation was clear. It was a buyers’ market with travel managers able to a large extent to dictate terms and requirements as hotels prayed for business. This situation has now moved to a far more even playing field, where both sides have legitimate demands to make of the other and equally legitimate sticking points beyond which they will not go.
What has strengthened the hotels’ hand is that supply of rooms, according to Hosking, is “tapering off” and that business in gateway cities is booming. This latter point gives hotels not only strong bargaining rights over rates, but also the ability to trade these off against rates in their hotels in less popular places.
STR Global’s pipeline of hotels for the US in December 2008 was 5,706 properties with a total of 612,892 rooms. This July it has slipped to 2,598 new hotels with 289,145 rooms. There seems to have been a general slowdown in other major regions except Asia Pacific which is still enjoying significant growth. Hosking is also right that gateway cities are experiencing a boom. The latest Hotstats from Hospitality Consulting for September show that occupancy at many major European cities is extremely high with Amsterdam at 88 per cent, Berlin 88.1 per cent, Dublin 93.7 per cent, London 90.2 per cent, Moscow 85.5 per cent, Paris 88.3 per cent, Vienna 88 per cent and Zurich 90.8 per cent.
For the buyers, the flat nature of business travel in many of the major countries, the continuing uncertainty over the world economy and the ever present determination to cut costs are their three strongest cards. All argue that rates should not be allowed to rise much, if at all.
Bowler said: “The corporates are obviously looking for flat rates or minimal increases but the hotels are looking for increases. It depends on the location as to whether you see if t as a buyer’s or seller’s market. Some locations are doing incredibly well but others are not where the hotels would like them to be.
“Occupancy is picking up and from the hotel point of view rates are going in the right direction but they are not jumping up. From the corporate point of view, their challenge is cost control. They are all being tasked with making savings.”
She said two of the ways they were achieving this is by downgrading from four-star to three-star properties and by consolidating the number of their suppliers.
These views were largely echoed by Hosking who said that hotels were looking for rate rises of between 7-9 per cent while the buyers were seeking zeros increases where possible but likely to accept rises up of to about 5 per cent.
With negotiations on a knife edge, Bowler made the point that it was now even more critical for buyers to deliver on their promises of volume. “Hotels want to secure business and be sure that it is going to be delivered,” she said.
Bowler added that hotels were looking for business across the week, not just on occasional days. Nor are they keen on offering the biggest volume at the cheapest rate. “For the hotels, it is all about the yield. Dynamic pricing is still out there and this is not always being picked up by the corporates,” she said.
Bowler and Hosking both said the tightness of the negotiations was forcing travel managers to take a tougher line on compliance. “95 per cent are making travel policy more stringent or keeping it the same. They see it as a golden opportunity for managed business travel,” said Hosking. Some companies were adopting the US concept of gamification, giving incentives and rewards for complying with travel policy. “This could be a game changer,” he said.
Bowler said she was finding “more and more corporates are mandating their hotel bookings.” She added: “If they promise 500 nights and deliver 20, they are not going to get the rate. So in this sense, volume is critical.”
The added extras of the last couple of years, such as breakfast and wifi connections are also back in the mix. Most corporates want both, especially the latter. But will they have to pay? It could all be down to the negotiating skills of each side. Not for many years have these skills been so important.