Cautious optimism across the industry suggests the economic recovery is progressing slowly. But, says Bob Papworth, lingering uncertainty means buying hotel rooms remains a challenge...
The phrase "You've never had it so good” is beginning to get a bit of a reputation. Its origins lie in Democrat candidate Adlai Stevenson’s slogan for the 1952 US election – which the Democrats lost. When it was echoed in 1957 by Conservative prime minister Harold Macmillan, rather than a boast, it was meant as a warning about inflation. And when it was recycled again last year, by enterprise adviser Lord Young of Graffham, he was promptly forced to resign.
All of which might lead one to fear for the future of Trevor Elswood, group managing director of hotel booking agency BSI, who suggests that today’s revenue management technology means that hoteliers are now the ones who have never had it so good. Perhaps fortunately for him, that is not all he said.
The UK hotel industry, Elswood implies, is in a state of some confusion – unsure whether the economy really is recovering, where to pitch prices, how best to structure corporate deals, and how to respond to the tough new approach being adopted by recession-hardened buyers.
Unsurprisingly, given the economic uncertainties, hoteliers are not alone in their haplessness. Travel management’s finest prognosticators seem unable to agree on room rate trends, and even the hotel specialists appear to be having difficulty reaching the same conclusions.
“If you look at the key forecasts from PricewaterhouseCoopers, Deloitte and the like, they all agree that London is going to become more expensive, but where the provinces are concerned there is some difference of opinion – they are quite far apart in their predictions for hotels outside the capital,” says Elswood.
“In the provinces people are busy, but I haven’t seen that reflected in prices in the past quarter, which is usually a good barometer. London has been strong, but provincially the market has been strong in terms of availability but not on price, which suggests the confidence isn’t there – it has yet to manifest itself in terms of price rises. It may have a lag, but I think the uncertainty is born of concerns about the public sector – places like Liverpool, Leeds and Cardiff are yelping.”
Adam Woods, Hotelscene’s head of procurement – client services, is not so sure that the problems are limited to the UK regions. “There’s still a lot of uncertainty out there in London,” he says. “A lot of hoteliers are making an assumption that they are sitting pretty but, come February or March, that may be a different story.”
Pauline Houston, meetings & events and hotel programmes director for Carlson Wagonlit in the UK and Ireland, is equally wary of hotelier over-confidence. “Whilst the market is buoyant in London, there is still a lot of ground to be made up elsewhere,” she says. “I would urge hoteliers who see this as an opportunity to be very careful – because it could backfire badly.”
Even in London, there are still plenty of ways to save on spend, according to Peter Ducker, executive director of the Hotel Booking Agents Association (HBAA), not least by using hotels’ own rate-setting technologies against them.
“My advice to anyone, any time, is the same – plan your trips to avoid high-rate dates. The wonder of BAR [best available rate] pricing is that Mondays and Thursdays are generally lower-priced, while Tuesdays and Wednesdays are best avoided.
“I’d also consider whether central London is essential to your business needs. If it’s a meeting, take it out of the city; if it’s a business trip, move away from the centre and rates will soften significantly. Basically, if you can see Park Lane when you draw the curtains, it’s going to cost more.”
There are those who believe that wherever travellers stay it’s going to cost more this year, but there appears to be at least two schools of thought on that. The first is that a general resurgence in demand, coupled with a slowdown in capacity growth, puts the boot firmly on the hotel operators’ collective foot; the second is that corporate buyers – who have gained a lot of hard-nosed negotiating experience during the downturn and are fed up with helping hotels through the lean times for little or no perceived reward – are the ones in the ascendancy.
Almost inevitably, it’s not that simple. If there are two schools of thought on the state of the market, there are multiple schools of thought on how to respond to those first schools of thought, and variations on those multiple schools of thought as well.
So what is a poor buyer to do? Most agree that the answer is to avoid anything remotely associated with dynamic pricing or spot-buying. There is also a huge backlash against discounts on BAR. Hoteliers have not only been very clever, insofar as a discount on BAR is worse than useless if the best available rate just happens to be the price of the presidential suite (because everything else is already booked), but they have also been quite sly by not necessarily specifying how many rooms are available at the lowest level.
A £120 midweek room rate in a reasonable hotel in London isn’t a bad deal; anything less than that has got to be good – but only if there are more than three rooms available at that price. When the fourth and fifth rooms come in at £200 a piece, it ceases to be so much of a bargain.
“Price isn’t the only issue,” Margaret Bowler, HRG’s (Hogg Robinson Group) director of global hotel relations, confirms. “There is the matter of availability, too. If you have a rate, but there are only six standard rooms available at that rate, you’re never going to get into those rooms – but you will be up-sold into executive suites.”
Discounts on BAR are the latest manifestation of dynamic pricing, where revenue management systems (and we’re back with Trevor Elswood here) update room rates on a continuous basis, lowering prices to stimulate demand and then raising them as soon as the stimulation has taken effect. Dynamic corporate pricing appears to be much the same thing, but with a bit knocked off, or a free breakfast added on.
It will come as no surprise to learn that hotel bosses quite like this arrangement.
“Dynamic corporate pricing is something the hotels are trying to push,” says HRG’s Bowler – a point with which Carlson’s Houston concurs. “From the hoteliers’ point of view, of course, dynamic pricing is by far the better option,” Houston says. “It is simple and straightforward, it’s easier to manage, and the hotels don’t take as big a hit when the market changes.”
Bowler contends that “corporate customers are still very much going for volume deals. That then becomes the benchmark price and it is then our job [as the TMC] to see if there are any better rates available. In the past couple of years, that has been possible because of the state of the market; in 2011, that situation could change.”
Houston is in cautious agreement with this. “We certainly haven’t seen the end of the volume deal,” she says. “Dynamic pricing can be an ideal solution in certain circumstances, but there is no such thing as ‘one size fits all’. In some cases, larger corporates can create a hybrid arrangement whereby they strike a volume deal on their most frequently-used destinations, but then spot-buy for those places where they don’t have much traffic, or where they are fulfilling a one-off contract, for example.”
Hotelscene’s Adam Woods also believes there is still a place for BAR discounts on non-key destinations, but recommends hard-and-fast contracted rates for anything else. “If you are going to hang your hat on anything, it needs to be what price you are going to pay to stay in that hotel.” he says. “If that’s variable, it just doesn’t work.”
HBAA chief Peter Ducker is dead against what he calls the “high-risk strategy” of spot-buying. “Spot-buying is only really smart in a market where availability is a given. The more buyers know about their demands, the better able they are to meet them, and that is something the hotel booking agencies do really well – analysing spend, recommending strategy and then delivering on it.”
BSI boss Elswood throws yet another spanner in the negotiation works – more and more clients, he says, are setting rate caps. They decide that a room of the requisite standard is worth ‘X’ and then invite hoteliers to match or under-cut that price, rather like a reverse auction.
“Customers have also now started setting rate caps,” he says. “They’ll pay up to a certain level and if you can achieve the customer’s price, you’re in the pot – if not, you’re out.”
That would not appear to leave a great deal of room for negotiation, which is probably just as well given the ever-increasing layers of complexity involved. It’s becoming much tougher, for example, to persuade hoteliers to give ground on last-room availability (LRA).
“Last-room availability was given away quite weakly at the beginning of last year, so those contracts where there are LRA agreements in place are now really starting to kick in,” says Elswood. “But as the market improves, hoteliers will definitely hold back.”
“Value-adds are still important,” says Margaret Bowler. “The big, big one right now is free wifi – and eight times out of ten you can get it. I suspect that at some stage in the not-too-distant future you will see two levels – free wifi for emails and then a charge if you want better speeds or to watch movies.”
Pauline Houston gets back to basics. “From the corporate buyers’ point of view, you have to know your programme really well,” she says. “It comes down to knowing the habits of your travellers – do they regularly use high-speed internet? Do they regularly eat a full English breakfast? If they do, then the corporate is making a saving; if they don’t, there’s no benefit, no added value.
“Buyers need to focus on the total cost of the stay. Your room rate may look very attractive, but by the time you have built in the on-costs, it might not seem like such a good deal after all. Equally, if you’re sacrificing a cash discount in return for a breakfast no-one wants, that’s not much of a deal either.”
Achieving any kind of deal is becoming more and more problematical as hotel bosses – allegedly – become greedier.
“We have found that negotiations are falling into two camps,” says CWT’s Houston. “There are those [hoteliers] who want to get their own back, as it were, for the hotel-bashing that’s been going on for the past few years, and those who are thinking more strategically and looking to forge partnerships – and they are the ones that are doing better because corporates are far more willing to work with hotels as partners.”
Adam Woods is a little more forthright. “The big brands, with big revenue management teams, certainly have a massive desire to see price increases, and some of it doesn’t make a huge amount of sense – other properties are then simply coming in with lower prices,” he says.
“There are whole squads of people employed to be clever on rates, and the more people there are, the more complex it becomes. Unfortunately, for some of the big chains out there, that’s actually having a negative effect.”
Another big negative – this time from the intermediaries’ point of view – is corporate buyers’ seeming inability (or refusal?) to measure the true value of negotiated rates achieved on their behalf.
Anthony Rissbrook, head of Co-operative Travel Management and chairman of the Guild of Travel Management Companies’ (GTMC) hotel working party, says: “The big issue for the travel management company [TMC] in a time of rising prices is to ensure that the value that they bring to the party is recognised. This is the major challenge for TMCs in a market of rising prices.
“Every transaction should be measured against what would have been the rate had a negotiated rate not been in place. It should not be measured against what the spend looked like last year.”
Inevitably, that is particularly true in these post-recessionary months. This time last year, hotels were begging for business, and even rack rates were relegated to the bargain basement. Twelve months later, in a more bullish market, room rates seem certain to go higher – from a very low base – but it is the negotiated discount, not the year-on-year comparison, that matters.
Rissbrook is confident there are still plenty of deals to be done. “There is most definitely a consensus view that hotel demand is growing and the hotels are looking forward to the future with much more optimism, and this will mean that for many the price of hotel accommodation will rise in 2011,” he says.
“However, despite the hotel chains’ optimism with regard to the likely rise of total revenue in the provision of accommodation, the chains and independents do all realise that it is still a competitive world out there, and to guarantee high occupancy rates they will still agree to negotiated rates with corporates that can commit to spending with them.”
BSI’s Trevor Elswood is not so sure that hoteliers will have it all their own way. “It’s my job to make sure I have got space in these cities to meet the demands of my customers,” he says. “As the market hardens, hotels are closing out market rates, and that’s where allocated rates come to the fore.
“For BSI we certainly forecast a strong year ahead because procurement and compliance are still way up on the agenda, in turn because companies are not yet unleashing their budgets. Generally a good year for the hotel industry? I think there is cautious optimism – in London I suspect they are feeling pretty buoyant, but in the provinces it’s a case of waiting to see the effects of the public sector cuts.”
And then, like Adlai Stevenson, Harold Macmillan and David Young before him, he goes and tempts fate.
“When all is said and done, these guys [hoteliers] are way ahead of where they were 10 years ago,” he says. “The level of technology that allows people to optimise price and revenues per available room has never been better.”
Fingers crossed.
This article was first published in ABTN's sister title Buying Business Travel, the award-winning magazine for company travel & meetings buyers and arrangers.
To receive your free subscription, click the logo
