Hotels: how the balance switched from supplier to buyer
During the last months of 2008, as hotels negotiated their corporate contracts for the coming new year, the global economy began to deteriorate rapidly and, with it, the demand for room nights.
In mid-November, Jason Harris, senior director for hotel solutions at BCD Travel, spoke of a "significant decline" in volume for hotels. Another expert Jennifer Charlton, vp global hotels for Carlson Wagonlit Travel, said at the same time: "We have seen a number of hoteliers starting to flap in the last couple of weeks." Hotels, she said, were now "revising their budgets downwards recognising that this year is not going to be like it was in the last few years."
It all indicated a switch from the seller's market, one that hotels had lucractively enjoyed for several years, to a buyer's market.
Just how great that switch was can be gauged in the new HRG Hotel Survey 2008, published last week. Generally it was a mixed picture the survey, based on industry intelligence and room nights booked and rates paid by HRG's UK clients in 2008, presented.
There was a fall off in demand in the last months of the year and rates suffered. But the picture was distorted by cities, like Moscow, where demand outstripped supply and, from the British point of view, the falling exchange rate which, for example, markedly increased the price for UK travellers of room nights in America.
But one of its basic findings was of a shift towards buyer power. Margaret Bowler, HRG's director global hotel relations, said in the survey: "During industry boom periods, hotels often denied bookers access to corporate rates in favour of more lucrative options. This trend has now reversed and as occupancy levels balance out, corporates will gain greater access to negotiated rates.
"In parallel, as hoteliers seek to maintain rates, corporate travellers will increasingly be able to secure value added services as part of their rates including, for example, free internet access, complimentary parking, food and beverages."
The occasions when corporates had been victims of a hotel chain's focussed policy on dynamic pricing and denied rates for which they had negotiated were no more. Instead hotels had become more concerned in attracting corporate business than turning it away.
Ms Bowler said the dynamic of the industry was now changing "which is creating opportunities to both hotels and corporates. While occupancy levels were falling, they had not reached the low levels of post 9/11. If they did, Ms Bowler said, "rate strategies will be interesting to watch."
Speaking exclusively to ABTN, Ms Bowler said: "In September, corporates which wanted to negotiate deals were looking for a flat rate or a minimal increase. By November, a flat rate, with a few exceptions like Moscow and Berlin, was a worst case scenario.
"Hotels are now having to learn how to sell again."
Corporates were in a position where they could choose which hotels they wanted to use. Some were deciding not to use so many as in the past and to consolidate their spend in fewer properties so increasing their leverage.
Another great change, Ms Bowler said which was hitting the hotels was that, in the past eight years, many had sold the freehold of their properties. They were now managers, rather than owners, and having to pay "huge rents." In such a position, they could not afford to drop their rates.
One factor is their favour is that compared to post-9/11, when hotel occupancy dropped dramatically overnight to 60%, the current fall in demand is nowhere near that, although pessimists might add "yet."
But efforts to step up occupancy have not been unqualified successes. Properties have been encouraging guests to book directly through their hotel websites which often had price cuts of 50%. But such cuts have not meant that volumes have doubled.
On the strength of such factors, corporates were looking to re-negotiate. Additional services, like the return of the "Last Room Availability"provision, which was refused during the good times, or extras like free parking or deals on food and beverage are now being offered.
Hotels now needed to be "sensible", said Ms Bowler and to an extent go back to the corporate "cap in hand." But some corporates, seeing the lie of the land, were saying "No thanks" and looking elsewhere.
"I don't think 2009 will be about negotiated rates for the whole year but ones negotiated on a three monthly basis, enabling corporates to ask themselves 'where is the market and what are we achieving'.
"Basically its about corporates trying to drive the rate down."