Navigating the post-pandemic hotel program landscape will require a fresh outlook and savvy negotiating skills
By Harvey Chipkin
Flexibility. Nimbleness. Dynamic. Fluid.
In a time of uncertainty, those are the kinds of words buyers and sellers are using as companies work to put together their hotel programs for 2022. But even as uncertainty rules, trends are emerging that may remain for the medium to long-term, including a different way of looking at negotiations, changing traveler behaviors, an enhanced focus on social and environmental issues, and concern among some travel managers that big players may be shouldering them out in the “Volume=Rates” game.
In response to the volatility, many observers see the best path forward is to take a “holistic” approach to the marketplace – relying on multiple channels including suppliers, aggregators, TMCs, etc. – to put together a comprehensive program that may not always put the priority on price.
Meanwhile, amidst all the flux, business must get done, and the way it is being done now is the same way it has in the past, e.g., negotiations and RFPs are in process. But in many aspects it is different – with a growing reliance on dynamic rates and continuous procurement, a market-by-market or even hotel-by-hotel approach, and a return to basics, including a revitalized attachment to buyer-seller relationships.
Baselines and benchmarks, says Derek Sharp, COO of RoomIt at CWT, are really difficult to define right now so negotiations are all over the place. Consequently, Sharp says, RoomIt often employs an individual hotel strategy – or regional at best – as hotels figure out how to drive average daily rates, which in many cases are higher than expected. According to Nina Marcello, principal, global hotel practice line lead for global business consulting at American Express GBT, the pandemic accelerated shifts in hotel negotiation that were already underway, driven by digital technology. There’s no more “fix and forget it,” she advises. To secure the right rates for their program, she says, corporate buyers need to review their program year-round and source if needed to maintain best rates and ensure adequate coverage based on emerging business needs. And to keep on top of this dynamic environment they need to be able to access, aggregate, and process huge volumes of hotel rates content.
Greg Williams is senior vice president of operations for CLC Lodging, a sourcing and analytics company for “workforce” industries like trucking that continued to travel during the pandemic. He points out that the ragged landscape also finds different markets in very different circumstances. That makes things difficult for travel managers, Williams says, especially if they have lost staff during the pandemic. This is a time, he cautions, when the need to stay flexible and handle a lot of activity is high. “This is the busiest we have ever been,” he says, “because we have to stay on top of the constant changes.”
If a line were drawn roughly from the middle of North Carolina across the country to San Diego, with some zigzags in between, it would be a tale of two hotel industries, says Mike Schugt, president of Teneo Hospitality Group, a group (meetings} representation firm. The southern side, especially resorts, is enjoying some record numbers, while the northern one, especially in big cities, is still struggling.
“The landscape has changed significantly in a number of ways,” says Wendy Ferrill, vice president of worldwide sales at Best Western Hotels & Resorts. Demand markets, she says, have shifted and continue to evolve, “so due to the dynamic business needs of companies, travel buyers are looking for flexibility in their travel programs.”
Flexibility is also cited by Derek DeCross, senior vice president, global sales, IHG Hotels and Resorts, who says the company is rolling over rates and discounts from 2021 into 2022 “so as not to penalize clients that have travel restrictions in place, either from government regulations or corporate mandates.” The hotel group has also implemented dynamically priced products, which have been “a bright spot,” he says, for both buyers and suppliers given resource and demand constraints.
Negotiating Crosscurrents While there is significant rolling over of rates, there are also full negotiations in progress. Steve Reynolds, CEO of TripBam, the hotel shopping and analytics company, says most of his clients have skipped the procurement process and “rolled over” their 2019 rates to 2021 and possibly 2022, knowing that going through the usual process will provide little value and cost savings. For those that have negotiated, he adds, most are adopting dynamic rates with a rate cap to generate savings even though volumes are low. “The old model of determining markets based upon historical spend,” Reynolds says, “is broken.”
The negotiation process has changed, agrees Yon Abad, vice president of corporate suppliers and distribution at Flight Centre Travel Group, parent company of Corporate Traveler. He explains that there is more focus on dual and dynamic rates for corporate programs, review of cancellation terms, and service inclusions and value adds.
“We are telling clients to get back to basics,” advises Sharp, “going back to aiming for real buying power so hotel partners see value.” Managers need really good negotiations to get credit for volume, he says, but they also need supplemental partners like aggregators. “We have invested in bringing in other rates in an attempt to fill gaps holistically,” he adds.
Traditional RFPs are happening, says Lexi Benakis, vice president of procurement consulting for HRS, but with adjustments. Where negotiations might have taken 16 weeks to complete in the past, now they take four to six weeks maximum, keeping data fresh and more current. But the more important thing, she says, is continuous procurement – being able to reevaluate rates every few months. Benakis says HRS is also focusing on total spend for clients, including food and beverage, etc. The savviest programs, she says, are commingling all spending so they can maintain buying power in the face of a sharp reduction in transient travel.
And then there are those newly appreciated relationships. Williams says CLC Lodging is “a big believer” in picking up the phone and speaking to decision makers. While the company leverages all the technology it can, he explains, it is also building relationships at the same time.
Similarly at Best Western, Ferrill says, “The most important thing is open and honest communication across all parties” – the global sales team, hotels and customers – adding that, “Because we have built trusted partnerships, we are able to foster consistent communication to ensure both travel buyer and traveler comfort.”
Laura Kusto, vice president and global hotel practice lead for Advito and Stay by BCD Travel, says it’s important on some level to wait and see how everything shakes out. “The industry has gotten good at dealing with uncertainty,” she says.
New Players? There have been rumblings among some travel managers about big players like TMCs and OTAs scooping up significant inventory and putting it on the market at discounted rates lower than corporate negotiated rates. While corporations can take advantage of those rates, says David Smith, travel and relocation manager for Amdocs, the concern is that companies will not get credit for that volume and thus lose out in the negotiation process. That is particularly crucial now, says Smith, as travel managers seek to reestablish their status as buyers with hotels.
Other observers have also noted this development but believe it might be a pandemic-driven wrinkle in the market. Bjorn Hanson, adjunct professor at the Jonathan M. Tisch Center of Hospitality at New York University, says he has heard about this phenomenon but only in exceptional situations. He says most lodging sellers expect another strong summer in 2022; and a good, if not great, fall 2022, “so are not allocating inventory in a panic mode.”
Abad says he has seen have seen strong promotional rates and discounts on public rates, up to 60 percent for airport hotels for example or downtown and business hub destinations that are still struggling to recover. However, he says, “travel managers who have rationalized their volumes can still hold very strong positions for negotiations as hotels are always looking for key corporate agreements to secure a portion of their business mix.”
What might be happening, says Ferrill, is that when travel managers see OTA content, it is actually independent hotels – and/or hotels that are part of larger brands not adhering to brand standards – that are offering the steep discounts. At the end of the day, she says, “we do not see our consortia rates cannibalizing our negotiated rates.”
Sustaining the Future If anything, the pandemic has only accelerated the drive toward environmental, social and governance issues (ESG) – particularly sustainability – as part of the hotel program. The major difference, says Hanson, between negotiations for 2021 versus 2022 is “a dramatic new emphasis on ESG.”
HRS has made a significant investment in sustainability with its Green Stay initiative, says Benakis, which seeks to standardize criteria for hotels. Properties submit data and those that qualify earn a Green Stay label so travel buyers can make that validation part of their decision making.
Marcello says GBT is seeing more and more “custom questions” related to these topics throughout the RFP process. Clients want to work with suppliers who are aligned with their values, she says, and increasingly reflect this with dozens of buyer questions about sustainability and diversity practices.
The hospitality landscape will continue to evolve in the next couple of years, according to just about every observer. That includes the negotiation process, hotels themselves and even the behavior of travelers.
“Don’t underestimate the psyche of the business traveler,” says Abad, explaining that he expects hotels will have to face new expectations from the hotel experience of “the reborn/post-COVID business traveler”– from check-in to in-room services, etc. –so hotels will need to provide services like additional concierge, assistance, pre-check-in engagement, recognition and loyalty, and more.
There won’t be a linear recovery, says Sharp. There will be ‘bumps,’ he cautions, “So it’s all about communicating and managing expectations and staying flexible around what you can do with your partners.”
Different travel and work patterns will also have an impact on hotel programs. Kusto sees an increase in virtual working environments which will bring up questions like “who will foot the bill if an employee working remotely needs to go to headquarters once a quarter?”
Yannis Moati, CEO of HotelsbyDay, which offers hotel rooms during daytime hours, says his product was bolstered by the pandemic as employees become used to working in hotel rooms. He says his company is eager to work with travel managers and has developed a loyalty program, Master Key. “We will be just a part of the corporate travel mix,” Moati predicts, “but an important one.”
In a recent report, Tripbam says that in the Americas, where recovery is advancing more quickly than in Europe, the window to negotiate favorable discounts with hotels is closing quickly. “The seller’s market is almost here,” the report states. The company recommends auditing for last room availability, tracking of negotiating rates against publicly available rates, moving to dynamic rates when appropriate, and staying flexible.
“All great opportunities come out of uncertainty,” says Kusto, “and this is a period ripe with opportunity and a time to stay open-minded and look for that opportunity.”