A resurgent Europe presents golden opportunities – and growing complexities – for business travel
Sluggish growth in business travel in Europe for several years looks like it’s finally given way to some serious gains, with forecasts from the Global Business Travel Association predicting growth of 6 percent or more in the next two years. This forward momentum is leading North American companies that are looking to do business in Europe to consider how to position their programs better.
The rise of low-cost carriers in Europe, the drive of legacy carriers to adopt or adapt some form of the low-cost model and European open skies agreements mean that air travel in Europe is now not dissimilar to that in North America. Rail carves out a far bigger role in transcontinental travel in Europe than it does in North America but many of the players in this sector act like de facto airlines, sometimes appearing in the GDS. Plus there are many monopoly rail routes, rendering significant corporate deals rare.
For North American programs, it is in the hotel market where the biggest differences are evident.
The contrast is most notable in the penetration of chain hotels. Branded hotels account for more than 70 percent of the supply in the United States while this figure is around 30 percent in Europe. An analysis by Horwath HTL shows chain penetration in Italy in 2015 was just 12.8 percent. Germany has a similarly low proportion of chains.
Yet the reality is that most corporate deals are negotiated with – and most business travelers stay in – chains, so this difference in chain penetration is important, particularly when trying to establish a European hotel program.
German-headquartered hotel booking provider HRS is one European enterprise aiming to take advantage of the growing interest in European hotel programs. The company opened a New York office in spring 2015 under the leadership of former GetThere president Suzanne Neufang. HRS Americas now has agreements with more than a dozen leading multi-national business travel programs in the US which cumulatively spend more than $350 million on lodging annually.
Neufang sees little difference in the level of production required to do a deal on either side of the Atlantic. “Take a good to look at the data, work with your partners, and consolidate the places where you truly have spend into blocks of 250 roomnights or more to gain negotiating leverage,” she advises.
“It is more to do with the nature of the market,” says Brian Garvan, head of corporate sales, EMEA at Choice Hotels. “New York would have more in common with Paris and London than with Kansas
City, for example.”
The historic differences between North America and Europe are also reflected at the property level. Europe has far more hotels in older buildings than in North America and this, coupled with the high population density in Europe, translates into smaller room sizes.
In addition to the physical differences, there are often regional differences between the product and service offered by hotels on either side of the Atlantic, even if they are part of the same chain.
“It is important to understand what those norms are, to specify what you expect to be included so that you get like-to-like quotes back from potential preferred hotel partners,” Neufang cautions. “Travel managers also need to make sure travelers know what is included.”
Vive la DifférenceIn the absence of a United States of Europe, the continent remains what it has always been – a patchwork of widely varying countries.
“What you have to remember is that Europe is made up of a collection of individual countries, each with their own uniqueness in terms of language, currency and the hotels they have,” says Pauline Houston, global director, hotel communities at American Express Global Business Travel. “Some countries, such as France, Germany and Italy, have a large amount of non-GDS content. You also get supplier dominance in some key markets, such as Accor in France and NH, Barceló and Meliá in Spain.”
Even though the two markets are similar in size, there are greater differences between countries in Europe than between states in the US, which means that there may be far more work involved in creating even a small program covering multiple countries in Europe.
For one thing, the language challenge should not be underestimated. The European continent has 24 official working languages. While English is the lingua franca, spoken by more than half of Europeans, German, however, is the most popular mother tongue, with 18 percent of Europeans having it as their first language.
This means that speaking English is not a universal given, particularly for small, independent hotels that do not sit in the GDS. “You would then need to work with a TMC and employ their local services to support you in those negotiations,” says Houston.
“Motivation is a huge factor,” says GoldSpring Consulting’s Kevin Iwamoto, formerly with Lanyon. “If a property wants to earn business, language won’t be a barrier, particularly today with access to translation tools in the event of an unfamiliar word or phrase.”
Europe is also a patchwork of different currencies. The potential for currency fluctuation is an important issue and travel buyers, or an intermediary working on their behalf, may choose to handle negotiations either in the local currency – the most usual – or in any defined base currency.
“The best way to handle currency fluctuation is ensuring that your booking tools have a rate conversion feature to compare prices in local currency and make a decision as to whether the pricing suits their budgets,” according to Neil Hammond of GoldSpring. “Then again there’s always demand management – don’t take the trip if pricing is too high.”
VATs & RFPs & TMCs, Oh My!Linked with the currency issue is the matter of payment. The hotel billing process is both a particular challenge and an opportunity for travel managers looking at Europe, thanks to a wide variety of taxation regimes in place around the continent. The VAT chargeable on lodging varies from just 3 percent in Luxembourg to 25 percent in Denmark, for example.
The tax legislation changes rapidly too, says Amex’s Houston. “It is very rare that you go two years without some country making a change on VAT, particularly around the hotel category. They see it as a targeted income as they know people are traveling for business and they are trying to make money.”
This tax issue also affects how prices are displayed. “In North America, we like to see hotels on booking tools without tax included,” says Neufang. “In the EU, the law is that the tax must be included to provide full disclosure of what the cost will be,” she explains.
Payment systems used in hotels also differ across the Atlantic. While the corporate card is the standard means of payment for US travelers, in Europe hotel billback – where the hotel invoices the corporation or their travel management company directly – is widespread.
The question of how Requests for Proposals are run also differs, but to a lesser extent. The GBTA 2013 RFP is the standard in use by most corporations in North America but in Europe there is less industry-wide agreement.
Choice’s Brian Garvan says that corporations using local intermediaries in Europe, such as nationally focused TMCs, will often require clients to use their own RFP template rather than the GBTA standard. In Germany, the Ratefinding RFP platform is the standard and is very different from the one GBTA offers.
That said, European hotels, and particularly chains, are accustomed to the GBTA format and will have no major issues responding to them. “Using the GBTA RFP means the back-end processes are seamless and ensures the client is going to get their rates loaded in an accurate and timely fashion,” says Garvan.
The GBTA format has expanded in recent years, reflecting the evolution of the organization itself to a more global body. As a result challenges such as European tax systems are accounted for in the format.
It is worth noting that the length of hotel agreements is typically the same in Europe as in North America – typically one year – although there has been some experimentation with longer agreements. “There is still a perception on both sides that people don’t know what things will look like,” says Neufang.
The timing of the hotel RFP season is similar in Europe as well. However for some companies the fiscal year ends in March or April, and the hotel sourcing season follows suit.
The exhaustion created by this annual merry-go-round is a feeling shared on both sides of the Atlantic, and is one of the reasons that hoteliers in both North America and Europe are pushing dynamic pricing as an alternative.
“Many companies in North America have varying percentages of dynamic pricing in their current travel management programs,” says Kevin Iwamoto. “Whether or not those percentages measurably increase will largely be determined by the impact of the consolidation wave currently impacting the hotel industry.”
Choice’s Brian Garvan says, “Dynamic pricing is gaining relevance [in Europe]. However, buyers are asking for proof they will not end up paying more. Sometimes we can offer that proof. Sometimes the client works that out for themselves. We see examples where a buyer in Europe is fully engaged with dynamic rates, but the US buyer from the same company wants a fixed rate.”
Learning the MarketAs in the US, there are peculiarities in certain European markets that travel buyers need to understand.
Germany can be a challenging market, particularly in the big convention cities. Frankfurt, for example, has market-wide blackout dates associated with major trade events where pricing is set entirely separately from the rest of the year. “It is built into the pricing of the city and is not something you can easily get round by claiming you are a corporate or a loyal customer,” says Choice’s Garvan.
“Among American buyers, the knowledge of the European market is fairly weak unless they have a counterpart in Europe,” Neufang says. “If they are a German company, such as Bayer or BASF, they will know there are trade shows that take up all the inventory. But it is the same when Vegas sells out for the CES or Dreamforce takes over the Bay Area.”
There is also a perception among some North American managers of a great divide in Europe between the high-growth industrial North and the low-growth ‘sunshine economies’ of the South.
The IMF’s World Economic Outlook projects GDP growth in 2016 of 1.3 percent in Italy, compared with 1.7 percent in Germany and 2.2 percent in the United Kingdom. Yet Spain’s economy is forecast to grow by 2.7 percent, suggesting that this picture of a divide may not be accurate, although Europe’s economies are perhaps not in their usual state following the global economic crisis.
“Spain has had significant growth in the past year and a very strong first quarter,” says Houston. “There was a lot of business that had previously gone to Turkey that is now moving back to Spain, and Barcelona and Madrid are resurgent.” The events in Paris and Brussels have also had an impact on meetings and convention business.
With all of this varying complexity, using a local intermediary – a TMC, hotel booking company or consultant – is an obvious answer.
Yet Suzanne Neufang at HRS says research the company carried out at the start of the year shows two thirds of travel managers do not outsource their hotel programs – a missed opportunity, she maintains, for North American travel managers looking at Europe.
“Travel managers are having to source a market that they don’t understand,” she says. “They should go to a trusted outsource partner to make sure they have a good footprint on the ground.”