After almost three years of volatility, a picture of the hotel landscape is emerging, but it is decidedly fuzzy. As one travel manager put it, “The dust has not settled.” While considerable misgivings remain, travel managers are marching bravely onward, navigating patterns that are at least becoming more consistent – consolidating suppliers, finding the right balance of negotiated and dynamic prices, continuously monitoring rates, forming or re-forming partner relationships and working with pandemic trends that seem to have staying power.

One underlying factor contributing to the fuzziness is that business travel remains off pre-pandemic levels and there are questions about how long it will stay that way. At the same time, leisure travel has soared and remade the market – at least for now. According to Christopher Nassetta, CEO of Hilton, speaking on an earnings call, in 2019 corporate managed travel was about 10 percent of overall business, but as of the third quarter of 2022, it was about 7 percent.

“It’s tough to be on the client side of the table right now,” says Laura Kusto, vice president and global hotel practice leader for BCD Travel. It is an unfavorable time to be negotiating business travel rates, she says, “because leisure has outpaced everything.” Looking to 2023, Kusto predicts leisure will level out and business travel demand should go up by mid to late next year, which may bring traditional forces back into alignment.

Dynamic Rises, Static Perseveres
Just as the long arc of history is said to bend toward justice, the long arc of pricing seems to be bending toward dynamic – but that arc is not linear. Overwhelmingly, “hotels prefer and will negotiate aggressively for dynamic pricing," according to Bjorn Hanson, adjunct professor at the Jonathan M. Tisch Center of Hospitality at New York University and a longtime analyst of the hospitality industry. In the past, he says, corporate rates were the starting point for negotiation strategies with leisure rates as a discount to them; the current thinking, according to Hanson, is the reverse.

The right approach to the static/dynamic landscape depends on the program and the specific market, says Steve Reynolds, CEO of Tripbam, the hotel shopping and analytics provider. There are also problems around dynamic rates, he adds, explaining that the best available rate (BAR) being used for the dynamic discount might not be the actual BAR but an artificial rate designed to push higher the rate that’s being paid. Also, says Reynolds, “We were seeing a huge issue with chainwide discounts disappearing from booking channels.”

That’s why, according to Reynolds, Tripbam has been saying nonstop over the past two-plus years that “it’s critical to audit your hotel contracts – and not just GDS spot audits, which wouldn’t work for dynamic discounts anyway. But instead auditing every single booking against negotiated rates and negotiated amenities in real-time, year-round.”

Lukasz Dabrowski, senior vice president of global supplier relations for HRS, says dynamic pricing is top of mind for both buyers and suppliers. Because of the surge in leisure travel, he says, transparency in corporate travel has diminished. A manager might be told they’re getting a percentage off a rate, but with prices sometimes jumping quickly from $200 to $450, that doesn’t mean much.

As a result, says Dabrowski, many managers have started doubting this strategy. What HRS considers a benchmark for dynamic pricing, he says, is scanning the price on multiple levels, including public rates and fixed negotiated rates. The “holy grail,” he says, “is the ability to see how the dynamic price stands up against the fixed negotiated rate.”

Of key importance is the ability to deliver an accurate and fair price without going through a 10-month procurement program cycle, Dabrowski says. With all the flux, he cautions, “we want to have that instant offering available” and that means a continuous procurement strategy. With technology now available, shorter procurement cycles of four to six weeks can be maintained, giving buyers more flexibility.

Kusto agrees that just as with static rates, it’s important to continually monitor dynamic rates. And part of that, she says, is regularly checking on last room availability. “We find that LRA is about 65 percent,” Kusto says, “which is pretty shocking. That’s why you have to keep on top of it.”

Finding the right balance between different rates can be a challenge, according to Pauline Robin, senior director, global hotel solutions for RoomIt Solutions, the consulting arm for RoomIt by CWT. Robin advises that a mix of both static and dynamic rates is the best way to manage hotel program strategies. Her team recommends that businesses keep negotiating static corporate rates and complement their respective hotel programs with the dynamic content directly negotiated by their TMC.

When public rates are high – as they still are in the current environment – using static corporate negotiated rates allows businesses to get a firm grip on their hotel expenses, Robin says. She points out that this year, the rates that RoomIt negotiated on behalf of its clients have been on average almost 18 percent lower than public rates year to date.

Larry Cuculic, CEO of BWH Hotel Group, says the last decade has seen a steady shift away from static pricing and toward dynamic pricing. He says the reason this is happening is due to the lion’s share of hotel operational costs not being static, including labor, insurance, taxes, food, single-use supplies, durable goods, and every other major category of expense – all tending to increase every year. Historically, Cuculic says, hotel ADR increases at a rate lower than inflation, and static rates can place additional downward pressure on hotel profitability, negatively impacting a hotel’s ability to provide a quality guest experience.

For this reason, Cuculic says his company anticipates that the industry will continue to gravitate toward dynamic pricing, particularly during times of high inflation. He also points out that dynamic pricing can protect the client during times of deflation, such as what the industry experienced during the early days of the pandemic.

Fixed negotiated rates are best suited to high-volume destinations, says Anu Kuchibhotla, senior consulting manager, global business consulting at American Express Global Business Travel. On the other hand, low volume destinations, as well as those with no preferred properties, lend themselves better to dynamic pricing. However, it is challenging to define an “appropriate rate” for dynamic prices, she says, because BAR, by its very nature, is a floating rate. “We are currently developing technology,” says Kuchibhotla, “that will enhance our ability to audit dynamic rates.”

Re-Inventing Relationships
Not all hotel companies remember their lucrative long-term relationships with their corporate partners, says Dabrowski. In part, that’s because of the surge of leisure travel, as well as the churn in staff over the pandemic. And now with less volume in many cases, there is more need than ever for buyers to find a convergence of transient, group and extended stay spend to gain leverage. Before going into negotiations, says Dabrowski, managers need to bundle buying power.

It is extremely important for travel buyers to focus on strengthening the relationship with their hotel partners, says Robin. Rather than diluting the volume with too many preferred properties or chain-wide deals at any given location, it is a much better strategy to identify the most important partners, and channel the volume towards those.

Mark Sergot, senior vice president of global sales, IHG Hotels and Resorts, says his company is focused on “conversations with customers and partners to help them be successful once we clearly understand their needs.” If a program or offer is not working as planned, he says, “we are always eager to explore alternative options, including dynamic pricing programs.” The key to success moving forward, Sergot advises, “is flexibility on the part of hotels, customers, and partners as we all continue to adapt to constantly changing circumstances.”

Buyers can work with their internal stakeholders to drive their groups and small meetings business to preferred transient properties, says Kuchibhotla, while hotels can demonstrate partnership in return, through favorable pricing on meetings packages. Relationships between hotels and corporates don’t have to be limited to transient discussions only, she adds. When negotiating transient rates, says Kuchibhotla, “look at more than room rates: Consider what other inclusions could help build on existing relationships.”

Post-Pandemic Paradigm
Some pandemic-era travel behavior shifts are here to stay. For example, Dabrowski says workers can now produce value from anywhere. However, he adds, frontline commercial sales people still need to be on the road. Furthermore, he says large-scale remote work is not sustainable. He foresees a strong move to re-embrace the office environment for purposes of both customer contact and internal collaboration. It might not be a traditional office environment, but travelers will be happier with fewer restraints, more flexibility and creativity.

Kusto agrees that the remote work trend will go back in the other direction but maybe not to where it was. In a way, she says, remote work might drive up some small meetings activity. Companies have realized that employees don’t always need to travel to make things happen. However, Kusto cautions, it might be another year or two before all the post-pandemic upshots shake out.

“We have seen the flow of business travel evolve,” says Cuculic. For one, peak days for business travel have expanded beyond the traditional Tuesday – Thursday pattern, which is creating more arrivals on Sunday and departures on Friday, he says. And the demand for secondary and tertiary markets has grown throughout the pandemic and continues today.
In the end, “the bottom line is the bottom line,” as Reynolds says, and hoteliers are going to keep prices high where and when they can. That’s just part of the business no matter how much the industry talks about partnership.

That’s why Reynolds says it’s the responsibility of buyers to:
• Back up their hotel program with reliable, detailed data that shows whether the hotels in their preferred program are actually honoring agreements and bringing value.
• Give themselves the power to shift share (move travelers) to properties where they are getting their discounts and negotiated amenities consistently.
• Build a program that allows them to identify savings opportunities and source new hotel contracts throughout the year.