Good times keep rolling for North America’s hotels, but savvy negotiating can help your program stay afloat
In the US hotel industry today, brands are enhancing technological capabilities through mergers and acquisitions. And while travel programs may pay the price of consolidation via higher rates, industry insiders note TMCs have strong supplier relationships and the ability to secure exclusive rates for clients.
“The impact from mergers may result in a progressive push from suppliers to move corporate buyers away from fixed, negotiated hotel rates and toward dynamic pricing,” says Scott Brennan, Carlson Wagonlit Travel’s chief growth officer and founder of the RoomIt platform. “As the industry moves towards a larger discount off published rates, travel management programs will need to find a way to offer both fixed and dynamic rates with maximum thresholds in low-volume markets.”
According to travel research company STR, hotels in the US have enjoyed 98 consecutive months of RevPAR growth year over year as hotels report continued strong demand from across group, corporate and leisure travelers. Additionally, PwC believes that this year, the stable US economy and government tax stimulus will support the highest occupancy levels since 1981.
“Tough and specific client negotiations are taking place including negotiating the amount of rooms that hotels are offering in the client-negotiated rate category, as well as cancellation policies,” says Kim Kearns, BCD Travel’s senior director, global hotel relations. “BCD Travel raised the question of whether hotels withhold negotiated rates when demand is high in our 2018 Industry Forecast, and we’ll be revisiting the issue once again in our 2019 forecast this fall.”
Furthermore, Kearns notes, BCD Travel continues to face increased demand in many markets, which naturally impacts room availability. And while there have been discernible shifts in demand from one market to the next, overall demand remains comfortably high.
Jennifer Dzialo, product director, corporate brands of Flight Centre Travel Group, agrees hotel demand overall remains quite strong as business travel grows. However, the company has seen that the increases have really been market-specific, with some cities seeing incredible ADR growth and others a softening of rates.
“Additional supply coming into historically strong markets should work to diminish extreme highs in locations like Boston, Silicon Valley and Austin, much like New York City experienced a year or so ago,” she says. “Hotel brands seem to be bringing on more midscale and lifestyle brand supply into the market based on expected demand, so the overall industry might see a slightly lower ADR as the supply shifts to more value-focused hotels. Conversely, it is distinctly possible that the luxury market sees increased rates as demand grows without much new supply coming on board.”
At the beginning of 2018, the data and analysis in the Global Business Travel Forecast 2018 published by American Express Global Business Travel, indicated that US hoteliers would contend with decreases in foreign travelers and overcapacity in many major cities. Yet rates were expected to increase up to three percent on average over last year.
“Halfway through 2018, we are seeing continued room rate increases and occupancies in key cities continuing to outstrip supply,” says Wes Bergstrom, GBT’s vice president, hotel value and revenue management. “This varies significantly by location with some areas, like Silicon Valley and New York City, continuing to see rates climb and markets like Miami and Chicago experiencing a surplus of supply due to several new hotels opening in the past two years.”
This has made negotiations slightly easier than they have been in the past few years. Markets like Silicon Valley and Austin however, continue to be difficult due to limited supply. Hotel brands are also being aggressive trying to get as much content in front of business travelers as possible via different rate structures.
The Impact of Demographics As more Millennials are entering the workforce, they are bringing their digital savvy to corporate travel. That means hotels are upping their game in terms of providing mobile capabilities for a generation that grew up with digital technology.
“Millennial travelers are demanding more personalization in the market, with expectations of highly customized travel recommendations based on their past behavior and preferences,” Brennan says. “RoomIt is catering to this call by working to ensure all of our hotel offerings are available across all channels, all tools are available across all channels and all traveler preferences are stored to help us personalize and replicate searches across all channels.”
Hotels and markets looking to attract Millennial travelers also need to build up their presence in social networks as this generation responds more to peer recommendations captured on social networking sites than traditional marketing channels. Additionally, hotel markets are also impacted by Millennials driving the trend towards ‘bleisure,” combining business and leisure trips.
“Markets that offer unique leisure experiences and have a variety of local attractions will become increasingly in demand,” Brennan says. “Some hotels are attracting Millennials by creating more modernized workspaces. With work from home becoming more common, traditional hours being less necessary, Millennials traveling internationally, and US vacation time generally low, hotels with a modern workspace can be very attractive to Millennials.”
New OfferingsAround the hotel industry, there is currently a lot of conversation – and movement – in deploying technology to enhance the customer experience, such as virtual check-in, select your room, keyless entry and even concierge robots.
“This helps automate the process and offers an end-to-end solution – booking, check-in, keyless entry, checkout, invoicing, expense management – for the guest,” Kearns says. “We’ve also seen recent buzz around wellness facilities and meeting the needs of groups with special needs.”
So called “smart hotels” are increasing in popularity today across certain demographics, especially among Millennials. Hotels are investing in innovative technologies, mobile messaging, in-room entertainment and more. “As today’s business traveler is a tech-savvy consumer, mobile app usage is expected to increase, offering benefits such as check-in and out, ability to unlock/lock hotel rooms, operate the TV remote, control room temperature and more,” Brennan says.
Design and aesthetics are gracefully moving toward more soft textures incorporated into rooms including carpeting, rugs, throws and soft seating. Hotel spaces are being reimagined as well with a rise in multi-functional public areas moving from daytime informal work spaces to evening social hot spots.
“New features we see hotels offering include a focus on energy conservation, local sourcing, and access to Netflix and other non-traditional TV channels with Smart TVs,” Bergstrom says. “We are also seeing better equipped bedrooms with USB ports and branded coffee machines and experiences, along with fewer bath tubs, more showers and luxe quality beds and brand collaborations for bedding.”
Recent Buzz Both advance bookings and longer cancellation windows have been items on the agenda for hotel program negotiations, with the larger corporations and TMCs having some success in reducing the cancellation terms. Bergstrom notes this has increased the number of travelers who now must read the fine print for terms and conditions regarding cancellation policies.
Kearns says the cancellation policy is definitely a factor in negotiations. “Travel managers are frustrated because they are trying to keep some consistency in their programs with cancellation policies,” she says. “However, the policies are constantly changing and each chain has its own guidelines for static and chain-wide deals. For several years, hoteliers were trying to simplify or rationalize their pricing policies. Now there seems to be a trend to add complexity, whether it is with longer cancellation clauses or with rates based on when booked, i.e. Hilton’s Flex and Semi-Flex rates.”
According to Brennan, negotiations are key to obtaining more favorable cancellation policies. “North America continues to see a growing implementation of 48-hour cancellation policies for non-negotiated rates,” Brennan says. “For travel buyers, this means cancellation terms should be reviewed carefully and 24-hour or same-day cancellation policies should be negotiated as necessary.”
Rate availability is another factor many hotels are working on, as more hotels are placing tighter restrictions to drive yield management. Kearns notes that despite the high ADRs, hotels talk about the rising distribution costs.
“Many clients are now performing rate availability audits to ensure that their agreed upon rates are not just loaded in the GDS, but they are available for the travelers to book,” Kearns says. “If hotels are consistently not showing up as available, then clients are taking action. In addition, hotel chains have been in the news this year with cuts in the commissions paid for meetings.”
Staying LoyalBig chains are also pushing strongly to create direct ties with travelers through their loyalty programs. Hilton, for example, has enhanced their Honors program by enabling members to redeem points for experiences, such as Live Nation concerts. Others are venturing to become players in the growing homeshare market.
When it comes to hotel loyalty programs, Bergstrom says improved personalization is always a benefit for the traveler, as long as it isn’t perceived as crossing the line into personal space.
“The whole ‘know me’ ethos is a great way to make a traveler feel valued without being intrusive,” he says. “Many travelers have signed up for loyalty programs but unless a traveler is staying with a specific chain 10 or 15 nights a year, the value to the traveler diminishes.”
Unlike hotel room reservations booked through online travel agencies, booking hotel rooms through the agency of record qualifies business travelers for hotel loyalty points. This creates special opportunities for cost savings for both the traveler and their company through benefits such as complimentary WiFi, free breakfast, early check-in, late check-out, among others. A TMC can use this information to help their client’s program.
“Hotel brands are continuing to improve the value that their loyalty programs provide guests, and it is important for TMCs to educate clients about how these programs can help save them money while improving the traveler experience,” Dzialo says.
In 2019 and beyond, artificial intelligence is likely to automate portions of the corporate travel industry more quickly than its leisure counterparts. Blockchain is under consideration for transaction facilitation and management, and chatbots, powered by AI, are reshaping the ways in which customers interact with businesses and receive improved services.
Brennan notes this is just a sampling of what the future of the industry will look like.“We can expect a different perspective on managed hotel programs, meaning corporate travel managers will turn a critical eye to the total cost of negotiating rates, including time invested, in hotels where they don’t book a significant number of room nights per year,” he says.
“We expect travel managers to turn to other hotel content sources if they guarantee less than 150 room nights annually.”
Kearns believes the future will bring about more diversified approaches to identifying the right properties and the right rates. “Clients are considering other alternatives to sourcing to help their programs, including dynamic pricing products as well as moving their program forward with a more progressive approach.”