As this summer’s travelnado fades, business travel programs are seeing hotel chaos give way to wisdom
By Lark Gould
First came COVID, then came the storm – call it the travelnado. But this storm was a good thing, perhaps. Those snaking lines around airports and all those flight cancellations signaled a strong demand to get back to the speed of life, to spend money on things that are available and, above all, to travel to friends, relatives, meetings, conferences and resorts, while we still can.
At this writing, the chaos has not quite sub- sided although some in the industry are seeing blue skies peeking out from the clouds, and any travel industry mogul with a microphone is predicting a return to normal – barring another deadly virus outbreak or the launch of some other global catastrophe.
This summer’s travel surge was driven by healthy, unrestrained US leisure travel demand – the coal mine canary that did not stop singing – letting the business travel industry know the coast was clear to move ahead and put some ink on plans, whatever shape those plans might take. The travel tsunami, although not unex- pected, has left a trail of travel woes across the industry.
But hotels are starting to book up again with meetings and conferences, and perhaps more than a few extra room nights owing to tarmac delays and canceled flights.
As travel buyers and hoteliers once again meet to plot the post-pandemic blueprints for the year ahead, the conversations have shifted. Prices are up and the perception of value is down, and there are persistent clouds of eco- nomic uncertainty. Still, there are conferences to plan and meetings to manage as business comes out of the strange COVID coma of 2020 and 2021 and gets back into the game.
The New Landscape The recently released the 2023 Global Business Travel Forecast, published by CWT, points to rising fuel prices, labor shortages, and inflation- ary pressures in raw material costs as the pri- mary drivers for the what’s to come. The world economy contracted in 2020 in one of the worst declines since World War II. Travel and hospitality were hit possi- bly the hardest and, although another recession is in play, 2022 forecasts expect the industry to post 3 percent growth, followed by 2.8 percent growth in 2023.
Meetings are back with a bang. Prices have in- creased across most categories of spend, fueled by pent-up demand and a need to build or rebuild company culture. But costs per attendee for these meetings are expected to show a 25 per- cent spike in 2022 over the same measures in 2019, and rise another 7 percent more in 2023. And while spending is up, lead time is down by half, varying from one to three months versus six to 12 months prior to the pandemic.
Hotel prices, which fell some 20 percent over the past two years on average, are predicted to rise more than 18 percent in 2022 followed by another 8.2 percent in 2023 – rates that have already eclipsed 2019 levels in some areas.
Hotel rate increases were initially driven by strong leisure demand this year and last. However, group travel for corporate meetings and events is staging a strong comeback and transient business travel is similarly gaining at a healthy pace as well. It all puts further pressure on average daily hotel rates as the accelerated recovery runs up against continued capacity constraints.
“It all comes down to two things,” says Laura Kusto, vice president and hotel practice lead for Advito and Stay by BCD Travel. “A big one is coming off of COVID. In 2019 people were get- ting ready for a big 2020 and then COVID hit. It’s been a mixed bag since. Procurement man- agers need to take a good look at this and what they did in 2019 and what has changed since and what they have learned,” Kusto advises.
“Second? Well, that is inflation,” she says. “You have rising hotel rates, lack of staff and still some COVID concerns. And while we are dealing with inflation, it is still hard to find staff and you have to pay more money. Hotels are in crunch, and adding to these factors are safety and sustainability. No manager wants to accept a rise in rates but these reasons make it easier to digest.”
Kusto notes the conflicts that buyers are having at the nego- tiating table these days are not simply uncomfortable, they are unprecedented. While steep rises in rates are eye-opening in themselves, they are not unexpected. More surprising is finding an empty seat across the table.
“Pre-COVID, we had a sense of partnership. We would weigh in the value of the business we were bringing and have a conver- sation,” says Kusto. “But now, as companies are recovering from COVID and reassembling their plans and programs, hotels are pulling their representatives so there is no one at the table to talk to. Thus, another big issue now is having no point of contact.”
Unforeseen Consequences Then there is the matter of data, which is all over the map as the world corrects from extreme times. Ever an evangelist for col- lecting truth-telling data sets, Jason Long, SVP global business development for the HRS Group, believes the time is now to work with whatever the data is saying and go back to core hotels for ongoing conversations.
“The overriding trend that I see is the need for data,” Long emphasizes. “And that includes the lack of data that incorporates what the community is working with today. Let’s say it’s the data on sustainability, for instance, so what are the key metrics for that? What about the safety of the hotel? The location of the hotel? Is it safe for their staff? Is it safe for their LGBT community of staff? Is the staff makeup of the hotel diverse enough and in line with the client’s overarching corporate philosophy? These are the sorts of data sets that procurement leaders, travel leaders are asking for now.”
Along with rising costs and declining service levels, other complications are weaving through the relationship between buy- ers and hotel suppliers. The current chaos has produced some unexpected outcomes for business travelers, which has resulted in the phenomenon of trip avoidance.
“We see travelers complaining about higher rates due to rate increases and fewer negotiated hotels and choices. And trip avoidance is becoming a key message,” says Steve Reynolds, CEO and founder of Tripbam, a provider of air and hotel spend optimization and analytics. “We are seeing more leisure bookings than in the past, more small groups in secondary markets, and less travel to HQ or city centers. It’s difficult to hire staff that left during COVID, so restaurants and bars are staying closed. Trip avoidance is a way for companies to cope with the rising costs of travel. Sustainability targets are another guardrail to avoid spending. Additional approval processes are now in place as well. Rate caps have been adjusted to push travelers to less expensive hotels.”
Reynolds suggests that travel policies should remain flexible for now. “No need to follow the legacy/annual RFP process,” he says. “Establish agreements when needed and monitor them regularly using automation. Sign long-term dynamic discounts if possible. Hotels had to adjust quickly to COVID and they’ll adjust quickly post-COVID. This is just a transitional phase that will likely be gone by the end of this year.”
And while chainwide deals are often the focus for buyers, CWT’s Pauline Robin, senior director of RoomIt Solutions, says don’t neglect the individual hotel opportunities – not all chain- wide deals make sense.
“These individual properties offer competitive rates and ame- nities in exchange for market share and large volumes. Chainwide deals are typically created with an objective to add coverage in all other locations where no preferred properties have been negotiated. Travel managers negotiate both types of hotel deals, but chainwide deal negotiations are typically managed in a less strategic way, often resulting in too many chains in the company’s program,” Robin noted in a Company Dime op-ed.
She suggests having no more than two chainwide deals in play, spurred by solid core hotel relationships and tight deals. TMC ne- gotiated rates should be included in a hotel program to achieve coverage flexibility with healthy competitive rates. And those rates should be monitored regularly to ensure partners continue to respect the deal.
As for hotels, the current sellers’ market has left them in an enviable position. Ernest Lee, global chief growth officer at CitizenM Hotels, sees plenty to be happy about in the post-pan- demic recovery but also much opportunity to meet mutual goals at the negotiating table.
“We've been encouraged by the pace of transient travel recov- ery, particularly in heavy tech markets, and believe the growth curve will continue into the fall. Where there’s most opportunity is the group and meeting side, as most of the city-wide events and conferences have had underwhelming attendance but are now starting to sell in a more fulsome manner. We still really ha- ven't seen this segment of business consistently and this added element would provide much more conviction in the mid-week base going into autumn. As leisure slows down and corporate goes back up, operational flows will normalize and service stan- dards will become more like the pre-pandemic days.”
Buyers Be Aware But for travel managers, the nuts and bolts of these times are crazy, indeed. A certain consolidation of buying power is encour- aged where possible, to keep the pressure on the hotels. And where rates remain rigid, a certain flexibility is necessary to move beyond what is directly translated into dollar savings to look at factors that create a positive experience – a focus on amenities and upgrades and a frictionless trip.
“We see that a certain company has a propensity to purchase parking and we never anticipated that,” says Long. “Nobody saw that, right? So what we would then do is pass that data off to our procurement team and the next time renegotiate parking as part of the mix. Through the collecting of data, the goal is to be able to do all this in real time,” he explains.
“We have deprioritized different projects based on the chaos now. But everything we are doing is done as long term. Chaos will flatten out, the Great Resignation, the airports, the hotels issues will fade. Travelers have forgotten how to travel; they have forgotten how to book. By end of year we will be back on even keel without the noise we are seeing now. We will soon forget this year and get back to where we were before.”
In the meantime, Long says, there are still opportunities and always a need to negotiate. “And for that,” he notes, “you need data. Unless providers can provide this, it is a mass headache for procurement because you can’t process what you can’t measure. Between 40 and 50 percent of hotel space is leaked right now. It is not going through hotel programs. You would not find that in other categories, such as air – you would be sacked! On the hotel side – there is no need for this.”