Surging hotel costs are forcing corporate buyers to look to alternative and lower-cost forms of accommodation, with serviced apartments now challenging traditional chain hotels for a major share of the business market, according to a survey of 175 travel managers and procurement professionals conducted by the Institute of Travel Management.
Surging hotel costs are forcing corporate buyers to look to alternative and lower-cost forms of accommodation, with serviced apartments now challenging traditional chain hotels for a major share of the business market, according to a survey of 175 travel managers and procurement professionals conducted by the Institute of Travel Management. Combined, the respondents are responsible for more than 1.3 billion euros of travel management expenditure and represent over 30 percent of the FTSE 100 organizations. (The FTSE 100 index represents the performance of the 100 largest UK-domiciled blue chip companies.)
"Corporate buyers are battling high occupancy and high prices in the traditional hotel sector" says ITM Executive Director Paul Tilstone. "Around 60 percent have seen their hotel costs rise by up to 10 percent in the last year alone, so they are now using budget accommodation, serviced apartments and independent hotels much more."
Apartments are now proving a serious threat to mainstream hotels, according to the ITM research. "Thirty-eight percent of our survey respondents are using serviced apartments for stays of 5 days or more; 35 percent to reduce costs across all types of stay and 22 percent as a direct alternative to hotels," says Tilstone. "But buyers are using other ways to try and keep a lid on hotel pricing too, such as consolidating transient spend with meetings and conference expenditure. More modern procurement levers like audio and video conference are also being brought into negotiations by over a fifth of buyers."
Despite the creation of global hotel mega-chains, there is no evidence of a move by corporates to contract direct. Forty-six percent of respondents use a travel management company (TMC) or hotel booking agency (HBA) to undertake negotiations on their behalf.
However, a crisis in confidence could be looming, according to ITM. Despite increased mandates for booking preferred partners through their TMCs or HBAs, 57 percent of corporate buyers say they sometimes or frequently find online rates that are lower than their negotiated rates, thereby undermining the whole RFP process.
"Like all travel management sectors, the issue of control and compliance is at the heart of success," explains Colin Goldney of Argate Consulting, ITM's research partner. "The corporate accommodation sector has proven to be difficult to control within corporations in the past. Hotels' distribution of inventory via the Internet seems to have presented a headache which has not gone away ... This needs addressing if the corporate community is to have faith in the contract negotiation process."
Despite oft-reported concern among UK corporate buyers for environmental responsibility, the ITM/Argate survey showed that the key drivers behind the choice of corporate accommodation remain price, convenience, location, service and security.