As demand recovers, hotel rates are rising. It’s a sellers’ market, so buyers need the right strategy to maximize their lodging programs
By Harvey Chipkin
The relationship between hotel companies and travel buyers has become – as they say in social media – complicated. The most apparent change is the shift to a seller’s market as inflation and other factors drive costs and prices. In addition, the lodging behavior patterns of business travelers are also undergoing a post-pandemic shift, another factor that is also disrupting the negotiating process.
Several areas of consensus are emerging among leaders in hospitality and travel management, including the need for transparency, which is more important than ever to help travelers and travel managers navigate the fast-changing landscape. Constant monitoring/auditing is a must in the face of a profusion of options, and long-held traditions around compliance and preferred suppliers need to be revisited.
One projection is universally agreed upon: Hotel rates are going to continue to climb. Steve Reynolds, CEO of Tripbam, says the factors that are going to drive prices up will be room availability issues due to staffing shortages, and rising costs for goods, labor and energy.
CWT’s 2023 Global Business Travel Forecast report estimates an 18.5 percent increase in hotel rates this year, followed by a further 8.2 percent uplift next year. According to Pauline Robin, senior director of RoomIt Solutions, the consulting arm of RoomIt by CWT, the current trajectory will lead to rates in Europe, Middle East, and Africa (EMEA), and North America surpassing pre-pandemic levels next year. That said, Robin adds, given the prevailing economic uncertainty and the growing risk of a recession, a slowdown in demand and easing of inflationary pressures could see prices leveling off next year.
Hotel rates are rising faster than inflation, says Laura Kusto, vice president and global hotel practice leader for BCD Travel, so there are other influences – including labor shortages that are driving dramatic salary increases for non-supervisory hotel workers. She says she doesn’t see an end to the increases soon but expects it to level out at some point.
And Anu Kuchibhotla, hotel practice line lead, global business consulting at American Express GBT, says the extent of price rises will be influenced by prevailing conditions. Impacting factors, she says, could include inflation, staffing issues, hotels seeking to recoup income they lost during the shutdowns, as well as other supply and demand drivers including company travel policies.
Collaboration? Not So Fast Big changes have come in the buyer-seller relationships, but not always what was expected. Reynolds says there was the idea among some – not including Tripbam – that the pandemic would usher in a more collaborative, cooperative spirit between buyers and sellers. That's not the case, he says, as hoteliers have to do what they can to drive revenue and it's the responsibility of buyers to get the best rates for their companies.
Even how they define terms like BAR (best available rate) and last-room availability may be diverging. Bjorn Hanson, adjunct professor at the Jonathan M. Tisch Center of Hospitality at New York University, says that on both the buy and sell sides “there seems to be less defined terms and positions going into negotiations than at any time in the past.”
And does the hospitality industry now hold the cards because of superior technology? Over the past decade, says Robin, the hotel industry has been investing heavily in revenue management systems so that properties are now managing their inventory in a very sophisticated and dynamic way, which creates a lot of volatility in hotel prices and the availability of different rates. Corporate buyers, she says, are not well equipped to manage their expenses given the advanced maturity on the supplier side. Consequently, says Robin, hotel programs should be closely and continuously monitored to ensure their rates remain both available and competitive at the time of booking.
If rates are not being made available as expected, says Robin, clients should have alternative options at the ready such as additional TMC-negotiated content to provide savings and coverage as needed. They should also be willing to actively make changes throughout the year to the preferred properties in their program when it makes sense.
Another phenomenon, says Robin, is that travel managers are more inclined to introduce “challenger” hotels as preferred. These are alternative properties that can replace underperforming hotels that are not meeting expectations in terms of availability, competitiveness, sustainability or overall travelers’ satisfaction.
Travel managers really need to analyze the hotel landscape, says Kuchibhotla, explaining that buyers should take steps to understand inventory levels and the types of properties coming online in the market. They should also put in place rate caps to highlight trips and properties where travelers are having to pay high rates. These actions, she says, combined with focused data monitoring, will help identify opportunities for dynamic adjustment of corporate hotel programs to drive compliance and contain costs.
“We are telling clients what we have been telling for years,” says Kusto, “but reinforcing it more strongly by telling them they have to see where they actually have negotiation leverage and where they don’t – based on volume, the kind of hotel and the specific market.” Where clients don’t have leverage, she says, it’s important to bring lots of different content to the booking tool, whether that be an online travel agency, website or other information.
Companies also need to continually educate employees about the fact that it is not just about rate, says Kusto. There are many other factors around upgrades, amenities, cancellation policies and so forth. That’s why, she says, “transparency is so crucial.” In a similar vein, Kusto says she now recommends rate “targets” rather than caps, explaining that targets are more realistic.
Looking at the landscape from the supplier’s side, with so many TMC and agency acquisitions and changes, there is a lot of confusion in the market, according to Cara Banasch, vice president-sales at Omni Hotels & Resorts. Ideally, she says, the simplest advice is to make sure travelers are motivated to use their proper booking tools, and that rates are loaded on the TMC’s end to ensure visibility/ease of access for approved negotiated rates that have been officially accepted by travel managers.
Rethinking Compliance The idea of always booking a preferred rate is “old school,” says Kusto, Travelers today should book the preferred rate if it is available and the best deal. If it’s not the best deal, she says, they should let the travel manager know.
One way to get a better grip on compliance, says Reynolds, is for buyers to make sure they have negotiated last room availability (LRA) and that it's true LRA – not limited to only a certain portion of room inventory or made irrelevant because of blackout dates, etc. Even then, he says, it’s best to audit rates and do it regularly. “It's not enough to do a spot audit to make sure your rates are loaded in the global distribution systems like in the old days,” he says.
As long as travel managers keep trying to manage their hotel programs “the old way,” says Reynolds, they're going to run into the same problems. Why engage in sourcing once a year, he asks, when you could be adding new hotels to your program year-round to get better discounts and address volume shifts in your program? It's time to think outside the box, he advises, and try out new sourcing and program management strategies.
Travelers’ non-compliance and off-channel bookings have always presented a challenge, says Robin, one that travel managers could limit by collaborating tightly with their TMC. Travel policies become regularly outdated due to rapidly changing context in the different markets, she says, and rate caps need regular adjustment that TMCs can help measure and implement. Travelers also need constant reminders of company policy, says Robin, and TMCs can support travelers’ awareness by implementing practices such as sending “missing hotel” e-mails or using well-trained travel agents.
Critically, says Robin, TMCs should make all relevant content available to travelers, giving them no reason to look outside the approved booking channel. For example, she says, a great deal of leakage comes through business travelers directly booking OTA’s – content that could easily be opened on companies’ approved booking channels.
Hotel companies are certainly being more careful about their preferred status. Nancy Alonzo, corporate director of sales for Valencia Hotel Group, says the management company has had more discussions regarding what its hotels can offer in availability, with the understanding that the number of preferred hotels would be reduced in an organization’s programs so that Valencia’s properties can count on production. She adds that travel managers should aim for a little more control on their side to ensure that the traveler is using the hotels in their preferred travel program.
“Gaining or retaining negotiating power in a seller’s market is key to making the most of hotel spend,” says Robin. “Travel managers should focus on consolidating and driving volume to their best hotel options in each location. This also means having an open mind about alternatives to their existing hotel partners.”
In fact, a whole universe of lodging alternatives has opened up in the pandemic era – including the emergence of many short-term rental companies and proptech (property technology) companies which will seek out any manner of possible accommodations. Jenn Smukler, head of Blueground for Business US, says her company will find viable less expensive options in many markets. Additionally, she says, if a daily per diem for food is factored in, there is a savings opportunity of over 50 percent.
Is This Trip Necessary? One of the most powerful questions coming out of the pandemic is a simple one: Is this trip necessary? It's not a popular take, says Reynolds, but if it comes down to cost savings, buyers should be looking at “trip avoidance levers” they can be pulling to help budgets go farther. Budget owners need to be asking, “Does that business trip really need to happen?”
Many companies, says Banasch, have been on drastically reduced travel for several years and if the economy worsens companies will need to evaluate whether they can continue to de-prioritize critical travel related to the best interests of their business. In the long run, she says, “we are invested in our corporate travelers, and while we prefer to see them back sooner, if it manifests to be a modest year of business travel, we will always adapt to allow for this segment because of the long-term relationships we have with them individually and their organizations.”
Echoing the same sentiment, Kusto says managers are now looking much more closely at issues like ROI and sustainability with the ultimate decisions around whether the trip is really necessary – and will have a payoff. In its recent report on hotel pricing for 2023, Amex GBT offered these strategies: • Shop Around – be prepared to use multiple rate types including public rates made available thru GDS and third-party rates. Re-shop technology can help. • Put in place rate caps to highlight trips where travelers are having to pay high rates. This will help pinpoint cities where an organization doesn’t have enough inventory. • Be ready to show you mean business. Always have the relevant data at your fingertips so you can demonstrate your demand patterns and commitment to the hotel. • Build relationships with the hotels you need in your program. • Stay green. Travel managers are likely to become more interested in topics like sustainability as the dates of their organization’s net zero targets get closer.
In the long run, says Kusto, the pandemic may have had positive effects on the way organizations handle relationships with suppliers. She sums it up this way: “It’s about mindful travel and managers mindfully managing programs.”