Hotel consolidation is changing the rules of engagement – but the rate games still go on
Consolidation in the hotel industry is at an all-time high. Flags are moving around like pieces on a chessboard and brands are battling to be the last one standing.
Historically, rapid consolidation would mean tougher negotiating for travel buyers, since they have less leverage at negotiation time. However, the actual picture on the ground is more complicated, because in the end, the corporate-property relationships tend to be individual ones.
While all that is happening, consolidation is giving larger chains more visibility into a corporate travel program’s spend and market share. This can lead to a competitive environment where hotels with greater degrees of rate control can drive prices up in compressed markets.
“Travel managers and procurement leaders can prepare for these scenarios,” says Lexi Benakis, director of hotel sourcing/consulting for HRS in the Americas. “The best tactic: Have deep insight and awareness of their own travel data, as well as their ability to shift share to preferred hotel partners via alteration of their online booking tool and/or internal communications to travelers and the admins that book for higher-yielding executives.”
If the travel buyer has concrete details regarding forecasted steady volume to a destination due to factors such as a merger, facility upgrade or multi-week training for a large group of employees, that can also swing some leverage back to their side of the table.
Carol Lynch, group vice president, global sales for Wyndham Hotels & Resorts, says consolidation in the industry is impacting the way the company does business in many ways. However, she notes consolidation may be a great thing for travel buyers.
“Oftentimes, with many brands under one hotel company roof, a buyer’s spend becomes naturally concentrated, given them more power to negotiate,” Lynch says. “It’s also helpful for their travelers who will experience a consistent experience aligned with their loyalty preferences and can still experiment with several brands.”
For example, Lynch points out Wyndham Hotels & Resorts’ clients can continue to book at brands like Wyndham Garden and Days Inn by Wyndham, but now also have the opportunity to experience Wyndham’s newest brand, La Quinta. “They can have this diversity of experience across many brands, while still benefiting from the Wyndham Rewards loyalty program,” Lynch says.
Hoteliers who can afford to consolidate can gain advantages of scale in how they manage their inventory and fluctuate prices to maximize their profit, according to Geoffrey Waldmiller, vice president, performance optimization for RoomIt by CWT. “Travel buyers can be taken advantage of by hoteliers who tactfully manipulate their rates and inventory to optimize revenue against their corporate travelers,” he says.Whose Rate Is It, Anyway?
As the number of hotels in a program shrinks, another less reputable competitive practice may come into play. With this tactic, known as “rate squatting,” out-of-program hotels come in and load rates into the GDS or booking tools – even if they’re not negotiated – to entice travelers to book there instead of at the in-program properties.
While squatters do provide travelers with lower-than-retail rates, they may still be higher than the negotiated rates. Alternatively properties that have been eliminated from the program may still be able load their rates using the old rate codes. Either way, the hotel is presented to corporate travelers as if it were a preferred property when it’s not.
So not only do these rates distort the hotel program’s spend, they dilute volume at preferred properties and create challenges in meeting expectations on their properly negotiated rates.
Rate squatting can take several forms. Steve Reynolds, founder and CEO of Tripbam, gives one example; a hotel revenue manager is looking for different ways to do a deal with a company but not deliver the discount, especially during times of relatively high occupancy.
For instance, a major market hotel may negotiate a deal with a company, and to get that deal, they offer a rate of $189.
“The client will require last-room availability, will put in blackout dates and seasonal adjustments, but at the end of the day, it’s just a rate that pushed the hotel to give a better discount than they wanted to provide,” he explains. “As a way to get around that, they will also put in a suite and mark it as negotiated for that company as the best available rate. In order for that to work, it will turn off the king bed standard room and what shows up to the traveler is the suite for $300 and that’s all they see.”
Therefore, they believe they are within policy and book that expensive room. But in reality, that king bed room is available at $189, but the hotel doesn’t want to sell them at the low rate. “We call that a squatter rate – a rate that wasn’t negotiated but a clear scheme to get more revenue out of a company and upsell them to these more expensive rooms,” Reynolds says.
“As a travel manager, I don’t want them booking suites at the hotel; I want them to book the standard room at the hotel across the street that I also have a deal with at $189,” he says. “But it’s hard to get that other rate off.”
The benefits for a hotel are usually short-term, and include the ability to gain potential trial and traction, and capturing market share from accounts they are targeting. However, these short-term benefits may come at a cost, as most buyers will be less likely to consider a hotel for inclusion in their preferred program if that hotel has loaded unapproved rates in the past.
Minimizing rate squatting can boost booking volumes to true client rates, or to other rates available that provide higher value to the travel program. Most travel management companies undertake rate audits to ensure that only the rates from preferred hotels are distributed through the GDS, but rate squatting is still an issue.
While industry consolidation may be impacting “rate squatting,” Waldmiller says travelers self-booking through various online booking tools is a bigger culprit. “That traveler often doesn’t have the in-depth knowledge of what is actually correct. They just see a rate description with their company name in it and often assume it is appropriate to book,” he says.
RoomIt by CWT generally defines rate squatting as when there is a negotiated rate loaded at a hotel that is not part of the client’s program. This could be due to many reasons, including an old rate that has not been removed from the GDS even though the hotel is still in a program, or a hotel is looking to gain an advantage in securing additional travelers they believe are coming into their market.
“There is also squatting that may result because the rate was loaded inconsistently with the contract – for example, at a rate higher than the negotiated rate or without the required amenities,” Waldmiller says.
“In terms of ‘rate squatting,’ though attempts by hotels may have increased as a result of consolidation, so have rate audits to curb the practice,” Lynch says.Taking Countermeasures
Rate squatters are nothing new, and Reynolds doesn’t necessarily believe consolidation has led to more of it, but he does say it pushes travel buyers to negotiate with a national account manager rather than dealing with the property directly. He warns travel buyers to be on top of their game and instruct the hotel not to load up any other rates than the ones negotiated.
“You have to at the point of sale, not allow those to be shown to travelers,” he says. “The big impact is if I really tighten it up so it doesn’t happen, now the hotel is showing ‘sold out’ and my travelers are less happy with my hotel program. I call and that rate is available but I just can’t book it through the online booking tool because of this squatter rate situation. That frustrates travelers and gives the hotel program a black eye.”
Most companies have safeguard processes in place for unauthorized rates. The right analytics and reporting can help identify the situation, Reynolds says. Tripbam, for instance, can provide reports that show the hotels that have squatter rates, how often they are booked, and how much savings are lost as a result.
“If we see a traveler has booked a rate that is higher than negotiated, we can then fire a message to the national account manager, to the travel manager and to the hotel to tell them to stop doing this,” Reynolds notes. “We ask them to rebook them at the lower rate and if they ignore, we work with the travel manager and possibly remove them from the program.”
Hoteliers too have processes in place to minimize the impact of rate squatting. At Wyndham Hotels & Resorts, Lynch says, rates are loaded centrally, meaning an individual hotel cannot load a rate autonomously for a client that has a relationship with its global sales organization as all rate loading requests originate through its team.
All rate loading for managed accounts is centralized through the global sales director that has responsibility over the account. The sales director intercepts unauthorized rate loading attempts and counsels the hotel building a business case so the buyer is more likely to consider that hotel to be included in a preferred program in the future.
“It’s critical for us, as a relationship-focused organization, to ensure our global sellers are always involved to ensure the client is getting what they need in their preferred channels,” Lynch says.
In addition to frequent rate audits and other checks and balances, technology also plays a role in discouraging squatting. For example, RoomIt’s automated CNR squatter removal process verifies that a contract is in place when a client rate is loaded so if the contract doesn’t exist, the booking is flagged as a squatter rate and suppressed.
“For Solutions Group customers, we can offer an additional step where we audit the squatter rates, call the hotel, and have them removed,” Waldmiller says. “Hotels that are kicked out of program will sometimes continue to load their rates under the old rate codes. RoomIt’s squatter rate removal technology can query the current contract information to determine if a current and legitimate contract exists for that property and remove the rate if it is found fraudulent.”
Additionally, the company is currently piloting a new capability on myCWT to identify and block squatter rates using a real-time comparison against the client travel program.
Forward-thinking managed travel programs are implementing auditing technology to consistently review the properties and rates that travelers and agents see as they shop online booking tools and the GDS. “It’s important for buyers to audit on a rolling basis,” Benakis says. “Far too many only have rates audited during the first two months of the year when rates for the year are loaded.”
With automated rate auditing, HRS can report inappropriately listed rates or rates that fail to include negotiated amenities or terms (particularly important since cancellation policies may be different and more onerous from chain to chain.) And beyond rate auditing, HRS offers technology that can “filter out” inappropriate rates and prevent them from even appearing in search results.
For hotels, repeated scenarios when they are “caught” with inappropriate rates by audits can have a serious impact on their credibility, and is likely to increase the likelihood of seeing fewer RFPs from the very choice corporate clients they want to attract to their properties.
“Also, as many hotel revenue managers know, corporate travel buyers often talk among themselves at industry events. Properties do not want to get known for rate squatting,” Benakis says. “Beyond poor service to the traveler, nothing can be harder to overcome than a bad reputation.”