A more honest accounting of how hotels manipulate their room rates to create more revenue helps both consumers and corporate travel managers make smarter travel decisions.
We recently launched our weekly Corporate Travel Innovation Report, a newsletter focused on the future of corporate travel, the big fault lines of disruption for the travel managers and buyers, the innovators emerging from the sector, and the changing business traveler habits that are upending how corporate travel is packaged, bought and sold.
As part of our increased attention to corporate travel, we’re sitting down with a handful of industry leaders for our new Corporate Travel CEO Listening Series to discover what the people at the top are concerned with now and where they are looking for inspiration.
Booking a hotel room is ostensibly a simple task. Whether buying directly online, through a booking site, over the phone, or through a travel agent, consumers and business travelers are usually just happy to find a low rate.
Hotels, however, are constantly adjusting room rates in order to create more revenue. This can happen several times a day, or even several times an hour. So how can a consumer or business traveler actually know they’ve booked the lowest available rate?
TripBAM CEO Steve Reynolds thinks that volatile pricing from hotels, combined with fragmented data for travel managers, has led to pricier business trips for years. But companies and travel managers armed with the right information can better insulate clients from wasting money.
Many hotel rate monitoring services exist, but TripBAM has gained traction in the corporate travel space by providing a near real-time, transparent picture of the game that hotels play with rates.
Skift spoke to Reynolds about travel managers struggling to implement corporate travel policy, why business travelers will likely lose control over their trips in the future, and the simmering conflict between hotels and travel managers.
Skift: When it comes down to it, how many hotel rooms are booked outside of policy or outside travel management tools in the corporate travel ecosystem?
Reynolds: It’s hard to measure, no one really knows and in reality there’s probably not nearly as much savings as probably they think they’re getting at the end of the day, which is pretty anemic to start. In the context of all of this hotel rates are going up and there is just a ton of pressure put on a travel manager to get those costs down. Travel managers and companies have had a really difficult time with compliance and getting travelers to book preferred hotels. The primary reason being is that travelers can find better rates on their own, they follow the loyalty programs to a great extent and it’s difficult to rein them in.
It’s always been a guess and it’s a little known stat in the industry that only about 50 percent of hotel bookings actually go through the proper channel, through the travel management company or the travel agency. Travelers book wherever they want and they’ll book directly at Hyatt.com, Hilton.com, wherever they’re most comfortable, where they can maximize the points. It creates all kinds of issues: fragmented policy, fragmented data, and so on.
Skift: But hotels bookings are probably the easiest place for companies to save money on travel, right?
Reynolds: I think when it comes to overall corporate travel spend, hotels is probably the one area where there is a real opportunity to save some money. The airlines you’ve got three or major competitors, the deal is the deal it just is what it is. Car, same kind of thing, you’ve got three or four major suppliers, you pick your primary, your secondary, you get your rates, you’re done.
When it comes to hotels, because it’s so screwed up, I think there’s a real opportunity for travel managers to make a difference, but they’re just struggling. They’re struggling with lack of data, lack of systems, lack of process, lack of consistency.
Skift: How important are the actual needs and lifestyles of business travelers in all this?
Reynolds: It’s not so much the lifestyle of the traveler, I mean it is an important factor because you want acceptance to be relatively high, because otherwise what’s the point? It’s more of an issue of we spent all this time negotiating with these thousands of hotels, I need travelers staying at them so I can take advantage of these discounts and get an even better discount next year and to shift share.
Skift: As TripBAM shifted focus from consumers to the corporate travel space, did you find it hard to tap into this very close-knit, insider-y relationship between travel companies and travel managers or buyers?
Reynolds: That’s a really good question, I mean define hard. You’ve got to remember that the level of frustration is so high that there’s a lot of travel managers willing to try anything to try and help solve this problem.
What companies gradually stepped to is, “All right, we’re going to take the hotel purchase decision away from the traveler. There’s no reason why they shouldn’t move across the street and we’re just going to take it out of their hands.”
Now the company decides if you move and if you want to generate a ton of savings, that’s the way to do it. It’s all based upon how much savings was being lost, based on our numbers that we would provide them, as we’re shopping and so on. It’s just a day-to-day process.
Skift: What kind of a tension does this create between business travelers and travel managers? I have to imagine they’re not happy that their companies are making their lives more inconvenient.
Reynolds: A ton of tension. Think about, if for the last five years you’ve been able to pick your own hotel and maximize points and pay for the family vacation and whatever else and no one really seemed to care. Now, all of a sudden, you’re getting an email that says, “Hey, I see you’re booked at the Marriott and I know you are getting Marriott points, but we’ve got a deal across the street at the Grand Hyatt and you’ll save the company $150. Click here.”
Travelers, if they’re not required to click that button, may or may not click it and what we’re finding is, just through normal communication, you can probably get the acceptance rate to about 20 to 25 percent. We have some companies in the 40 percent range, but, I think, on average you’ll probably hit about 25. You’re leaving 75 percent of the potential savings on the table, so what do you do at that point? Do you just live with it or do you say, “Look, we got to have a better way.”
I guess there’s two ways that it can be approached. One is that you take the decision away from the traveler, or we’re only going to reimburse you up to the rate that’s available and approved by the company for that particular hotel booking.
Skift: On the other side, how does improved data intelligence affect the relationship between hotels and travel managers or buyers?
Reynolds: In addition to this legacy process being just broken, in my opinion, there’s been a lack of transparency or data for travel managers to make any sort of decisions and analysis. One of the things we also do, while we’re shopping, is we’re starting to capture data that really, I don’t believe, a travel manager has seen before. We provide all the detail around the booking that’s been made, all the way down to the room descriptions, the rate descriptions, the room and rate codes, everything they need to really know what was booked and so on, and the amenities included.
It’s just really changed the whole negotiating process that a company now goes through with a supplier. They can now sit down at the table and they can say, “All right, guys. I’m just going to find or I want to negotiate hotels within one mile of headquarters. I know the market rate is $169 a night for a three-and-a-half star hotel within one mile. Don’t even bother bidding, unless we start or if it’s below $169.”
It’s just made everything a lot cleaner and they can reduce the number of hotels in the program down to those that are meaningful and they can also say, “Okay, property. I appreciate your bid, but you were in our program last year and 90 percent of the time we never got the rate that was negotiated. You’re out. Forget it. We’re just going to let the market prevail and we’re going to negotiate with a hotel down the street.”
Skift: So what better price monitoring really shows is that hotels have been manipulating the system, essentially, to make more money off of corporate travelers. Now that travel managers have wised up, what are hotels doing to stave off the change in the status quo?
Reynolds: Hotels are thinking of ways to slow the system down, I guess you could say.
One of those was Hilton announced a $50 change fee, that they tested in certain markets for a short period of time. They pulled the plug on that, for whatever reason, I assume it’s just because those rates weren’t selling. That was one idea.
With our data now I can tell Hilton [corporate], “All right, these are the top 10 hotels that always appear in our reports. The travel managers are going to shy away from over time because you’re not honoring the arrangement. Go talk to the revenue manager at that property and make it stop.”
I think what’s happening is they’re becoming more disciplined at a property-by-property level on the contracts that they’re providing, and honoring those contracts and so on and making sure they live up to their side of the bargain. The other thing they’re doing is more discipline around how often they adjust rates. The days where that travel manager can just, at their own whim, raise or lower rates on an hour-by-hour basis, that just needs to go away.
Skift: Going forward, what should travel managers focus on to drive more savings?
Reynolds: The thing is getting these stupid travelers to adhere to the program. You spend all this money negotiating with properties, but you have no policy to get travelers to actually take advantage of the discounts. It’s such a head scratcher, that if I can negotiate a great rate on laptops, but I’m going to allow every employee to go buy their own travel and spend company money? How does that make sense, at the end of the day?
Skift: Travel managers usually make commissions from both sides of the transactions; a booking fee from their client and a commission from the travel partner whose product is being sold. Is that a factor in how they negotiate for clients?
Reynolds: When it comes to commissions, boy I tell you, it shouldn’t be a factor, but it is. The way that most deals are struck between a company and a travel management company is the travel management company will promise to just funnel all the commissions to the company.
However, what happens is the travel partners have gotten wind of this, and they’re trying to buy influence or bias, so they don’t call it a commission anymore. They call it an incentive. They call it a rebate. That call it something else to get around the commission issue.
Where you have a travel management company that’s trying real hard to shift share to their favorite supplier [based on commissions, instead of savings for their client]. It shouldn’t be that way, especially in the large market, where all of that commission money is going to the company, but it’s still there and it still exists. We bring transparency to that issue as well.
Photo credit: Ibsens Hotel in Copenhagen, Denmark. Kristoffer Trolle / Flickr