Hotel corporate program strategies aren’t straightforward at the best of times. A new “dual rate” pricing model could make lives easier for travel managers, but a lot more complex for the properties their employees will be checking in to.
So far, coronavirus has mostly united rather than divided the travel industry.
That could soon change as corporations and hotels figure out room rates for the rest of the year and beyond following a series of trends that will influence pricing.
First, cleaning. Prices may rise due to the extra hygiene measures and protocols hotels are putting in place, in particular for those looking at 24-hour gaps or longer between guests.
On the other side, there will be weaker demand ahead, with a depleted army of road warriors after widespread furloughing and layoffs, ongoing anxiety concerns, and an expected shift to virtual meetings.
But with duty of care front of mind, more companies will want employees to book within the travel program, checking into designated hotels that meet stringent safety standards.
As a result, travel managers will be issuing request for proposals to build their hotel program to strict Covid-19 specifications.
Best Of Both Worlds
One procurement director at an international company, who wished to remain anonymous, told Skift they’re now looking at “dual-rate loading” for 2021, with fixed and dynamic pricing in place for each property.
Traditionally, hotels don’t accept both.
“The fixed rate is effectively acting as a spend cap so corporates have good cost visibility for the year ahead, but they’ll also have the dynamic aspect — a best available rate (BAR) discount — in place so that in a volatile pricing market, they pay less if that drops to the extent the floating discount is below the client rate,” said Keith Watson, vice president of supply at technology platform Roomex.
“Hotels don’t like dual-rate loading because it means we are getting the best of both worlds,” added the procurement director who wished to remain anonymous. “With a dynamic rate, the hotels make their main profit in the peak times when the dynamic rate is above a static rate. With us, this part of the ‘curve’ would be cut off. Therefore this will not go down well as a suggestion.”
They said their company’s request for proposals will be issued to hotels that are already in their program, to get these dynamic rates loaded in addition to static rates. Cost savings will be significant, as their dynamic rate is 15-25 percent off best available rate.
Dual rates are also on Advito’s radar — but there is a caveat.
“This is another aspect that keeps popping up,” said Laura Kusto, senior director and global hotel practice lead at the consultancy. “It’s a good idea in theory and we do support pursuing it for a corporate’s top properties, but really only those where there is more of a symbiotic relationship between the company and the hotel.
“It has to be a close relationship because the delivery of this type of rate structure isn’t something hotels can consistently maintain.”
She said many hotels currently don’t have the ability to load rates this way. “But all hotels, if they have a client that is important to them who wants this, will find a creative way to make it happen.”
Auditing can also be problematic, Kusto added. “There’s no way to tell if the rate loaded is the static or dynamic. What will need to be done is a comparison of the rate loaded versus the static rate agreed to as the dynamic discount. We already have a process in place to handle this because we saw it coming, but auditing of dynamic rates is not a widespread capability.
“Making it standard practice will mean even more time spent on maintaining a client’s preferred program — something no one wants, clients or the hotels.”
As companies plan ahead, travel managers are also looking at when to issue their hotel request for proposals.
The water here is being muddied by a clash between trade body the Global Business Travel Association’s and managed accommodation platform HRS. They’re both influential parties, and don’t agree on timings.
At the end of April, the association said it carried out a poll that revealed 90 percent of its travel manager members favored postponing hotel request for proposals until 2021.
“We usually do not get involved in the process, but we made a special exception this year in light of the widespread effects of the pandemic,” said CEO Scott Solombrino.
“We got involved at the request of top travel buyers and the top 50 hotel brands. Our hope is that all parties can agree to roll rates for this year and then negotiate new rates in 2021, once we all have a better sense of the pandemic’s longer-term impact on the industry.”
HRS begs to differ. On May 11, it emailed customers and partners to argue the pandemic represents “the dawn of a buyer’s market.”
“In a controversial position, the Global Business Travel Association recommended companies simply let their existing, pre-Covid-19 rates simply roll over for 2021,” wrote HRS CEO Tobias Ragge.
“This approach is contrary to how our clients see this unique moment in time. According to a flash survey we conducted, new negotiations make sense especially now, when rates and customer requirements are changing massively.
“In view of the interplay between hotel supply and demand, the transition from a seller’s to a buyer’s market is already underway. The past shows that crises such as 9/11 or the financial crisis of 2008/09 were followed by a correction in average rates. We assume this will happen again, after a decade of steady rate and revenue gains by hotel suppliers.”
HRS said 62 percent of those travel managers surveyed see the possibility of negotiating lower rates, and more flexible booking conditions, with hotels for the rest of 2020 and beyond, and 51 percent plan to issue RFPs to do exactly that.
Speaking later to Skift, Ragge said there is also a record number of hotel openings set for 2020 and 2021, leading to overcapacity.
“When you talk to real estate developers, they say that everything that was close to finishing will finish. Some projects will be postponed, but capacity is actually going to grow, with a wider shock on the supply,” he said.
Hotels seem to be keener on waiting things out.
“We should keep rates flat for 2021, and there is also the best available rates available for all clients,” a spokesperson for Langham Hospitality Group told Skift.
Arne Sorenson, CEO of Marriott International, has also stated he agrees with the Global Business Travel Association’s stance.
“We actually don’t have the people who have done this in the past,” he said in a video interview earlier this month, referring to the fact that many employees responsible for contract negotiations are on furlough. He also said corporates are unlikely to have insight into the volumes they can expect to drive to his properties.
Hilton declined to comment, while Skift also approached Wyndham Hotel Group.
Question of Timing
Travel managers aren’t entirely convinced by either side of the argument.
“It’s a big discussion among us,” said the procurement director. “Many internal emails went around among travel managers when the association’s recommendation [to roll over rates] came out, as this doesn’t reflect their opinion.”
So what is their take? “If you rely on static rates in your hotel program, change your sourcing strategy to have more dynamic rates, chain deals and most importantly marketplace rates from larger distributors available. Otherwise just stay on top of your data and market trend developments and react quickly when you see which way this goes.”
They added while the announcement by HRS would help its corporate customers prepare for new market conditions, and to ensure they get the best rates, it could have also been a tactic to ensure its own employees are kept busy to generate revenue.
It’s Too Soon
Another travel manager, working in the aviation technology sector, who also wished to remain anonymous, believes it’s still too early to decide.
“Hotel chains and independents are itching for business customers to pledge future stays at their hotels and will offer attractive rates to entice the return of the committed business customer to help rebuild and recover their revenue losses,” they said.
“Travel managers who choose to negotiate rates now will achieve good improvement to rates as the hotels look to bank revenue. However, this isn’t best practice for either hotels or travel managers in the mid to long term.
“It is really only a good time to renegotiate rates if you can forecast your company’s travel plans for 2021. A request for proposal should be built on accurate numbers and I am not sure how any travel manager can honestly provide accurate numbers for a 2020 hotel proposal.”
They also disagreed with the Global Business Travel Association over their recommendation for hotels to roll 2020 rates into 2021. “This assumes rates will rise in 2021. My belief is that better rates should be available than a 2020 negotiated rate.”
On The Move
Advito agrees the best way companies can work out their pricing will be by actually traveling.
“Clients should prepare for renegotiating their preferred programs, but wait to do so until their company is resuming travel to ensure the best response from the hotels,” said Kusto.
“The timing component of when to release the request for proposal is not getting nearly enough attention, as everyone seems to be defaulting to thinking they can only happen the second half of the year.
“It doesn’t have to be that way. If a corporate rolls over rates to 2021 they’re going to have travelers out there paying more than the general public. And if they head to the negotiation table too soon, they may not get optimal participation from hotels,” Kusto added.
“However, hotels have told us that they will find a way to support companies that are actively traveling,” she added
Forget About Price — For Now
Roomex is urging travel managers to put duty of care before rates.
“We don’t see price as being the priority as business travelers get back on the road,” said Watson.
“The priorities are what’s open, where can I stay and is it safe. These priorities may remain for a prolonged time. We are seeing them today through our Key Worker package, but as restrictions lift the rest of our client base is about to grapple with the same concerns.”
As travel managers look to hedge their bets against price fluctuations in the coming months, perhaps the only thing the industry can agree on is that it’s not going to be easy.
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Photo credit: Hilton's new global cleaning standard is the latest in a wave of hospitality cleanliness protocols aimed at calming guests as they begin to travel following the coronavirus pandemic. Hilton