As the way corporates manage their accommodation spend evolves, Gill Upton investigates how travel managers can make the most of their budgets
Personal preferences play a large part in hotel selection as there is more emotion attached to booking accommodation compared to an airline seat. This ‘noise’ from travellers further complicates the marketplace as they turn to OTAs for better rates.
Travellers can be engineers, expats, delegates, trainees and business folk, all with disparate needs. And that spend can sit in different silos in companies, often outside the travel department.
Relocation sits in HR, training in marketing and so on, making it a nightmare for a travel manager to capture. Changing traveller demographics adds another layer of complication to content.
Ad hoc booking by PAs has been the norm but smart corporates are now harnessing these fragmented bookings and using the TMC as the sole booking channel to gain visibility and leverage spend.
Meanwhile, TMCs are aggregating OTA content to keep travellers compliant, with the likes of SAP Concur, for example, providing technology – the TripLink app – to capture bookings off-plan and bring them back into the ecosystem to give travel managers a complete view.
“Travel managers are getting much better visibility on total cost of trip than they’ve ever had before,” reckons Louise Miller, Managing Partner Americas at Areka Consulting.
To say that the hotel spend category is in a state of flux underestimates the seismic changes shaping the market. Corporates are adapting to these changes by dealing with different data sets, blending card and expense data to attain total trip cost and keep a tight handle on what can often be a similar-sized spend to air travel.
The fundamentals still apply: consolidate your suppliers, create a preferred hotel programme and pre-approval process, introduce rate caps in certain high-volume locations, encourage advance booking at the time of booking flights (at least 14 days out), negotiate added-value benefits, make use of dynamic pricing rates in low-volume destinations and offer richer content.
OTA rates can work some of the time. “Non-flexible hotel rates help manage spend but only if a corporate’s cancellation patterns aren’t too high,” warns Sian Sayward, Supplier Partnership Manager at Inntel.
More difficult to achieve are moving bookings to different days of the week to achieve better rates; trying to combine transient and M&E bookings is challenging due to lack of data and different venues (see box, pg 70); and securing LRA is almost impossible.
“LRA is often the sticking point in negotiations,” says Gianni Di Fede, VP Total Revenue Performance EMEA at Radisson Hotels. “It’s on the table but we need to be prudent and only give it based on volumes and days of the week – not peak nights but perhaps on a Monday.”
Maria Baty, Chair of the BTA’s Hotel Strategy Group, says aggregating transient and MICE booking is challenging, because “they’re often dealt with differently and often from two different procurement people, and often they don’t talk to each other.”
Consultant Chris Pouney of GoldSpring voices a word of warning on implementing rate caps: “When we say the word ‘cap’ travellers often hear the word ‘allowance’ and see it as a target or entitlement to aim for.”
What works for hotels is a spread of business across days of the week. Hotels can fill a hotel twice over on a Tuesday night but lack bookings on Sundays and Mondays, for example. Plus, the law of supply and demand means a deal won in a soft-demand city cannot be replicated in one with unconstrained demand.
According to statistics from HVS, key European hotel markets such as London, Paris and Rome are generally supply-constrained, resulting in demand-led RevPAR. Radisson Hotels points to softer rates in Nordic cites, Dubai and Frankfurt where supply is currently outstripping demand. Hotels appear to be in a rapid building phase.
In the mix
Despite these buoyant market characteristics, corporates of all sizes can achieve deals and SMEs should get a fair crack of the whip as hotels go for a mix of different-sized clients to avoid being over-reliant on a handful of global corporates, which would mean giving away too much content at the lowest rate.
Margaret Bowler, Director of Global Hotel Strategy at American Express GBT, explains: “Bigger volumes don’t necessarily equate to deeper discounts as hotels want the mix. They don’t want all their eggs in one basket. It’s about managing their inventory.”
Hotels also want clients who offer them a spread of business, across rooms, F&B and meeting space. “Hotels want clients who can give them not only room nights but F&B as well – that’s where hotels make their money,” says Chris Vince, Director of Operations at Click Travel. “Hotels will give 20% off menus.”
F&B credits and car parking tend to be the most easily-won soft benefits in hotel negotiations, particularly alongside dynamic pricing deals. Wifi should always be free. F&B credits are worth fighting for as the cost of daily breakfast can account for up to 8% of the room rate.
Amex GBT’s Bowler has noted two other benefits over the last year: “No early check-in fee and same-day cancellation, but hotels are pushing back on it,” she says.
“Also watch out for an urban destination fee in cities such as New York where they can’t push the rate up. It’s like a resort fee without the beach and can be $25 a night.”
When to negotiate is a moot point. Annual RFPs are stretching to two years for big-spending corporates to lock in rates – and hotels acquiesce if it’s across the whole pro-gramme. “The upside is that the client doesn’t need to get involved; it’s low-touch for them,” says Rachel Newns, Head of Accommodation Programme Management at FCM.
“Re-negotiating is a huge process and you can feel that you’re never out of it. You have to balance the amount of effort and work the programme will take against the savings.”
Smaller hotel chains are more open to two-year deals as the business is far more valuable to them. Hotels are also responding with ‘seasonal pricing’ in destinations such as New York and London to manage capacity. There might be one rate for January to March and another for April and May, and so on. “It’s another word for yield management,” says the BTA’s Baty.
What to negotiate is changing too. Corporates are relying on long-term stay providers and the sharing economy to fill the shortfall in destinations at busy times of year, often at one-third of the cost of a hotel. It works particularly well when a group is attending a meeting on a trip of over three nights and they gain communal space and flexibility of eating options.
Corporates are also becoming cognisant of the changing traveller demographics, observes Amex GBT’s Bowler. “It means changing the type of product to keep travellers happy, for example with Moxy from Marriott aimed at Gen Y and Gen Z, which is more social.”
Corporates’ preference for annually negotiated rates goes hand-in-hand with their need to budget but their policy preference for lowest price on the day means booking a dynamic rate, around 15% below BAR. The static rate is now a benchmark and TMCs offer clients anything under it. Inntel’s Sayward thinks the “fixed rate programme is nearing the end of its shelf life”.
Attention to detail
Dynamic rates also mean dynamic programme management, measuring the success of it and making changes every quarter. “Combine the review with new sources of content and look every 30-90 days,” advises Areka’s Miller.
Another change is corporates avoiding the busy fourth quarter of the year and spreading negotiations across the whole 12 months; to the fiscal year-end in April, for example, when hotels are generally quieter. “In April you might find a hotel that hasn’t secured all the business that it had been promised,” says FCM’s Newns.
Hotels are continuing to push dynamic rates and Areka Consulting’s Miller says using these gives the right message to travellers. “Putting a re-shopping tool into your programme acknowledges the dynamic rates out there and that static rates aren’t the whole picture,” she explains. “It gives the corporate a marketing spin too, effectively saying, ‘We’re looking out for you’.“
In its quest to win over corporates, Radisson is trialling the use of simultaneous dynamic and static rates this year. “The scope is to softly educate them to understand the convenience of buying the dynamic rate,” says Radisson’s Di Fede. The trial coincides with the launch of integrated platforms enabling open pricing on B2B rates, with discounts based on demand, booking windows, length of stay and so on.
The hotel market is now awash with multiple rates, namely the corporate rate, BAR, dynamic/OTA and, as a last resort, the published rate which has virtually disappeared.
Better by design
“A fixed corporate rate doesn’t save corporates much,” insists FCM’s Newns, “but it can work really well in places like London. We’ve had success moving clients to dynamic pricing but we will look at each individual market, their travel patterns and volumes and the hotel occupancy. We have to ask, ‘Are you the customer the hotel wants?’“
Clever use of rate caps can also work effectively, advises Newns. “One client I have has a particular hotel they want their travellers to stay in so we put a rate cap just above the rate of that hotel. It makes it appealing to travellers as they know that’s the best option within that rate cap and they will book it.”
What’s essential with this strategy is checking that a corporate is able to access that rate the majority of the time.
Ultimately, cost is still the main driver of any corporate hotel programme and in the evolving world of accommodation, corporates cannot take their eye off the ball and must constantly review their programme to ensure that it’s continuing to deliver as promised.
When transient and M&E get together
EY’s Global Travel & Meetings Team achieved a combined transient and M&E programme just across key regions.
Step 1 – Designed a single policy for M&E aligned with travel policy, managed by a single travel and meetings team.
Step 2 – Rolled out a region-by-region new programme.
Step 3 – Put a communications plan in place ahead of the launch, using newsletters, Skype lunch-and-learn sessions, EA networks, internal social media platform Yammer and in-person meetings. It also illustrated the benefits (duty of care being a key message) and mitigated pushback. EAs became an extension of the T&M team as programme champions.
Step 4 – Engaged its TMC to have a joined-up account management team with visibility across the combined spend to support supplier relations and provide data analysis to drive key benefits of a converged programme.
Step 5 – Engaged suppliers to ensure they were on board and view relationships as partnerships. Negotiated master service agreements with hotel chains to reduce the time needed to contract for events, from six weeks to three days.
Step 6 – Visibility changed venue sourcing and it is now done across multiple events and locations to drive savings as part of a joined-up programme.
Step 7 – EY benefitted from major savings, a change in mindset and the way the T&M team works with stakeholders, which is a more consultative process.