Corporate Travel World 2007 Reporter's Notebook--PwC: Hotel Rate Hikes Have Peaked
Business Travel News, 6/11/2007 (excerpted)
New York - Hotel rate increases will be hefty after travel buyers' negotiations later this year, but not on the same scale as in 2006, PricewaterhouseCoopers' hospitality and leisure group principal Bjorn Hanson told buyers and suppliers gathered here for Business Travel News' 23rd annual Corporate Travel World conference. Travel buyers, meanwhile, said they are struggling to maintain the integrity of their corporate hotel programs.
Rates increased by 7.1 percent in 2006, the highest growth in 10 years, Hanson said. This year, he expects that growth to moderate to 6 percent. "It won't get worse this year," he said. "Rates are going to get higher but not increase by as much as they did last year."
In fact, rates could be worse than they are, PwC's Hanson said. Increases have been significant, but have remained mostly below the rate of inflation, so in real dollars, the hotel industry still is not doing as well as it was in 2000, according to Hanson.
Hanson forecasted a pattern of decreasing occupancy this year, a prediction already manifested in 2007 industry performance thus far, even though industry leaders expect that to turn around. In addition, construction should begin to accelerate throughout 2007 and 2008, he said.
Still, occupancy remains high, Hanson said, making the job more difficult for travel buyers trying to ensure booking at negotiated rates.
At a benchmarking session for Corporate Travel 100 travel buyers, participants said the difficulty in getting those negotiated rates is compounded by the increasing problem of "rate piggybacking." Travelers asking for companies' rates—even if they are not an employee of that company—are getting them at the front desk. Although such an activity could be beneficial to a company trying to meet a room-night obligation, it more often means the negotiated rate is not available to company travelers when they want to book.
One buyer indicated at least one major hotel company is moving toward requiring employee identification to get negotiated rates, but the hotel company would not confirm that.
Compounding the problem is the tendency for front desk clerks to upsell upon a traveler's arrival, bumping what was an in-policy booking to an out-of-policy purchase. Booking and corporate card data can help rectify this, although buyers said data availability and quality in the hotel realm generally is poor.
Hotel, airline and travel management company representatives told attendees that requests for proposals are rife with inefficiencies and costs, adding layers of bureaucracy and expense to the negotiating process.
Advito Consulting vice president of global business intelligence Maria Chevalier said there are more participants in the RFP process, documents are longer and the number of questions asked continues to grow.
"If you're not really evaluating it, it's best to keep it off the RFP," suggested Continental Airlines managing director of multinational sales Kelly Hart. Hart concurred that the length and the time it takes to field RFPs has grown significantly in recent years—representing "tens or hundreds of hours for an already stretched staff."
While Hart said the RFP process is valuable for both buyers and suppliers, Continental is "seeing more and more questions that have little or no bearing on the decision-making process."
Chevalier said "fads" in the travel industry find their way into requests, but linger even after the industry turns to the next hot topic. Among those, Chevalier noted, are detailed questions about procurement, Sarbanes-Oxley, corporate social responsibility, security and data privacy.
While the panel noted that such topics are important to many companies, they questioned whether supplier answers had any weight in decision making. "Companies are asking a lot of environmental things on the RFP, which is fine if they really evaluate it," said Hart. "What weight does it have? Because once you get into the negotiation, it's all about price." Hart continued: "When you come in and ask, 'Where are your hubs?' Give me a break."
John Hackett, Omni Hotels corporate director of sales and business travel, said hotels might have it easier than their supplier counterparts since "only hotels have a standardized RFP." However, Hackett noted that fielding requests still comes at a hefty cost, and remains a time-consuming practice. "We'd rather see our people selling than going through this process," he said.
A panel of travel buyers discussed rolling out global travel programs and highlighted how to internally monitor hotel programs, which could account for millions of dollars in savings. Duane Futch, director of global travel services for Wal-Mart, said he wanted to make sure the company was getting the most favorable rates, and is conducting rate audits through Bidstork, an electronic request-for-proposals tool. "We're going to go and get our money back. We think that is going to be worth millions a year because with over 18,000 properties, look what happens. We are going to play the game in reverse now."
Kevin Iwamoto, Hewlett-Packard global airline, car, corporate card and ground commodity manager, said he found 40 percent of travelers in his program were booking nonpreferred hotel properties. Along with recently reducing preferred properties from 1,200 to 750, Iwamoto has implemented a policy requiring travelers to give one of five reason codes when booking a nonpreferred hotel in its online booking tool. "I am determined to find out what that is, where is it coming from and how to bridge that gap," he said.