The negotiating season for 2016 corporate hotel rates proved to be even more challenging than in previous years, but efforts paid off, as rate increases came in softer than forecast in most global regions, according to analysts at mega travel management companies’ consultancy groups.
“We did run into situations where we really had to do multiple rounds of negotiations, similar to last year,” said Marwan Batrouni, senior director and global hotel practice area leader at BCD’s Advito consultancy, “but it felt like it was a little bit more demanding than last year, especially in primary markets.”
Eric Jongeling, director of hotel solutions in the Americas for Carlson Wagonlit Travel, said many clients had a hard time getting hotels to even respond to requests for proposals, as the suppliers expected larger room night or spend commitments. That back-and-forth of trying to get hotels to bid added time to the negotiation season, Jongeling said.
It felt like it was a little bit more demanding than last year, especially in primary markets.”
Advito’s Marwan Batrouni TWEET THIS QUOTE
In North America, hotel rate increases averaged 2.7 percent year over year, according to Batrouni. “Not too bad,” he said, “given that we were forecasting a little over 5 percent increase for the entire year.” Not surprisingly, San Francisco proved the anomaly, as rates increased more than 10 percent year over year. In New York City, negotiated rates increased an average of 1.5 percent, while in Houston, rates dropped 0.2 percent. Chicago’s average increase of 2.8 percent was on par with the region.
Europe saw a 0.8 percent increase in rates. That average, the result of large increases in some markets and significant decreases in others, is less than the 3 percent originally forecast by Advito. Rates decreased in all other regions, 3 percent in Latin America, 2.4 percent in the Middle East, 1.2 percent in Asia and 0.2 percent in Africa.
“Every region has a slightly different dynamic in terms of supply and demand, so that definitely plays a part in what we are seeing here,” Batrouni said of the softer results, “but we feel that negotiations are also playing a fairly big role. We compare the initial bids that come in, which would be indicative of how suppliers feel about the situation in their specific markets, with where we end up at the end of the RFP season. In all cases, the initial offer is higher than where we actually end up.”
According to Jongeling, CWT clients saw North American rates increase by a little over 4 percent, the bulk of that coming from U.S. markets, up 4.2 percent. In Europe, rates grew about 1.5 percent. Asia/Pacific saw a 2 percent increases, and Latin America saw a decline of 0.5 percent.
Chicago-based Exp corporate services and travel manager Christel Peterson, who negotiates with about 25 regular hotels, said her program fared better than expected. “I was surprised at some properties that didn’t put in too much of an increase.” Others though, tried to increase rates by as much as 20 percent on their initial offer, finally lowering their figure after some back-and-forth.
Dynamic pricing factored into discussions once more for 2016, but Batrouni said hoteliers’ push for it was weaker than he anticipated, indicating “there’s still that appetite by suppliers and corporate buyers to continue on with static rates.” Chainwide agreements were more top of mind this year than in previous years, he said. Some clients accepted that dynamic rates may be a better option for supplementing their programs in secondary and tertiary markets, something he expects will continue.
Jongeling said clients have chosen to accept dynamic rates in certain instances, “but a lot of them are still not completely comfortable with the dynamic approach. They don’t feel like they have enough visibility into what they’re actually receiving through that negotiation.”
Hotel amenities, such as breakfast and free Wi-Fi, have played an important role in negotiations in recent years, as hoteliers leverage them to push rates. For 2016, however, those amenities carried less value as they became increasingly standard, according to American Express Global Business Travel hotel practice line manager Cindy Armitage. Jongeling, too, saw “flat, if not better amenities inclusion than in previous years.”
Batrouni suggested hoteliers have instead set their sites on cancellation terms, withholding same-day-cancellation agreements where they might have once withheld free Internet. “There was a lot of negotiation and back-and-forth to make sure that we have same-day cancellation for our clients,” Batrouni said, adding that he expects cancellation terms will be a bigger issue in upcoming RFP seasons as hoteliers experiment with stricter policies.