This is the time of year when, traditionally, travel buyers put the finishing touches to the annual preferred hotel rate programme they have been painstakingly negotiating since the summer. But few buyers are playing that game for 2022. “I haven’t negotiated a programme since 2018 because I negotiated 2019-2020 as a two-year programme. 2020 I rolled on and this year I’m doing the same,” says BP global category manager for travel and meetings Richard Eades.
The immediate reason for the decline of the hotel request for proposal process is the bookings slump caused by coronavirus, leaving buyers with no reliable data insights on which to predict their volumes for the year ahead.
But even putting this major issue aside, the RFP is slipping from favour, with hotel buyers edging closer to a strategy often referred to as continuous sourcing. The phrase is defined in different ways by different corporate travel professionals, but the common thread connecting these varying interpretations is that, in the words of Tripbam’s managing director for Europe, Peter Grover, “it’s definitely not a ‘one and done’ process anymore.”
The first phase of continuous sourcing for many buyers has been a shift to negotiating dual rates with preferred hotels: a static corporate rate plus an agreed percentage discount off the hotel’s best available rate. The BAR discount avoids “our travellers going to booking.com and seeing a lower rate than we are offering them,” says Willis Towers Watson’s category travel manager, Clare Francis.
During 2021, 90 per cent of the rates booked by Willis Tower Watson travellers at preferred properties have been discounted BAR rates because low occupancy levels are forcing prices downwards. “That will shift when occupancy levels return,” warns Francis. “Hotels have a lot of money to claw back.”
Yet even though fixed rates will assume more importance once the market recovers, Francis is among those buyers expecting to negotiate fewer such rates in future, and on a more ad hoc basis rather than in one annual hit.
Francis cites multiple reasons for wanting to change. First is the sheer workload of trying to negotiate simultaneously with 500 hotels in 50 countries. Next is that the accommodation needs of her business can change between inception of an RFP in the summer and its conclusion in December. Office relocations, new projects and the general volatility of the post-Covid world can all demand swifter action than is achievable through a juggernaut rate programme that changes only once every 12 months.
Eades agrees. “If I see a city in Q1 that suddenly we’re driving a huge amount of business to, we don’t wait for the RFP,” he says. “We’ve just opened a huge hydrocarbon plant on Humberside, so I’m keeping a close eye on that. It’s a non-negotiated area where we’re using our chainwide discounts but it might come to a point where it makes sense to go into the market and come out with one or two preferred hotels.”
Other objections Francis cites to the traditional RFP are the cost of hiring third parties to manage the workload and that “some of the questions we want to ask our suppliers now are very different from what they were ten years ago, such as on sustainability and diversity. Having this different approach will allow me to focus on those questions more.”
Francis expects to end up with fewer fixed rates and fewer suppliers. “We’ve got static rates in 90 per cent of our programme but we will probably only need 50 per cent in future, because we also have a city rate cap,” she says.
Grover says the trend for companies to reduce properties in their preferred programme is widespread, with some axing as many as 75 per cent of hotels “because they can no longer commit the same volumes as in the past”.
Inevitably, however, buyers find they have cut too savagely in some locations. Through continuous sourcing they can identify and close those gaps quickly by submitting a proposed fixed rate for competing hotels to accept or decline. “We know what offer to make to the hotel because we know what other customers are paying them,” says Grover. “If they accept, the rate is automatically loaded into the booking tool.”
Another strand to continuous sourcing might almost be better termed as continuous non-sourcing. Buyers, including Eades, are increasingly concluding that cities where they have low booking volumes can be served perfectly well without any special rates. Instead they impose a cap on the price travellers can pay and rely heavily on chainwide discounts or “consortium” rates negotiated by a retained travel management company, online travel agency or other intermediary.
Swiss Hospitality Collection senior sales consultant Bettina Käfinger said increased adoption of consortium rates causes problems for hotels when intermediaries push them to give the same rates to all the intermediary’s customers. This blanket approach allows hotels no discrimination between clients which have delivered volume to the property and those which have not. “They need to be fair to their clients with whom they have been working for many years,” says Käfinger. “It puts a lot of price pressure on them.”
Käfinger warns of more perils to departing from fixed negotiated rates. In the case of consortium rates, she says, “the hotel doesn’t know which is the company behind that booking. They only see the name of the consortium. Potentially the TMC is accumulating the information but the hotel doesn’t know that. It just sees the name of the TMC. It means the hotel doesn’t know how many room nights were really booked with it by the corporate customer.”
The other hazard Käfinger identifies with consortium or discounted best available rates is that fewer services may be included – most typically breakfast.
Eades acknowledges there remain considerable strengths to fixed negotiated rates, such as the ability in some cases to include late cancellation. But the secret, he says, is to match the right rate to each trip. “I might be booking just a few days ahead, so I know I’m not going to cancel, and also I know I’ve got a breakfast meeting, so I don’t need the breakfast and therefore I can take the restricted rate,” he says.