Dynamic opportunities

This article first appeared in the Sep/Oct issue of BTN Europe

At a time when the business travel industry is on its knees and many hospitality employees remain furloughed, it’s easy to see why some have advocated the postponement of the 2020 hotel RFP season and the extension of existing corporate rates into 2021. An already laborious and much-maligned process that has had question marks hanging over it for several years will be significantly more difficult to negotiate when hotel groups and corporates alike are short-staffed – so the thinking goes.

However, those choosing to side-step the challenge and simply roll-over their existing static rates will inevitably be paying above market value in an environment where demand has plummeted, there is abundant capacity and regular rates have dropped considerably. Sticking with what one already has in place might not reflect well on travel managers and could simultaneously puzzle travellers seeing notably lower rates on non-preferred channels.

Spare a thought for hotel groups though – how far should buyers turn the the screw in such challenging circumstances? And then there’s the added complication of how new rates are calculated when there’s no meaningful data from 2020, and when nobody can predict when business travel will return and what sort of volumes can be expected. The traditional RFP process is looking increasingly dysfunctional, especially this year.

TAKING ACTION
Peter Grover, EMEA managing director at Tripbam, says many corporates have simply kicked the can down the road. “It’s not much of an RFP season at the moment. So few companies are allowing or encouraging business travel right now. Many won’t be for months, so it pushes the whole conversation back in the calendar.”

Wyndham Hotels & Resorts’ SVP of global sales, Carol Lynch, paints a similar picture, saying that July and August would normally be a busy time. “We’ve seen only a handful of RFPs though we expect to have more between August and September,” she says. “Some travel managers are saying ‘yes, we will launch an RFP in September’. Others are still deciding.”

Accor’s director of corporate sales and TMC partners, Jonathan Pettifer, says there was an early realisation that making pricing decisions and negotiating 2021 programmes was going to be a “serious challenge”, and that buyers, suppliers and TMCs reached a broad consensus that RFPs would begin later than usual given the widespread use of job retention schemes.

Grover believes the resource problem lies more on the hotel side currently than with corporates. “That being said, it’s still a problem for both sides because if you as a buyer send out an RFP, you expect someone on the other side to respond to it. A lot of the major hotel companies have reduced their levels of staff at corporate headquarters, so that impacts corporates’ relationships with their dedicated account managers at the chains. At the independent property level, they’re certainly feeling the pinch, too.”

According to the ITM, most buyers have frozen new RFP activity across all categories bar security solutions providers. One travel manager who has conducted a hotel RFP, however, welcomed new properties into their programme to cover changing needs. Another buyer was offered 12-month rate extension but would have preferred shorter terms, while many have been presented both static and dynamic rates.

One travel manager said they liked dynamic rates but weren’t confident they would always be the best, while another shuns them altogether, preferring a committed negotiated rate that allows them to budget more accurately. Clearly, there is no uniform approach.

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ROLLING RATES OVER
One thing is abundantly clear, and that’s that many hotel groups are only too happy to extend corporates rates into 2021. Why wouldn’t they, when rates have more or less been increasing for ten years but are now falling?

Marriott’s EMEA VP of sales and distribution, Osama Hirzalla, says it has offered clients the opportunity to do so and has received “fantastic feedback”. Resources was one of a number of factors in following this path, he explains.

Grover believes, however, that there’s not an “outright desire” for corporates to take up offers of rolling existing negotiated rates into next year. The reality is, if you just extend rates into 2021 you’ll be overpaying. Currently, the average booked rate in the Tripbam system is 32 per cent lower than in 2019. “Willingly paying more than what you could get otherwise when no additional value is created runs counter to the principles of good procurement.”

Bruno Khan, HRS director of sourcing consulting for EMEA, agrees, saying that extending rates is too simplistic, and he instead calls for much-needed dialogue between all parties.

“We’ve come a long way from the situation in May where most people didn’t know what to do and when rate extensions were considered the most logical approach. Thankfully, we’ve seen some business travel activity over the summer in the EU,” says Khan.

He says both hotels and corporates are open to new ideas, with buyers giving opportunities to incumbent properties and new suppliers. “The situation is difficult enough for our industry - it’s great to see a willingness to understand each other, help each other and limit risks.”

Even so, some corporates remain keen on traditional negotiated rates, says Bruno’s colleague Louis Fernandes, HRS managing director of Northern Europe.

“Where they can project their anticipated volume, corporates are driving for fixed rates with flexible terms and updated amenities that address clean and safe updates,” he says. “However, given the lack of projectable volume and volatile pricing scenarios, more companies are factoring in dynamic models as they recalibrate to negotiating in a buyer’s market.”

Nina Marcello, global hotel practice line lead at American Express Global Business Travel, agrees, pointing out that corporates have very little recent, good quality data to leverage spend and negotiate deeper discounts right now. She suggests corporates consider adding extra content to global programmes to capture the lowest available rates but monitor their volumes for recovery and be ready to approach partners when the time comes.

Further changes in buying habits include questioning the necessity of paying for Last Room Availability when occupancy rates are so low, and less interest in negotiating extras that are currently unavailable or undesirable – inclusive breakfasts or gym access, for example.

A HYBRID APPROACH
In current conditions, hotels’ best available rates are low, volatile and likely to frequently undercut current negotiated rates. As such, many corporates are adopting a blend of static corporate rates and dynamic rates, hastening a trend that was already gaining ground.

Accor is among the groups facilitating such a mix and in a June poll the group saw more than half of buyers say they intend to increase use of dynamic pricing. “It’s an effective and low-risk option for corporates and helps sales teams deliver meaningful pricing options to buyers without undergoing time-heavy RFPs,” says Pettifer.

A similar poll by the GBTA in August found 24 per cent of European companies are now more likely to include dynamic rates in hotel programmes. On the other hand, 14 per cent said they are now less likely to in a post-pandemic environment.

Tripbam’s Grover agrees there is an appetite among buyers to switch to dynamic, long-term agreements that remove things like blackout dates and seasonality. “Some are retaining their previously negotiated static rates to effectively act as a cap,” he adds.

Wyndham’s Lynch says her hotel group has been very open with clients on what will be best for their particular programmes and she expects to see fewer markets with specific negotiated rates and more corporates embracing dynamic pricing.

Marriott expects a similar shift, accelerated by the advancement of systems and booking technology, says Hirzalla. There’s little doubt that hotel revenue management technology is evolving and increasingly effective, and dynamic pricing will be a beneficiary. Nevertheless, American Express Global Business Travel (GBT) advises clients to focus on the key properties that meet your requirements and travellers’ needs, then leave the rest to the TMC.

“We can help determine which is the best of the various rates offered for these properties, whether that’s corporate negotiated, best available, the TMC’s own negotiated rates, other third-party rates or dynamic discounted rates,” says GBT’s Marcello. “Following the strategy rollout, the key is setting up the content correctly in your online booking platform and using policy to drive travellers to book via the TMC channel.”

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NEW CRITERIA
Not surprisingly, corporates that are issuing RFPs have added swathes of questions around hotels’ new hygiene and safety protocols, with Accor’s Pettifer going as far as to suggest some RFPs are no longer price-driven but instead primarily concerned with duty of care.

It is not uncommon for post-pandemic hotel RFPs to include more than 50 additional questions relating to hotel hygiene protocols (see case study p31), ranging from contactless check-in, virtual payments and frequency of cleaning, to availability of single-serve breakfasts and the types of cleaning chemicals used.

“They [corporates] are placing a greater focus on employee health and safety when travelling than ever before,” says Pettifer. Accor is among the vast majority of major hotel groups having rolled out new cleaning and operating standards (see feature p38-41).

Booking platform HRS, meanwhile, says more than 40,000 hotels have gone through its own Clean & Safe Protocol programme since June, with its initial booking analysis showing these are 35 per cent more likely to be booked than other hotels.

“Differing requirements in different nations has drastically impacted the content of RFPs,” says HRS’ Khan. “As a result of the pandemic and the change to a buyer’s market, some things are less relevant, such as LRA or breakfast. Other items – such as methods of payment and flexible cancellation policies – are more important.”

Companies are also combining their meetings and groups volume with transient projections in an effort to secure the best possible rates, Khan reports.

THE FUTURE OF RFPs
The industry has persisted with the traditional RFP process for years in spite of participants on both sides bemoaning its time-sapping complexities, but could this be the beginning of the end for it?

Wyndham’s Lynch believes so. “I really think this [the pandemic] could be the catalyst for change in the way RFP seasons have been executed in the past,” she says.

“And I think, more than ever, our industry is probably ready for it because we know the resources it takes to just facilitate the whole RFP process from a client standpoint, the buyer standpoint and the hoteliers’ standpoint. It could change the way that corporate travel buyers buy in the future,” says Lynch.

Accor’s Pettifer agrees, noting that stakeholders are endeavouring to truncate the process by switching to dynamic pricing models and only focussing on the key volume locations. “It’s potentially a seminal moment for the RFP,” he says, adding that emerging technology will play a “huge part” in automating and serving up optimal pricing. He adds: “It’s important to remember, though, that while all parties in the industry are reacting to unique market conditions, the underlying philosophy of matching value and price for both buyer and supplier remains unchanged.”