Sourcing accommodation

Talk to people in the corporate travel world about hotel rates in 2022 and the word that crops up again and again is “volatile”. It’s this unpredictability that will make sourcing accommodation particularly challenging as more business travellers start hitting the road.

While a year ago there might have been an assumption that hotels would have to offer lower rates than pre-pandemic to tempt travellers back, the pricing landscape is already shaking up to be a lot more complex.

There are several factors driving this volatility including a strong bounceback for leisure demand in many destinations – as Marriott International noted in its 2021 financial results, corporate sales have been showing a “slower, yet continued improvement”, while the leisure market has “continued to shine”.

This has already pushed up hotel rates in cities with a strong leisure market such as Dubai, Las Vegas and Miami. While in Europe, Germany’s prices have generally been stronger due to its large domestic market.

Then there is the potential for more Covid-19 variants spreading around the world, which can quickly cause a ripple effect, as seen by the spread of omicron – London’s hotels saw occupancies plunge in December, while Berlin endured a similar experience in January.

A BUYER'S MARKET

In this febrile market, where does the balance of power lie between buyers and hotel suppliers in 2022 and how is this going to affect rates? The consensus seems to be that it’s likely to be “good news” for hoteliers and a “challenge” for buyers.

American Express Global Business Travel says the global hospitality recovery “will build momentum” in 2022 and warns travel buyers “should not expect to find many opportunities for rate reduction, without substantiated spend”.

The TMC adds that average daily rates (ADRs) are already recovering around the world, with business travellers having to compete with tourists for the same rooms in major destinations. Prices are also likely to be pushed up by global staff shortages and inflation coming through the supply chain.

CWT is also predicting a rise in hotel prices with an estimated increase of around 13 per cent in 2022, followed by a further 10 per cent uplift in 2023, however it will still take “some time” for rates to return to 2019 pre-Covid levels.

Pauline Robin, senior director at RoomIt by CWT Solutions, says: “As borders open for non-essential travel, occupancy rates will rise, putting upwards pressure on pricing. Upscale hotels should see higher occupancy levels, and higher room rates, as business travel gains momentum.”

But Europe could remain more of a buyer’s market in the short-term, argues Robin, due to lower demand in the early months of the year, particularly as the continent recovers from the Omicron surge of cases.

“The demand will be soft, at least for the first part off the year, due to the fluctuation of pandemic cases. Once case numbers stabilise, demand is expected to increase – and by definition – prices as well,” assesses Robin.

Raj Das, director, travel programme consultations, at TripActions, agrees Europe’s hotels are going to “take some time” to reach pre-pandemic occupancy levels, which were only around 60 per cent of 2019 figures in early 2022, although ADRs have “stayed steady” compared with 2019.

“There is a lot of pent-up demand from the corporate market, which is experiencing a greater need for face-to-face engagements with both clients and internal teams,” adds Das. “This has resulted in a surge in requests for meeting and events space.”

SOURCING STRATEGIES

With so many factors potentially affecting prices, will there be more of a move to continuous or dynamic sourcing of accommodation? Will it even be worth negotiating corporate rates in this current environment, and what about all those many organisations who have simply rolled over their pre-Covid agreements with hotel chains?

One buyer, based in central Europe, tells BTN Europe: “Our approach will be to primarily leverage the dynamic pricing available through our online booking tool. Historically, only in locations where we have significantly high numbers – hundreds of room nights – have we been able to negotiate better rates with hotels than what we can get via the OBT.

“Given that we don’t expect our volumes this year to be anywhere near what they historically would have been pre-pandemic, it seems an inefficient use of our time to try and negotiate rates with hotels when we can’t in good faith give them accurate volumes.”

The buyer adds that this sourcing policy would be “constantly reviewed”, depending on the organisation’s particular projects or requirements.

Scott Davies, CEO of the UK’s Institute of Travel Management, says dynamic sourcing for hotels was already “increasing noticeably” before Covid and will now be needed until “supply and demand reach some kind of equilibrium again”.

With more continuous sourcing likely for accommodation in the near future, what does that mean for the traditional RFP process? The death of the RFP has long been predicted (and even hoped for) by many in the industry.

ITM’s recent survey of buyers in the UK and Ireland found that only around 25 per cent were planning to go through an RFP process for their hotel programmes in 2022. While this was an increase on 2021, it is lower than the pre-Covid figure of around one-third of buyers who planned to launch RFPs in any given year.

But, of course, negotiated rates can be vitally important in hotel markets where prices remain high over a prolonged period. This is why many corporates are opting for a blended approach where they can secure rates at key, heavily used properties and tap into continuous sourcing for the rest of their programme.

TripBam’s Europe managing director Peter Grover advises buyers to combine static negotiated rates with more dynamic prices, such as those offering a percentage below the best available rate (BAR), to ensure they are not caught out by price fluctuations.

“If you bet on market rates to continue to go up, then it’s a good idea to have static rates,” adds Grover. “But if rates come down, then you’re better off having a dynamic discount off BAR.”

This makes being able to assess hotel data in “real time” even more essential. This is a process that TMCs and other suppliers can help buyers to navigate during such a volatile period for prices.

Spencer Allen, business development director at London-based TMC TakeTwo, explains: “We assist in the benchmarking of rates, as well as performing audits to ensure the corporate is getting best value. To further optimise value, the TMC can assist with technology and set rate caps in their policy to protect from higher prices.”

Many corporates have also significantly shrunk the number of hotels in their programmes during the pandemic, with plans to build this back up again as travel resumes. For example, one European-based company has cut its hotel programme from 600 to 150 properties, with plans to increase this back to 300 to 400 hotels over the next couple of years

CHANGING HABITS

Sourcing is not just about securing the best prices and availability, with employees’ safety and welfare now even higher on the corporate priority list as travel resumes. Then there is the increasing necessity for organisations to tackle sustainability and reduce emissions from travel.

One of the trends for those who have been travelling during the Covid crisis is an increased demand for self-catering and extended stay properties – for obvious health and safety reasons, and also because so many hotels were closed for extended periods.

Leigh Cowlishaw, managing partner at consultancy Black Box Partnerships, says: “Demand for more serviced apartments has increased. Some travellers are wanting a more home-from-home experience that we have all got used to over this time.

“Having a more individual and personal experience is craved, where you are the only one checking in and out, as well as having the facilities to please yourself rather than being in crowds.”

Finding ways to effectively report on sustainability is one of the top priorities identified by IHG Hotels & Resorts’ Europe Corporate Advisory Board, which was set up by the hotel giant last year. The board includes buyers from across the continent and is looking at ways to implement more environmentally friendly travel policies and better cater for travellers’ needs.

Pauline Robin, from RoomIt by CWT Solutions, agrees that sustainability reporting is currently more difficult for accommodation than air travel.

“There is no industry-wide international standard for hotels, which currently self-report,” she explains. “This makes it challenging for the travel manager to incorporate hotel data into their corporate sustainability programme, and for the business traveller to truly travel sustainably.”

As a result, sustainability is becoming more of a focus for buyers within RFPs, argues Eric Meierhans, chief commercial officer at booking platform HotelHub.

“The traditional hotel RFP process has certainly become out-dated in terms of negotiating rates for a 12-month period,” he said. “However, sustainability may be the factor that means the RFP process is still required in order to assess which hotels are aligned with the corporate’s sustainability objectives and to drive your travellers to book those properties.”

Accommodation sourcing looks set to be a challenge for buyers in 2022 as the world emerges from the pandemic. But there are strategies that can be deployed to help ride this wave of volatility until eventually a more stable post-pandemic environment can be established. Although it may still take some time to get there.

CONTINUOUS SOURCING GAINS TRACTION

By Amon Cohen

Continuous sourcing is a phrase 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 Towers Watson travellers at preferred properties were 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.

BP global category manager for travel and meetings Richard Eades is likeminded. “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… it might come to a point where it makes sense to go into the market and come out with one or two preferred hotels.”

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.

Inevitably, however, buyers could 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.

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.”