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THE PRICE OF CHANGE

REGIONAL VARIATION

As always, the headline trends mask numerous geographical variations. “North America still has strong leisure demand, which means rates are staying high,” says Grover. “Across EMEA we are seeing some softening of that as inflation hits the cost of living.”

HRS has observed rates remaining depressed in China and other Asia-Pacific destinations where demand has not recovered post-Covid. More generally, Dyskin expects rates to rise faster in large cities which attract both business and leisure visitors. In Germany, for example, HRS tips rates to rise 7-9 per cent “but in cities like Berlin and Munich we could expect even double-digit numbers,” says Dyskin.

Every city has its own supply and demand story to tell, which is why, say both Herman and Dyskin, buyers need to understand those factors and develop bespoke negotiating tactics for every destination where they have substantial volume.

On the supply side, the pipeline of new properties remains slow after Covid, but there are exceptions, with Grover noting both the Middle East and India. In the case of the latter, that is just as well because Tripbam has seen demand treble, sending rates rocketing.

However, in other regions, mainly in secondary or even tertiary cities, supply is constrained by an additional factor: a continuing lack of hotel staff, which means some rooms remain mothballed, says Dyskin.

CHANGING HABITS 

Paradoxically, it is often those same secondary markets where corporate demand has recovered faster. Financial and professional services companies, which tend to frequent gateway cities, are making up to 50 per cent fewer bookings than pre-Covid. For example, says Grover, “London is 50 per cent down on business transient demand,” although he added that “the hotels are still full with people on their holidays”.

On the other hand, according to Dyskin, construction, manufacturing and automotive companies are travelling as much as ever, fuelling strong demand in decidedly non-touristy cities, such as Stuttgart in the case of Germany.

Buyers therefore need to reassess not only the supply and demand narrative for key cities, but also within their own companies – narratives which in some cases were transformed dramatically by Covid. “If people haven’t come back to your head office in Canary Wharf [London’s financial district], for instance, you don’t need many contracted rates any more but you might still need them in Barcelona because everyone is flying there for their team meetings,” says Grover. “It’s a case of keeping nimble.”

Another consideration is a change in trip duration. Hybrid working and the trend for fewer-but-longer trips will boost demand among travellers for extended-stay hotels, which could impact how buyers curate their programmes, says Amex GBT Consulting’s global hotel lead, Anu Kuchibhotla.

“We’d advise corporate buyers to look at the average length of stay across their programme to make sure they have the right properties in their portfolio. We can already see some global hotel chains respond to this trend, with Marriott, Hilton, Hyatt, and Wyndham all having expanded their extended-stay offerings,” says Kuchibhotla.

Fortunately, for the first time in four years, buyers have substantial recent booking data behind them to understand their travel patterns. Suppliers will also be looking for those improved insights, and improved bookings to go alongside them. “Hotels are saying this year that they want volume commitment,” says Dyskin. “But this year we also have much better data and therefore we can select a set of more strategic partners. The data is more credible.”

The inevitable consequence of better visibility for both sides is that corporate clients need to return to the first principles of procurement and consolidate with a small number of preferred hotels. “We’re seeing a shift towards reducing suppliers: really having a solid partnership to limit those rate increases and drive savings,” says Herman. “But it’s super-important to have a look as well at challenger properties and plan to shift share if that’s going to make more sense.”

Kuchibhotla agrees, pointing to “a growing resolve among buyers to challenge prices increases” following the high rates that corporates have accepted over the past couple of years. “As part of this, focusing on negotiations with a handful of preferred suppliers will be a key tactic for corporates to secure the best deal.”

RATE CONSIDERATIONS

Buyers also have to consider what kind of rate they negotiate with hotels. Herman, Grover, Dyskin and Kuchibhotla all see hotels pushing dynamic rates – an agreed level of discount on the best available rate. For cities where clients have significant spend, however, the four are unanimous in advising buyers to avoid being steered down the dynamic pricing route. Instead, buyers should insist on negotiated fixed rates, which almost always prove cheaper in a rising market.

“Hotels continue to push dynamic pricing, whereas the general preference from corporates is for static rates, especially in key locations and properties. Where corporates may have accepted dynamic pricing for 2023 rates, the appetite for such a strategy has reduced for 2024 rates,” says Kuchibhotla.

Another practice that’s gaining prevalence among hotels, notes Kuchibhotla, is a switch from LRA [Last Room Availability] to NLRA [Non-Last Room Availability] rates, a key negotiation item during the RFP process.

Herman counsels buyers holding out for guaranteed last room availability on negotiated rates. “In initial bids we have seen come back for 2024, hotels are continuing to demonstrate a strong preference for dynamic and non-LRA rates, especially as occupancy continues to grow,” he says.

“That gives hotels the most ability to block out rates as occupancy picks up, but we are recommending to our clients that they really negotiate hard to secure LRA rates at their top properties and in their top markets. That’s going to give them the most protection against any rate increases.”

Fixed rates, Dyskin notes, also allow companies to budget and allocate anticipated accommodation costs, an increasingly important requirement now companies are spending more heavily on travel post-Covid.

For cities where spend does not merit a fixed negotiated rate, the experts agree dynamic rates do remain worthwhile. “Make sure you have as many of your bookings covered by some sort of deal as possible,” says Grover. “More than 85 per cent of all the hotel bookings you make ought to be covered by some kind of discount. If not, you need to look to plug those gaps.”

However, he does offer a warning about using dynamic rates. “You can only do it if you have an auditing process in place because otherwise you have no way of tracking it,” he says. “Sometimes you might instead get 15 per cent off a ghost rate that isn’t the best available rate but another rate that’s been put in above it.”

Herman and Dyskin also encourage attempting to leverage better rates by offering the same suppliers not only transient room night business but meetings and events spend plus long-stay business and even office space rental.

And Herman has one final, timely piece of advice for the 2024 RFP season. “Launch early,” he says. “A lot of RFPs were launched in October or November last year. Consultants advised clients to do that because they weren’t sure what was going to happen to the economy, but this year they should launch by mid-September in order to get everything wrapped up and ready to roll for the beginning of 2024.”