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Hotel negotiations getting tougher
Interviews conducted by this month by Business Travel News (BTN) with Fortune 500 corporate travel managers find tougher hotel rate negotiations for 2005 have made them rethink their approach to negotiations this fall for 2006 rates. Strategies run the gamut from seeking chainwide deals to providing negotiated rates in more markets to better ensuring the equitable application of last room availability provisions.
Adobe Systems found the cost of their 2005 hotel program rose disproportionately to their air program. “Airline prices have come down so much, while hotel prices have gone up,” Janice Coley, of Adobe told BTN. According to Coley. “As a result, the gap between the percentage of the travel dollar spent on air and the percentage spent on hotel is closing…Approximately 30 percent of the travel dollar is spent on hotel.”
BTN reports that travelers still tend to think of air as the big-ticket item. “The surprise in 2005 was that the cost of a three- or four-night hotel stay could be significantly higher than the cost of the airfare,” said Bill Davidson, manager of corporate travel and meeting services for International Sematech in Austin, Texas. “The way the market’s taking off, that’s only going to continue in 2006.”
Key business travel cities in 2004 were the first to see occupancy and room rates accelerate. “Demand and stronger pricing in 2005 are spreading into secondary markets and there has been little resistance to double-digit increases in average daily rate,” said JP Morgan Chase analyst Harry Curtis at a bank-sponsored lodging conference this month.
Most of the incremental pricing has occurred Monday to Wednesday nights. “This implies the strength is in transient bookings, where demand has not been elastic,” Curtis said.
Coley, Davidson and Rostanzo expect even higher rate increases for 2006. “What they don’t understand is that the hotel business is cyclical,” Davidson told BTN. “Then in a couple of years when occupancy and room revenue are down, they’ll want to know why we don’t value the relationship.”
Unlike buyers whose headquarters are in the suburbs, where hotels tend to be midprice and, therefore, have lower rates, Adobe is located in downtown San Jose, where most of the hotel supply is full-service. “Demand for rooms has been going up significantly, which gives the hotels an advantage,” Coley said.
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