2010 hotel negotiations preview

Published: 08 Jul 2009

Insight: A promising year for buyers

As travel managers take the preliminary steps to building their 2010 hotel programmes, the outlook is hopeful, with pricing likely to soften further and more flexibility on both minimum and maximum room volumes.

High summer is when most people think about heading to the beach and building sand-castles with their kids. For travel buyers, it means something quite different: starting work on building their annual hotel programme.

As buyers try to concentrate on spreadsheets instead of sun-tans, they can at least take comfort from the fact that negotiations for the 2010 programme will get under way with buyers firmly holding the advantage for the first time since 2004. From 2005 to 2008, they had to battle with double-digit rate increases in an extreme seller’s market. For 2009, hoteliers started by attempting to hold rates, but the situation transformed as the global economy and traveller numbers went into steep decline towards the end of 2008.

When it became apparent that hotels were prepared to drop their rates after all, many buyers delaying the signing of agreements beyond the normal end of the negotiating cycle in December. Buyers who had already signed their deals were not disadvantaged either, says Bob Brindley, vice-president of Advito, the consulting division of BCD Travel. “When hotels found they weren’t selected for client programmes, they became much more aggressive and reopened negotiations, especially as best-on-day rates at many properties had fallen below negotiated corporate rates,” he says.

As a result, deals for 2009 were still being signed as late as May and June of this year. This led in turn to the clients who contracted late having to make a difficult decision. “Some buyers asked whether they should lock in rates for 18 months or so to the end of 2010,” says Brindley. “We told them the hotels would not be prepared to give them as good a price for so long a period. It has proved to be the right decision. Rates in many cities are likely to soften further, so they will definitely maximise their return by negotiating again for 2010.”

Looking ahead to the prospects for next year’s programme, there are three main issues to consider for buyers: price, volume, and whether to buy the best deal on the day.

Price – more rate cuts to come?
It is very early to make forecasts, but broadly speaking Brindley thinks the trend will split according to size of location. Large international gateway cities should continue to lower their rates, while secondary cities will range from small decreases to small increases.

“The decline in business travel trips is close to bottoming out but there are still some high-volume markets which will come under pressure,” says Brindley. “In part, this is because they have new capacity coming online that was in the planning stages during the boom years. However, it is also because their potential for further decline is much greater. The major cities were the ones which posted the heaviest rate increases earlier in the decade. A £350 rate in London, for example, has more room to fall than a £125 rate in the UK provinces.”

Volume – more flexibility
“In normal times, hotels won’t usually negotiate with a client for less than 200 room nights per year, but this year they will do it for as few as 500 nights,” says Brindley. “There is no maximum limit either. In 2006-07, hotels were saying some client room requirements were too large. For example, they could only take 500 room nights from a client, not 5,000, because the yield from them wasn’t high enough and they were able to sell those rooms to other clients at a higher rate. Now it’s the opposite.”

Even if a company cannot promise as many nights as in the past, a hotel may well still be interested. “If you can demonstrate you are moving market share, you will win better discounts,” Brindley says. “You can do this by, for example, reducing from using five hotels in the same city to three.”

Buy best on day?
With so many bargains around as hotels scramble to fill unsold rooms, it may be tempting for companies to think they can simply buy the best rate on the day and not go through the lengthy process of supplier contracting. Brindley counsels strongly against this. “You could do it but it would mean leaving the price you pay totally up to the market,” he says. “On average, your negotiated preferred rate will be cheaper majority of the time. You can always pay less by switching to a best-on-day rate but having the agreements saves you from having to pay more.”

(By BCD Travel)

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