Dominant trends in hotel pricing show companies that have embraced a dynamic pricing model were generating significant savings on their hotel spend as properties slashed their rates to combat falling occupancy levels, according to FCm Travel Solutions.

Published: 10 Sep 2009

Dominant trends in hotel pricing show companies that have embraced a dynamic pricing model were generating significant savings on their hotel spend as properties slashed their rates to combat falling occupancy levels, according to FCm Travel Solutions.

FCm Travel Solutions’ general manager global and client hotel programmes, Joe McCormack, said due to the current market conditions, corporates on dynamic pricing and those using Best Available Rates (BARs) and Non-Last Room Availability (NLRA) pricing were optimising their hotel spend.

“During the past 12 months we have seen evidence of companies driving significant savings using the dynamic pricing model. This is where clients pay a rate which is a percentage off a hotel property’s Best Available Rate (BAR) instead of locking in a fixed static rate. On this model corporates will commit to an agreed volume target with the hotel, to obtain a percentage discount off the BAR rate,” McCormack said.

“In some cases hotel rates are a third of what they were when rates were quite high a few years ago, so companies that previously agreed to use a dynamic pricing structure are now paying a discounted rate, negotiated from an already heavily reduced rate."

Perception

The company highlighted that dynamic pricing used to be a “dirty word” because when hotel rates were on the rise a few years ago, companies were paying more almost on a weekly basis because their corporate negotiated rates fluctuated according to demand. Because of this, a lot of corporates weren’t comfortable with dynamic rates and were prepared to pay a little more to have a fixed rate throughout the year.

At the same time, McCormack added that it’s not all doom and gloom however for companies locked into annualised contracted rates. He said that while companies not using dynamic pricing may be missing out on some cash savings in the short term, they would still gain in the long term.

“For the long term outlook it’s more important for businesses and travel management companies to focus on the relationship with the supplier and the longevity of that relationship,” he said.

Opportunity

Current market conditions are also seeing businesses with lower volumes of hotel room nights being given greater opportunity to negotiate contracts with suppliers that in busier times would not have considered contracting rates with such clients.

According to FCm it’s unlikely that major hotel chains across the globe would increase their rates in the immediate future. Across most markets economic recovery is expected to be gradual and it may take some time for hotel companies to regain the heady corporate rates of 2007.