Corporate

A Demanding Task: U.S. Group Rebound Adds To Hotel Negotiating Difficulties

Originally posted by Michael B. Baker on July 21, 2014 on BusinessTravelNews.com.

As many buyers prepare their annual submissions of hotel requests for proposals, many are bracing for a challenging negotiating season, with industry conditions in the United States putting hotels in a position of increasing  strength, particularly given rising group demand.

“I expect this is going to be a very difficult RFP season,” Financial Industry Regulatory Authority manager of corporate travel services Carol McDowell said in June during The BTN Group’s Trends & Forecasts event in Washington, D.C. “I was hopeful last year, but last year was really difficult. The main driver is that conferences, conventions and citywides are back big-time, and hotels don’t know whether they want to give away the rooms.”

The U.S. hotel industry currently is experiencing “very steady demand increases,” STR president Amanda Hite said in June during the New York University International Hospitality Industry Investment Conference. Through April, year-over-year demand growth was 3.8 percent, which was much higher than anticipated, she added.

While transient demand growth has led the recovery, U.S. hotels also saw an increase in group demand during the first four months of this year. Those increases were spread evenly between luxury and upper upscale hotels, Hite said.

Group demand growth is affecting booking behavior, Marriott International president and CEO Arne Sorenson said during a press conference at the NYU event.

“Group customers are realizing they have to lengthen their booking window a little bit,” Sorenson said. “Folks realize they’re no longer in a situation where they can book as tightly to the meeting, and I suspect as demand continues to build, we’ll see that trend continue to evolve.”

Besides availability,  that group demand growth will put additional upward pressure on the upcoming year’s rates, a situation with which buyers last year did not have to contend. U.S. hotels already are seeing “very positive, robust rate growth” across the board, Hite said. Group rates to date have not rebounded, but the industry should see “pretty good” group rate increases in 2015 and 2016, as that business is being negotiated today, she said.

Buyers who had difficult negotiations last year—if they even received attention from hotels—said the current situation only would add difficulty. McDowell said two long-term hotel fixtures in FINRA’s program last year submitted no bid, even with an offer of 600 to 800 room nights.

“We had to go over the heads at the hotel and talk to the management companies who own them,” she said.

Similarly, Blackboard Inc. senior manager of corporate travel and expense Valerie Fender, speaking at the same event conducted by The BTN Group, said her first round of bids last year was “pretty rough.”

“We had an office in Boston that was brand-new, and we got no bids at all, from anybody,” she said. “If they’re booked, it’s just not logical for them to give you a rate, because you’re just going to be disappointed.”

Buyers will see little in the way of new supply when they enter negotiations this year. While a few U.S. cities, including New York and Miami, are seeing above-average supply growth, U.S. hotel supply growth overall remains well below the long-term average, Hite said. About 68 percent of the rooms under construction in the United States are in limited-service properties, she added.

Hillary Dallas, senior manager of global sourcing and travel for Strategy& (formerly Booz & Co.), said that even though she represents a large-market buyer, the current hotel situation “puts the onus on us to be a little more creative” in negotiating strategy this year. For example, she is considering giving a little more leeway with non-last-room-availability rates, dual rates and light room blocks in which she commits to a certain amount of rooms, though those agreements do not include penalty clauses.

She said another tactic could be “mini-brand agreements,” in which a certain volume is committed to brands within the larger chains.

“It has become more challenging, but the chains are very competitive and want to increase their marketshare,” Dallas said at The BTN Group’s event. “If you come to them with a solution, you can get to where both parties want to be.”

Buyers also can take heart that although the hotel seller’s market currently is forecast to last at least a few more years, the situation could ease once they make it through this year’s negotiations. Hite said U.S. hotel supply growth should increase next year to closer to the long-term average, and both demand growth and occupancy growth should begin to slow somewhat in 2015.

This report originally appeared in the August 2014 edition of Travel Procurement.

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