Twenty-twenty was an unprecedented year in the travel industry in many ways, one of the most surprising being what the Hotel Reservation Service (HRS) calls “the dawn of a buyer’s market” in the hotel industry.
Like all dawns, this one was preceded by darkness. The effects of the coronavirus pandemic on the hotel industry have been numerous, including:
- overhauls to cleaning protocols;
- implementation of social distancing and touchless options;
- reducing and revamping food and beverage offerings and service;
- revamping and limiting housekeeping services;
- closing and reopening fitness centers, spas, and pools;
- and, most importantly, numerous hotel closures, staff layoffs and furloughs, and impending bankruptcies.
In his annual trend analysis report, Bjorn Hanson, adjunct professor at NYU’s School of Professional Studies Jonathan M. Tisch Center of Hospitality, says most hotel vendors are suddenly facing “the lowest occupancies in history (generally forecast to be 50 percent for the US for 2021) and the largest decrease in average daily rates in history (20 to 35 percent).”1
With health and safety protocols driving booming Zoom sales and other virtual meeting options like GoToMeeting, Google Meet, and Microsoft Teams, the pandemic has impacted travel buyers and managers, too, as they struggle to forecast when, where, and how much their employees will travel in 2021.
“It’s a buyer’s market. This is a certainty that may be clouded by the reduced level of corporate demand today, but it is nevertheless true. With rates down, occupancy down, and too much supply, travel buyers have the power to ask for better terms with hotels, which are desperate for volumes,” says TRIPBAM. “Yet, with the majority of corporates still halting or significantly holding back on business travel, delivering volume or providing accurate projections of expected volume for when travel resumes becomes difficult.”
In spite of these uncertainties, there are some concrete steps travel managers can take to secure better hotel rates in 2021.
1. Evaluate Changing Business Travel Patterns
If your employees frequently travel between your branch offices or to and from specific project sites, your 2021 hotel offerings may look similar to your 2020 or 2019 program’s.
However, Account Manager Carol Del Giudice suggests that most business travel patterns will be significantly different post-pandemic. “Companies that shut down physical offices now have virtual ones, so travel patterns are changing. They are meeting clients in neutral places because of those office closures.” And “neutral places” often means areas with hotels outside of negotiated contracts, so many travel managers should shift lodging options accordingly.
The question is whether you should respond to the shift by increasing or decreasing the number of hotels in your program, or both.
2. Assess Your Corporate Hotel Needs
Consider revising the number of properties/vendors in your hotel program if:
- You are no longer traveling to a particular area as a result of office closures (yours or your client’s), a change from in-person to virtual meetings, a change in project location, border closures, etc.
- You need to concentrate room nights at fewer properties to negotiate better rates
- Your vendor has permanently closed a preferred property
- You are willing to adjust your hotel program, including changing the number of properties and renegotiating rates, as the pandemic evolves and your travel needs change
- Your vendor contacts have changed and you are no longer satisfied with the service
- Your vendor is refusing to negotiate lower rates for 2021
- Your employee duty-of-care policy requires properties with cleanliness/safety certification or accreditation
- Your travelers have provided negative feedback regarding a vendor’s health and safety measures
- You have new projects or offices requiring more convenient lodging locations
- You can negotiate lower rates or different types of rates to decrease your hotel spend
3. Understand Your Rate Choices
Static rates—a flat rate implemented for an agreed-upon term but with seasonal fluctuations and date exceptions—are the most common type of negotiated rate. In addition to being available only 60–85 percent of the time, static rates may be a vestige of another era in travel. But they could still have a place in your travel program. As part of a dual-rate strategy, static rates can serve as a rate cap that controls travel spend when the market fluctuates.
For example, the Company Dime reported that TRIPBAM’s static rates were an average 3 percent higher than market rates in September 2020. That’s why TRIPBAM CEO Steve Reynolds suggests treating your negotiated static rate as a rate cap.
“In January, travel buyers were getting a 25–30 percent discount off market rates; now they’re getting 2 percent, or maybe even [sic] negative discount, because market rates have dropped 35 percent on average,” said Reynolds.
Dynamic rates—normally a percentage off the best available rate (BAR) that is negotiated with individual properties—are applicable 100 percent of the time. There are no room-type restrictions, blackout dates, or seasonal fluctuations. And when the market is difficult to predict, a dynamic rate lets travel managers take advantage of bargain basement room prices.
“We recommend a shift to dynamic rates,” said Client Consulting Services Manager Dallas Stewart. The discount won’t always be as high, but you’re still getting a better rate than BAR on blackout dates. It’s pretty standard for dynamic rates to be 10–15% off BAR.”
Chainwide rates—a flat percentage off BAR that is applicable to all hotels within a specific chain—generally don’t include amenities or provide last room availability. According to Stewart, chainwide discounts are most applicable to high-volume programs with an annual spend of $250,000 or more within the same chain family. They are also advantageous when your travelers stay at one hotel brand in various locations and may be more relevant in a pandemic market that emphasizes consistent health and safety measures above cost.
Amanda Hyun, Director of Sales and Marketing for Cambria Hotel Napa Valley, says that travel buyers’ number one concern is currently health and safety and notes that in this market it is “crucial now more than ever to outline the different cleanliness standards.”
4. Consider Using a Blend of Rate Types
As mentioned earlier, a dual-rate strategy may provide the best cost-control option in 2021. Implementation and Account Support Manager Adelina Litter suggests that travel buyers negotiate static and dynamic rates for 2021 to take advantage of the lowest rates throughout the year.
In September 2020, BCD Travel surveyed travel buyers to ascertain trends in rate sourcing. As shown in the graphic below, a significant majority—82%—said they would use a mixture of static and dynamic hotel rates in their 2021 travel programs.
“Creating just the right mix of rate types and amenities included in the negotiated rate process has always been a balancing act, even for the most seasoned sourcing professionals,” said Business Travel News in a recent white paper. “But in the next year or two, as the impact of the pandemic unfolds, the pressure to mix savings with safety, and flexibility with perks, will require even more finesse. Luckily, the vast majority of organizations are already starting from a good place in their programs—they just need to keep evolving in changeable times.”
According to Del Giudice, hotels are keeping lines of communication open to help travel managers understand these changes.
“Most hotels are reaching out to clients with an existing program. They are lowering rates and trying to get travelers back into their hotels. The onus is on the hotelier to make stays more appealing to the traveler, so they are offering more points, more amenities, and lower rates,” she said.
Hyun agrees that price is always near the top of travel buyer’s want lists. “One way we are combatting this for those who are on a static rate program is to offer the lowest rate guarantee at time of booking. Many of the national accounts are on this program now as it will default to the lowest rate available when searching on booking platforms and the GDS.”
5. Reconsider the Hotel RFP
With decreases in staff and fewer operating hotels, many relationships essential to the RFP process have dissolved. So travel managers must reach out to unfamiliar contacts and, in some cases, contacts in different positions within the company, to complete the RFP process.
“Travel managers are finding that some of their contacts are on furlough or have been let go. This makes it even harder to know who to reach out to and find a contact that’s familiar with them and their program,” said Client Consulting Services Manager Adelina Littler.
Hyun estimated that only 33% of RFPs were released during the traditional season and that “many are waiting until Q1 to submit or do a roll over with rates.” Hyun sees more companies—about 60%—switching to a dynamic pricing model “with anywhere from 10–25% off BAR on net, non-commissionable rates.”
6. Use Your Data
Whatever rate strategies you implement, keeping a close eye on travel patterns and travel spend enables you to adjust your program as the pandemic situation evolves and better prepare for 2022 rate negotiations. Littler and Stewart advise travel managers to audit hotel rates using benchmark options in the Prime Analytics reporting tool available in AirPortal.
“Track your discounts through your Domo and Prime Analytics reporting tools. Look at year-over-year spend and savings by benchmark, as well as by preferred properties. Track the savings at least every six months in preparation to negotiate rates for 2022,” said Littler.
According to a BTNGROUP white paper, most travel buyers agree with Littler’s recommendation: more than 50% of them review their hotel rates two to four times annually.
7. Consult Your Account Manager
If you’re unsure how to pursue rates for your travel 2021 program, take advantage of the consultative services offered by your account manager.
“We can offer the best approaches and give clients guidance whether they want to negotiate new rates or even pursue a hotel RFP,” said Stewart. “While we suggest that clients skip the RFP this year, since many hotels don’t currently have the sales reps to manage the RFP process, we can give them access to an RFP tool if they prefer.”
Suggested Strategies and Best Practices
With so much fluctuation in the travel industry, it’s important to remain focused on your lodging goals, whether that’s sourcing safer hotels, improving traveler satisfaction, or getting lower rates—or a combination of those elements. Keep these strategies and best practices in mind as you tailor your hotel program for 2021:
- Use dynamic rates or a mixture of rates.
- Review hotel health and safety measures before you roll-over or negotiate new rates.
- Remove from your program hotels that don’t have pandemic-related health and safety accreditations or prominently displayed health and safety measures on their websites.
- Concentrate your room nights at fewer properties to obtain greater savings.
- Review and audit rates often—at least twice annually.
- Use a hotel RFP tool only if absolutely necessary.
- Keep abreast of ongoing marketplace changes.
- Use benchmarking to audit hotel rates.
- Evaluate the need to improve hotel attachment rates.
- Educate travelers regarding the increased safety and savings that come with booking compliance using preferred vendors.
- Mandate use of preferred vendors and consider implementing a liability waiver if travelers book off-channel.
- Be prepared for hotel satisfaction metrics to change as hotels respond to returning business travel—your program may determine whether you negotiate contracts for shorter or longer durations.
- Be prepared to add hotels to and remove hotels from your program as needed.
- Verify that required amenities are included in your negotiated rates so your travelers don’t incur additional charges.
- Consider obtaining lower rates for extended stays that result in less frequent travel for your employees (e.g., office to project base trips).
1 Hanson, Bjorn, PhD. US Corporate and Contract Hotel Rate Negotiations for 2021 Forecast – Negotiating at a Time of Unprecedented Uncertainty. Trend Analysis Report. September 22, 2020.
Disclaimer: As business travel needs vary from corporation to corporation, changes in vendors are company-specific managerial decisions, not a result of Christopherson Business Travel publications.