As corporate rate and contract negotiation season heats up, there is a significant difference between what hoteliers want and what buyers are expecting to pay. To make matters stickier, buyers are looking for more value-added concessions within the prices they will agree to for 2014, according to sources.
Based on his recent survey of hotel executives and corporate travel managers, Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at the NYU School of Continuing and Professional Studies, said hoteliers are looking for rate increases of 6.5% to 7.5% or even more, while buyers want to keep them to 4% to 5%.
Hanson has predicted that the average net result of negotiations will be increases between 5% and 6%.
"The lodging industry correctly understands that rates have suffered in recent years," Hanson said. "In 2008, the national (average daily rate) for the U.S. was $107.41, according to STR. In 2013, we will finally have exceeded $107 again. So that means that the hotel industry has been subsidizing travelers as a result of a prolonged period of not being able to raise rates-and even decreasing rates. So now there is just a lot of catching up to be done. And buyers don't understand that history, because they don't want to hear about the problems hotels were having four or five years ago."
Tom Faust, VP of sales at Dallas-based Omni Hotels & Resorts, which operates 57 properties in the U.S., Mexico and Canada, said he finds Hanson's predictions accurate. Because STR, parent company of Hotel News Now, has projected an approximate 5% increase in ADR growth year over year, Faust said a 5% to 7% rate increase in corporate contracts "sounds pretty accurate."
However, he noted, there will be significant variations market to market.
"We're not going to see 6% increases across the board," Faust said. "And we're very reluctant to say we want 5% or 6% increases because it's a market by market proposition. And that means that what we're going to do in very high demand markets like New York or Chicago is different from what we're going to do in markets with less demand."
Robert Frazier, manager of analytics and global sales at Hyatt Hotels Corporation in Chicago, cautioned that he believes it's too early to make any assumptions about final numbers. "But, I do think we'll see increases of 7% to 9%," he said. "But I also think buyers will increasingly be looking for the value-added piece."
Reality, by the numbers
Jan Freitag, senior VP of global development at STR, said expectations should be measured against the current state of the U.S. hotel industry.
"The industry has posted some very strong results over the last couple of years," Freitag said.
"Rooms sold are at an all-time high, and the ADR figures and room rates are increasing well above the rate of inflation. And all of those metrics have an impact on corporate rate and contract negotiation season."
Because the pendulum has finally swung back to a seller's market, Freitag said, "room rates are going to continue to go up at a healthy pace, as they have over the last couple of years."
For year-to-date through August, Freitag said, revenue per available room is up 5.8%, driven by an increase in room rates of 4.1%.
Issues and trends
Even though hoteliers have considerable leverage when it comes to corporate rates, Frazier said, there is a noteworthy change in the negotiating climate this year.
"I think the headline so far would be that customers are looking for value more than ever before," he said. "And that means value in price and also in the amenities travelers want now, like breakfast or Internet. So one of the things we're seeing so far is there are now additional things, in addition to rate, that buyers are asking for that they haven't asked for in the past."
Part of that emerging trend can be attributed to the depths of the buyer's market of 2008-2009 and the concessions hoteliers made.
"But it's also due to the fact that corporate travel managers are increasingly looking at how a (profit and loss) statement works on their side (of the equation)," Frazier said. "And I think that more and more, they are realizing there are finite numbers they have to work within. And so the question more of them are asking now is, 'How much can you save us?'"
In that context, breakfast and Internet service are the hot topics now in conversations about value-added services included in the room rate, he said.
Vicki Schell, VP of distribution at Dallas-based Vantage Hospitality Group, agreed with Frazier that it's too early to draw many conclusions about the results of ongoing negotiations. But she is also less certain that hoteliers will end up with the pricing they hope for.
"Hotels want to drive rates again because demand is back," Schell said. "But I think the real question so far is who really does have the leverage to drive rates? And if it's the hotels, then the question is whether corporate buyers are willing to give in to that."
She also said that in her observation, hoteliers are less willing now than a year or two ago to give away amenities as part of the rate, because they want to make sure their bottom lines are as healthy as possible.
"I don't think any hotelier is willing to sacrifice rate anymore," Schell said. "We all have to make sure now that we get the bottom lines we anticipate and want."
However, Frazier said, that is not as simple as it sounds.
"Yes, we can probably hold rate in markets like New York, San Antonio or San Francisco," he said. "But there are other places, like Orlando (Florida), where rate is not necessarily back, so there will be a little bit of give."
Source: HotelNewsNow
