Buyers Look to Assuage Expected Rate Hikes
By Chris Davis
While hoteliers and analysts alike have offered some signals that the stout overall hotel demand landscape may be beginning to soften, particularly among domestic leisure travelers, most travel manager respondents to BTN's annual Hotel Survey nevertheless expect another year of negotiated rate hikes in 2025 and are exploring various strategies to mitigate them.
While few respondents promised dramatic change to the structures of their program—a sign, perhaps, of full post-pandemic normalization of corporate travel structure—many volunteered they were looking to drive additional share to preferred properties and looking to limit the number of hotels in their programs as ways to keep next year's rates from increasing too sharply, or even hold them steady.
BTN from late June through early September surveyed 299 travel managers and procurement executives about the state of their hotel programs and their expectations for the coming year. About 68 percent of those respondents said they expect their organization's 2025 corporate hotel rates on average to increase year over year.
Few buyers projected structural changes to hotel programs; but many volunteered they were looking to shift share to fewer preferred properties.
In this year's survey, a little more than half of those respondents who anticipate a 2025 hotel rate increase project that hike to be less than 5 percent year over year. About 40 percent of those who foresee a hike project it will be between 5 percent and 10 percent, with the remaining 10 percent forecasting a hike of more than 10 percent.
Only 10 percent of all respondents projected a year-over-year rate decrease, and the remaining 22 percent expect to hold the line and keep rates steady.
Even though a solid majority expect hikes, these results are a little more optimistic for buyers than last year's survey, when 77 percent of respondents expected such rate hikes—probably correctly, as it turns out, according to most buyers and hoteliers.
Perhaps there's reason for a little buyer optimism anyway. While the largest U.S. hotel companies haven't projected any 2025 corporate rate increases, they've spent this year, at least through the second quarter, highlighting business travel demand as steadily increasing—Hyatt Hotels Corp. president and CEO Mark Hoplamazian called it "extraordinarily encouraging," for example, and Hilton Worldwide CEO Christopher Nassetta said it was "still grinding up."
But domestic U.S. leisure demand has been another story. Once scorching hot in the aftermath of the pandemic, jitters about inflation and the broader economy have dented demand among lower-income travelers, to the point where analysts slashed hotel performance projections for 2024 and the major public hotel chains all cut their 2024 revenue per available room projections.
It's possible that slowing leisure demand could spur hoteliers to more aggressively seek corporate business in 2025, potentially offering buyers a stronger negotiating position than in recent years.
Notably, one large travel management company already is tracking a decline in hotel rates. According to FCM's Global Quarterly Trend Report—published by its FCM Consulting arm—the average daily hotel room rate logged by FCM's corporate clients in the first half of 2024 in most global regions declined year over year, including by $13 in North America to $237 and by $11 in Europe to $180, even as business lodging demand remained solid.
That’s not reflected CWT’s crystal ball, which projects North America hotel rates will end 2024 with an average 2.8 percent increase, reaching $184, and will rise another 2.2 percent in 2025 to hit $187. While that’s a far cry from the meteoric rate increases tracked in 2022, it’s still not a downward trend.
For now, most respondents to BTN's survey expected their organizations to spend more on lodging in 2024 than they did in 2023. (That's a measure of aggregate spending, not average rate.) About 64 percent of the travel manager respondents projected their organizations would spend more on lodging this year than they did in 2023, with another 18 percent forecasting about the same level of spending. Of those projecting an increase, more than half forecast it would be by 5 percent to 10 percent year over year, with about 30 percent projecting an increase of less than 5 percent.
In terms of booking activity, about 59 percent of respondents projected their organizations would book more room nights in 2024 than they did in 2023, with about 23 percent expecting little change. Of those projecting an increase, as with spending, more than half forecast it would be by 5 percent to 10 percent year over year. About one-third projected a booking increase of less than 5 percent.
Hotel Program Projections
294 buyer respondents
287 buyer respondentsPreview
286 buyer respondents
Looking for Angles
When BTN offered respondents the opportunity to detail their goals for their hotel programs for 2025, one objective far outweighed any other: reducing cost. Dozens of respondents cited the need to control or cut spending, but they are pursuing any number of strategies to meet that goal.
Many cited the need to reduce the number of properties listed in their organization's hotel program as a measure to avoid spreading spending too thin. "Reduce the number of preferred hotels in each top market," wrote one respondent as a goal. "Reduce the number of properties in cities," wrote another. "Reduce number of properties in key cities to provide hotels with more room nights to maintain hotel rates as flat as possible YOY," wrote a third.
Shifting share to fewer hotels requires a level of influence over travelers' choices that few programs have achieved; leakage rates historically average about 50 percent in hotel programs.
The list goes on. Reducing the number of preferred properties in a hotel program to consolidate spending with fewer properties is a program management tactic that theoretically increases volume and share at those properties, offering a stronger hand in negotiations. Doing so effectively requires a level of influence over travelers' hotel choices, so that they are discouraged from booking outside the program, and buyers would need to ensure their program still offers in-program availability at newly preferred properties.
Determining which hotels to include in a program requires a strategic approach as well. One respondent plans to "concentrate on hub office locations and drive room nights to two properties per city." Another plans to "increase staff engagement by getting more feedback after their hotel stay. We hope this information will help to improve our roster of preferred hotels. We also will plan ways to encourage more staff compliance in booking the preferred hotels."
Dynamic Changes
One key question for buyers is their willingness to accept dynamic rates—a set percentage off a hotel's best available published rate on a given day—instead of a flat, static annual rate. Hotels in many cases are pushing the former.
"Suppliers are making us aware ahead of the 2025 season that dynamic rates are a primary focus for them," American Express Global Business Travel global hotel practice line lead Cameron Spence recently told BTN Europe. "From a corporate perspective there's still a degree of uncertainty around dynamic, most particularly because it's challenging to forecast their actual cost. But we will probably see corporates trial them, most likely in secondary and tertiary markets where room night volumes aren't at critical levels."
One buyer said they would counter a hotel's push toward dynamic pricing with a request to secure last-room availability and a cap on the dynamic rate.
It's an approach that many organizations might not meet with enthusiasm. Only 8 percent of respondents to BTN's survey indicated their organizations "primarily" negotiate dynamic rates in their hotel programs, although an additional 59 percent do include a mix of dynamic and fixed rates.
Some respondents, though, when detailing their goals for 2025 indicated they planned a closer look at the prospect of dynamic rates. One planned to "try to change from majority static negotiated to a mix of static and dynamic," while another wanted to "move more rates from fixed to dynamic," and another "would like the rates to roll over and look at more dynamic rates where it makes sense." One respondent said they would counter hotels' request to consider dynamic pricing with a request to secure negotiated last-room availability and a ceiling on the published rate to which the discount would be applied.
Others, though, wanted no part of dynamic rates, perhaps like the 29 percent of respondents who indicated their programs "primarily" include fixed rates. "Hold rates flat, only accept set pricing and no dynamic rates," wrote one respondent of their 2025 goals, with another vowing to secure "savings and low increases, LRA and no dynamic pricing acceptance."
286 buyer respondents
285 buyer respondents
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