In an unprecedented move, hotel companies—stung by the drop in business travel post-Sept. 11—are lowering the bids they already had offered buyers for 2002 rates in order to increase market share in particular locations. In some instances, hotels are coming up with lower bids just to ensure that they are included in corporate hotel programs.
"Hotels seem to be in such a survival mode right now, they'll do anything to get market share, with some individual properties looking simply to stay in operation," one buyer told Business Travel News last week.
"There's been much more revisiting rates than I've ever seen before," said Jon Elliott, travel manager at Andersen.
In more normal negotiating seasons, buyers would feel they had the hotels' best offer on the table by now and could sign contracts. "This year, hotels are coming back a second and third time with lower rates at the point you felt you already had their final say," said Kevin Maguire, Tokyo Electron America travel manager.
Buyers had seen some rate renegotiating during the summer for remaining 2001 business because of the weakening economy. "This was unusual in itself, but hotels seemed to be trying to get a foot in the door for 2002 at the time," said Bill Davidson, Sematech International manager of corporate travel and meeting services.
According to buyers, it's highly unusual for rates to change once a "final bid" has been made. "It's amazing how much has changed in a year," Maguire said. "A year ago, hotels were not only holding the line on rates, but buyers were being asked to pay a premium for things like last room availability. This year, the premiums have dropped off almost across the board."
Much more is open to discussion than in recent years. "In return for market share, there's much more willingness to negotiate on a whole range of benefits," said Beth Caligiuri, strategic procurement manager for The Coca-Cola Co.
Rates aside, cancellation fees and early departure fees were expected to be major sticking points this year. "Cancellation fees are going away in many cases, but some hotels are still trying to hold the line on the early departure charges," Maguire said. With travelers trying to speed up their business trips in the present environment because they want to get home sooner, hotels might find themselves with a rash of early departures—and no guests waiting to fill those rooms.
In light of recent industry performance, hotel companies' anxiety isn't hard to fathom. U.S. occupancies for September—usually a peak month for business travel—were down 15.9 percent over the prior year, according to Smith Travel Research, while room revenues were down 23.4 percent. The declines have been most pronounced at full-service hotels, which tend to attract the most business travelers.
For their part, hotel executives said they are reacting as necessary to a quickly changing marketplace. Their immediate concern has been restoring profitability after the dramatic declines following Sept. 11. Occupancies gradually have started to recover, and the pace of reservations for November and December also has improved.
"Our results are in line with this," said Ravi Saligram, brand president of the Americas for Six Continents Plc, formerly Bass Hotels & Resorts. "Generally, suburban markets tend to be performing better than key metropolitan areas."
Michael Leven, CEO of U.S. Franchise Systems, said the industry still was grappling with the fear factor. "It's most prevalent when travel entails an urban destination. The fear, by the way, isn't about getting blown up on an airplane as much as it is about getting stranded away from home," he said.
"Overall, we're quite pleased with the pickup in demand that we saw in October," said Simon Firmin, director of marketing for the Four Seasons Hotel Philadelphia. Firmin added that occupancy rates reflect the health of an individual market and that such a market as Philadelphia had experienced some overbuilding.
Ironically, the terrorist attacks occurred just at the point in the request for proposal process when buyers and hotels were getting to serious rate negotiations. "Initially, everything ground to a halt big time," Andersen's Elliott said. "Understandably, the first priority right after Sept. 11 was to make sure your contingency plans were in place, that stranded travelers, for example, had a hotel room when they needed one."
Sept.11 also put hotels at a potential disadvantage. "Many RFPs were due back Sept. 15 or Sept. 30," Coca Cola's Caligiuri said. "But, given the circumstances, many hotels weren't able to fully comply by that date, so buyers had to be more lenient." Rates need to be finalized, agreed upon and contracts signed in time for accepted rates to be loaded into the global distribution system—and squatter rates removed from the GDS—in time for travelers to book reservations for Jan. 1 and thereafter.
Ironically, too, this was the first year that the new modular electronic RFP form, developed by the National Business Travel Association, was available. "With all the pricing information now consolidated in the core module, it's easier and more convenient for buyers to get the rate information they need," Elliott said. What wasn't expected was that hotels would come back after the RFP was completed and revise rates downward. Overall, the modular format has been positively accepted. "Considering the pressure buyers have been under this season, the streamlined approach was especially useful," said Caligiuri, who sits on the NBTA hotel committee.
For the first time, the RFP has a separate module devoted to safety and security concerns, an issue obviously now more on buyers' minds. "With the consciousness around security having changed, buyers may well want to get more specific on these questions," said Connie Cirillo Freeman, Pitney Bowes director of corporate procurement and travel services.
However, given travelers' reluctance to fly in the weeks after the attacks, some hotel companies have seen an increase in drive-in business. "Some business travelers," Six Continents' Saligram said, "have opted to drive four hours, where previously they may only have been willing to drive two or three hours."