Credible data and only moderate rate increases put a new spin on rate negotiations

 As travel buyers make the traditional late-summer start to their annual hotel negotiations (a process still undertaken by 84 per cent of travel managers, according to a May 2023 survey by HRS), there is a sign that 2024 will prove less painful than its predecessor: unsolicited rate offers from suppliers.

The average increase in negotiated rates logged by CWT for 2023 programmes was 7-8 per cent, “which wasn’t quite as bad as some suppliers forecasted but still a pretty hefty increase,” says Andrew Herman, senior manager for hotel consulting at the travel management company’s Solutions Group consultancy wing. “We are expecting an increase in negotiated rates for 2024 but not quite as high as last year.

“We anticipate a little more balance between suppliers and buyers. We have noticed a big increase in unsolicited bids from suppliers, which to us means there is an appetite to add corporate customers. A lot of hotels’ business since the pandemic has been from leisure customers. We do still expect leisure demand to be quite high but that is going to level off a bit.

“Some hotels have even come back and lowered their corporate negotiated rate during the year. With the increase in unsolicited bids, there’s an opportunity to have more challengers invited into a hotel programme, which will help with those cost increases as well,” Herman adds.

Other hotel rate experts share Herman’s optimism. “I don’t think rate rises are going to be as bad as for 2023,” says Peter Grover, managing director Europe for price assurance and audit specialist Tripbam. “Last year, some hotels refused to speak to travel managers because they didn’t need them. That might prove short-termist if leisure volumes dip as people feel the pinch economically.”

Similarly, booked rates through self-styled “lodging-as-a-service platform” HRS are up by double digits in 2023, but for 2024 “we are expecting single-digit increases, maybe 5-7 per cent,” says the company's procurement consulting director, Alexander Dyskin.

Regional variation

As always, the headline trends mask numerous geographical variations. “North America still has strong leisure demand, which means rates are staying high,” says Grover. “Across EMEA we are seeing some softening of that as inflation hits the cost of living.”

HRS has observed rates remaining depressed in China and other Asia-Pacific destinations where demand has not recovered post-Covid. More generally, Dyskin expects rates to rise faster in large cities which attract both business and leisure visitors. In Germany, for example, HRS tips rates to rise 7-9 per cent “but in cities like Berlin and Munich we could expect even double-digit numbers,” says Dyskin.

Every city has its own supply and demand story to tell, which is why, say both Herman and Dyskin, buyers need to understand those factors and develop bespoke negotiating tactics for every destination where they have substantial volume.

On the supply side, the pipeline of new properties remains slow after Covid, but there are exceptions, Grover noting both the Middle East and India. In the case of the latter, that is just as well because Tripbam has seen demand treble, sending rates rocketing.

However, in other regions, mainly in secondary or even tertiary cities, supply is constrained by an additional factor: a continuing lack of hotel staff, which means some rooms remain mothballed, says Dyskin.

Changing habits 

Paradoxically, it is often those same secondary markets where corporate demand has recovered faster. Financial and professional services companies, which tend to frequent gateway cities, are making up to 50 per cent fewer bookings than pre-Covid. For example, says Grover, “London is 50 per cent down on business transient demand,” although he added that “the hotels are still full with people on their holidays”.

On the other hand, according to Dyskin, construction, manufacturing and automotive companies are travelling as much as ever, fuelling strong demand in decidedly non-touristy cities, such as Stuttgart in the case of Germany.

This year we have much better data and therefore we can select a set of more strategic partners. The data is more credible

Buyers therefore need to reassess not only the supply and demand narrative for key cities, but also within their own companies – narratives which in some cases were transformed dramatically by Covid. “If people haven’t come back to your head office in Canary Wharf [London’s financial district], for instance, you don’t need many contracted rates any more but you might still need them in Barcelona because everyone is flying there for their team meetings,” says Grover. “It’s a case of keeping nimble.”

Fortunately, for the first time in four years, buyers have substantial recent booking data behind them to understand their travel patterns. Suppliers will also be looking for those improved insights, and improved bookings to go alongside them. “Hotels are saying this year that they want volume commitment,” says Dyskin. “But this year we also have much better data and therefore we can select a set of more strategic partners. The data is more credible.”

The inevitable consequence of better visibility for both sides is that corporate clients need to return to the first principles of procurement and consolidate with a small number of preferred hotels. “We’re seeing a shift towards reducing suppliers: really having a solid partnership to limit those rate increases and drive savings,” says Herman. “But it’s super-important to have a look as well at challenger properties and plan to shift share if that’s going to make more sense.”
Rate considerations

Buyers also have to consider what kind of rate they negotiate with hotels. Herman, Grover and Dyskin all see hotels pushing dynamic rates – an agreed level of discount on the best available rate. For cities where clients have significant spend, however, the three are unanimous in urging buyers to avoid being steered down the dynamic pricing route. Instead, buyers should insist on negotiated fixed rates, which almost always prove cheaper in a rising market.

Herman counsels buyers holding out as well for guaranteed last room availability on negotiated rates. “In initial bids we have seen come back for 2024, hotels are continuing to demonstrate a strong preference for dynamic and non-LRA rates, especially as occupancy continues to grow,” he says.

“That gives hotels the most ability to block out rates as occupancy picks up, but we are recommending to our clients that they really negotiate hard to secure LRA rates at their top properties and in their top markets. That’s going to give them the most protection against any rate increases.”

Fixed rates, Dyskin notes, also allow companies to budget and allocate anticipated accommodation costs, an increasingly important requirement now companies are spending more heavily on travel post-Covid.

For cities where spend does not merit a fixed negotiated rate, the experts agree dynamic rates do remain worthwhile. “Make sure you have as many of your bookings covered by some sort of deal as possible,” says Grover. “More than 85 per cent of all the hotel bookings you make ought to be covered by some kind of discount. If not, you need to look to plug those gaps.”

However, he does offer a warning about using dynamic rates. “You can only do it if you have an auditing process in place because otherwise you have no way of tracking it,” he says. “Sometimes you might instead get 15 per cent off a ghost rate that isn’t the best available rate but another rate that’s been put in above it.”

Herman and Dyskin also encourage attempting to leverage better rates by offering the same suppliers not only transient room night business but meetings and events spend plus long-stay business and even office space rental.

And Herman has one final, timely piece of advice for the 2024 RFP season. “Launch early,” he says. “A lot of RFPs were launched in October or November last year. Consultants advised clients to do that because they weren’t sure what was going to happen to the economy, but this year they should launch by mid-September in order to get everything wrapped up and ready to roll for the beginning of 2024.”