REPORT FROM THE U.S.—The years of declining negotiated rates have ended, according to Stephen Fitzgerald, COO of Sabre Hospitality Solutions.
“Hotel construction slowed dramatically during the downturn,” Fitzgerald said. As a result, growth and supply are going to be pretty constrained while the economy recovers, and Fitzgerald believes the industry will see negotiated rates continue to rise.
In 2009 and 2010, the industry was in a decreasing negotiatiated rate environment. 2011 was the first time in several years there was stability in negotiated rates, he said.
Rates are finally improving in 2012, Fitzgerald said. “The majority of markets are either the same or roughly increasing.”
In 2012, among the top 25 markets defined by Sabre, there was a 2% year-over-year average increase in negotiated rates.
Fitzgerald said the data only represents the company’s clients’ patterns, not the entire patterns in the U.S. Still that 2% increase is meaningful, he said, because in 2011 the average change in negotiated rates was between -1% and 0%.
Chicago stood out as the market with the highest increase in negotiated rates, increasing 16% over 2011, according to Sabre.
The average increase New York experienced was 3%, a surprise to Fitzgerald, who expected to see a higher increase from the market because of the large amount of lending corporations using the company’s request for proposal tool to bid on New York in 2012.
Of the markets tracked by Sabre, the greatest decrease in average negotiated rate was seen by Phoenix; the market went down 5% in comparison to 2011.
An aggressive approach to raising rates
Island Hospitality Management, which has approximately 80 assets in 22 states, is carefully evaluating travel trends in the negotiated segment and adjusting its strategy.
Island’s President Tim Walker said executives now feel comfortable taking an aggressive approach when it comes to increasing rates.
During the downturn, the company found there was no demand falloff in their hotels among the negotiated segment. Corporate guests were traveling more often but staying for shorter periods of time.
“As these companies claimed to be struggling, they were looking for flat negotiated pricing or to go backwards in pricing,” Walker said.
With some clients, the company remained flat in pricing for three years.
As executives of Island began to notice a peak in occupancies in their hotels, they decided it was time to take a stronger approach to pricing.
“We eliminated any account that didn’t give us at least 300 roomnights or more,” Walker said.
In addition, Island put each client’s roomnight volume into what they call “buckets,” which determine rate increases based on historical travel patterns.
“The shorter you stay, the more you pay,” Walker said of the “buckets.” A client arriving on a Tuesday and staying for two nights might pay $169 per night, but a client staying between five nights and 11 nights might have a rate of $159 per night.
Although Walker described Island’s approach as “aggressive,” he said the company was careful to assess its clients’ needs as well as its own. Island’s end-goal was to answer the question, “What’s the best way for us to take advantage of our times, not take advantage of our customers?”
The key is to form a mutually beneficial situation for both parties. “You need to take your time … and hold everyone’s best interest at heart. But when business demand is good, you can’t be afraid to be as aggressive as possible about raising average rates,” he said.