REPORT FROM THE U.S.—Corporate travel will continue to lead the recovery for the remainder of 2011 and into the beginning part of 2012, and because of strong meeting-business demand hotels have established pricing power not seen in several years, according to electronic booking data from Pegasus Solutions.
Despite the industry overall recovering at a slower pace than hoteliers have been accustomed to, the corporate travel market is still showing positive year-over-year growth globally. The global distribution system channel alone, which Pegasus uses to measure corporate bookings, grew by 6.1% in September 2011 versus September 2010. In North America, GDS bookings grew 3.8% year over year.
“So we definitely have not slipped back into the downturn,” said Julie Parodi, senior director of strategic planning for Pegasus and editor of The Pegasus View.
With access to more than 60,000 travel agencies and processing nearly 5 billon transactions a month, Pegasus is in a unique position to use electronic booking data to highlight trends emerging in the hospitality industry. Pegasus can provide data on forward-looking bookings approximately four months into the future.
Another trend Pegasus sees in the corporate world is steady average-daily-rate growth. Corporate rates grew year over year by 3.5% globally in September and a surprising 4.6% in North America alone.
Some of that rate growth can be attributed to group rates that were negotiated during the downturn sort of “washing through the pipeline,” Parodi said. A lot of it, she said, also stems from what is going on in the marketplace.
“Despite the headlines, a lot of financial companies are in a better position today,” she said. “To that degree they greatly realize the benefit of face-to-face meetings. They really understand the competitive edge that meeting face to face gives them over their competitors, and they’re not really willing to give that up.”
Pegasus noted an interesting trend, though: Length of stay and lead times have both leveled off. Parodi said business travelers today are following more closely leisure-traveler trends.
“Just as families are still keeping their vacations on the family budget but maybe shortening them or staying closer to home, corporations have been keeping their lengths of stay closer to prior years. It’s a way to keep trips on the schedule but evaluate whether everyone still needs to attend the entire length of the meeting.
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“They’re looking at other expenditures to keep interests down but still attend and drive profits.”
Therefore, Parodi said, a smart strategy for hotel sales teams in the near future would be to closely monitor “cost per trip.” Travel management companies and hoteliers should work together to keep those costs down, she said.
Because peak leisure travel season is over in North America for the most part, Parodi said it was a nice surprise to see leisure travel numbers in the region continue to rise. On alternative distribution systems, which include third-party electronic booking data and what Pegasus equates to leisure guests, bookings grew 5.6% in September 2011 over the prior year. In comparison, August (the end of leisure season) grew only 4.2% over the prior year.
“The unexpected boost could be attributed to more people being flexible and looking for more value from their trips,” Parodi said. “They’re trying to stretch their dollars and are looking to shoulder seasons for a cheaper way to vacation.”
Looking at future booking data, leisure travel does seem to slow a bit in October, she added.
September leisure rates in North America were up 5% over the prior year, Parodi said. Hotels aren’t eyeing the unstable financial markets and pushing their panic buttons.
“Global ADR increased 3% in September,” she said, “so that is nice to see. Even when you look outside of North America where there was more hesitation due to the Euro debt price, rate still stayed ahead. It’s nice to see hoteliers aren’t caving in.”
Because leisure travel appears it might slip slightly in October, Parodi recommends hoteliers really plan out and give promotions that offer top value for the price. She suggests sales teams play up their hotels as a part of the local destination, even teaming with local tourism boards to combine advertising budgets.
Looking at year-over-year growth, it’s still safe to say the larger cities and gateway cities are driving demand because they have a stronger mix of business and leisure, which also presents the best rate-growth opportunities.
However, Parodi said, as leisure travelers look to travel shorter distances, other areas have a lot of opportunity to capture those guests.
“The bigger gateway cities will have a greater mix of international tourism as well,” she said.
In Mexico, where drug violence has kept many hoteliers up at night, Pegasus data on the whole country didn’t seem to be affected. But when Parodi broke the numbers down to individual cities in Mexico, there could be reason for concern.
Mexico City’s average daily rate was much weaker than it was in 2010, for example. Cancun, however, didn’t show as much decline. Overall, the cities in Mexico that capture group business are showing marginal or sporadic declines in demand and rate.
“For business travelers, one, it’s probably not their first time traveling to that city and they know to stay in secure locations. Their company certainly isn’t going to send them to a dangerous location,” Parodi said. “But if you’re traveling with your family and you have different areas competing for your business, that’s a different story.”