High occupancy sets tone in corporate rate negotiations
High occupancy sets tone in corporate rate negotiations
02 NOVEMBER 2017 8:17 AM

While the heyday of high corporate rate increases has ended, hoteliers are finding they can still push for modest rate increases in 2018 with their corporate clients.

REPORT FROM THE U.S.—As hoteliers negotiate with their corporate clients for bookings in 2018, they’re finding they still have some room to push for rate increases.

Although these increases aren’t as high as the industry was able to command years ago, a number of factors are allowing hoteliers to raise rates from 2017 levels.

In his latest forecast, Bjorn Hanson, clinical professor at the Tisch Center for Hospitality and Tourism at the New York University School of Professional Studies, wrote high occupancy levels are helping hoteliers counterbalance the leverage their clients have through increasing supply and alternative accommodations.

“Following among the largest percent and dollar increases in corporate contract rates in decades of generally between 5.75% to 7% for 2016, 3% to 4% percent for 2017, the forecast for 2018 rates is for an increase of typically 2% to 3.5%,” he wrote.

Similar environment
Travel buyers understand the hotel industry is experiencing high occupancy levels, and rates are going to go up as a result, said Cory Chambers, VP and chief revenue officer at Hospitality Ventures Management Group.

However, they also know there’s new rooms supply coming in, so they expect increases won’t be substantial and will be in line with inflation, he said.

Both 2017 and 2018 will show corporate rate increases flattening out a bit compared to previous years, Chambers said. Buyers are providing a little bit of pushback against stronger sales approaches, he said, so it’s incumbent upon hoteliers to make sure the buyers understand why bids are coming back the way they are.

Some corporate clients have expressed concerns over changes in cancellation policies, Chambers said. But it’s important to communicate to these clients that the policy changes have minimal to no effect on the company’s ability to negotiate deals.

“Most travelers have their plans locked in more than two days out and have the flexibility beyond two days to confirm their travel,” he said. “It’s been a hot topic of conversation in theory, but in practice, there’s been no material effect on the process.”

The negotiation process has been pretty much the same as previous years, said Lynn Prater, SVP of sales and marketing at McKibbon Hospitality. Negotiations have been ongoing all year, but this is the peak time for it, she said.

Travel managers and corporate clients have a responsibility to their companies, she said, and McKibbon has a responsibility to its hotel owners and investors. Both parties are trying to find a common ground that benefits them equally, she added.

Continued rate growth
Chambers said his company is expecting to grow its average national corporate rates between 3% and 4% in 2018. Every hotel account is different, he said, and not every account is taking an increase.

“Some are taking larger than inflationary increases because of the required concessions or stay patterns,” he said.

The overall range is within the company’s expectations, Chambers said. The markets in which its properties operate comprise mostly full-service hotels and are consistent with the global and national forecasts on revenue-per-available-room growth, he added. There are some opportunities to grow revenue through occupancy, he said, but most of it is coming through average daily rate.

Although each hotel’s rate is market-driven, Prater said overall her company will see corporate rates increase between 2% and 3% in 2018. That amount seems to match with the industry overall, she said.

“Most everything I’m reading has predictions for a modest rise in global hotel rates,” Prater said. “Travel in 2018 will be similar to 2017. The rates in publications I’ve read are in the range of 2% to 4%, depending on the market.”

For 2018, the local market position in the current pricing cycle varies based on city location and demand, said Kim Knop, VP of sales and marketing at McNeill Hotel Company. The national averages project rate increases of 3% to 5%, she said, but some cities will see higher rate changes, such as 8% to 15%, based upon location and seasonal demand.

McNeill has three properties in Destin, Florida, that benefit from high demand during the spring and summer and have an offseason from November through February, she said.

Demand picks up after spring break begins, Knop said, which creates an opportunity to work with corporate customers. The higher demand during the summer means typically higher rates, but her company can work with corporate clients to negotiate the rates down.

“It has been very successful,” she said.

Negotiation strategies
Occupancy has been fairly flat in most markets this year, said Isaac Rodriguez, VP of revenue strategy and distribution at Twenty Four Seven Hotels, so his company has been trying to push corporate rates above a level with which they would normally be comfortable, and then standing its ground.

From prior experience, many key accounts are aware Twenty Four Seven Hotels might not entertain a second bid, he said. That comes from educating sales managers and directors of sales for those accounts that the company will be firm with its first offer, he said.

“We’re taking calculated risks,” Rodriguez said. “It’s paid off this year. We’re looking to do the same next year.”

This new approach benefits from the fact that many of the brands have provided useful, measurable data, Rodriguez said. The brands’ corporate pricing tools provide the analysis and show why the company should set these agreements in certain fashions, he said.

“We now have really sophisticated applications that give specific values on whether they’re adding value or displacing business,” he said.

Having earlier discussions with customers regarding pricing for the next year will ensure a hotel is prepared for rate negotiations on the due date, Knop said. She added that her company’s successes can be attributed in part to reviewing account production and engagement with the customer.

“You don’t want to implement the ‘set-it-and-forget-it’ rate strategy with your accounts,” Knop said. “Staying in tuned with your accounts keeps you informed and up-to-date with their travel needs. Meeting and connecting with clients throughout the year will not only keep relationships strong, but will provide a good insight as to what the customers’ future travel needs are for your hotel.”

It’s beneficial to both the hotel company and the client to maintain a strong relationship, which is formed over years of working together and forges a trust between the two parties, she said. With that relationship in place, the hotel company can explain certain developments, such as increases in fixed costs, which can then help explain why there is a rate increase.

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