Moving slowly towards a seller’s market

Stanley Slaughter looks at how buyers might be faring in hotel negotiations given the current economic climate.

A month ago it would have been fair to write that as negotiations between hotels and their corporate clients warmed up, buyers were likely to find that the “good” days of the last two or three years were gone. 

With the global economy in the doldrums during those three years and travel, both leisure and business, down, hotels were ready to drop prices and offer attractive add-ons to woo guests. All the gathering signs this year however – recovery in the Far East and continuous reports of growing volumes of business travel – suggested that 2012 would be better for the suppliers.

But that analysis might no longer stand. The International Air Transport Association, which could never knowingly be mistaken for a ray of sunshine, is predicting a grim year for aviation, while even the briefest of glances at the European and US economies suggests both regions are teetering the edge of another recession.

So where does this leave the hotel negotiations? Basically the situation is likely to differ from region to region. Experts like Bob Brindley, VP for Advito, the consulting arm of BCD Travel, and Pauline Houston, Carlson Wagonlit Travel’s meeting and events and hotel programmes director UK & Ireland, see some cities as almost immune from economic vagaries. Hoteliers in places like New York, London, Hong Kong and Singapore are likely to demand and probably get double digit rises in rates.

Other cities, in the midst of the Eurozone crisis, remain firmly in a buyer’s market, like Greece, Ireland, Portugal, probably Spain and possibly Italy. The rest are on the more familiar ground of moving, slowly, haltingly from a buyer’s to a seller’s market. If events do not take a turn for the economic worse, the speed of this movement is likely to increase in 2012 and 2013.

But there is another complicating factor, at least as far as London is concerned: the Olympic Games in late July and early August 2012. Brindley has noted that some hotels are already asking for five to ten times their normal price during this period. It is, as he says, “outrageous”.  Houston noted that some hoteliers were seeing the Games as a short term opportunity.

Fortunately there are others who are working with their larger corporate clients to fix a reasonable rate during a period of high demand which will not jeopardise the relationship.

But outside this period and city, many buyers are likely to see hoteliers answer their RFPRequest for proposal with an “aggressive” rise in rates. As Brindley points out, many hoteliers have not got back to the rates of 2008, before Lehman Brothers crashed, and would ideally like to see an average rise of 7%-9%. On the other hand, buyers are looking to hold any rise down to between 1% and 3%.

In the inevitable horsetrading, both Brindley and Houston suggest each side still has some leverage. In the US and Europe, the number of new hotel rooms in the pipeline for 2012 is around 70,000 indicating a slowing down of new hotels.  This will benefit the sellers rather than the buyers. But a different situation exists in Asia where 129,000 new rooms are due to open, giving the upper hand to the buyers.  

Houston also points out that in cities where demand is weak – this includes some of the UK’s regional cities like Liverpool – hotels will not want to reduce rates too far because of the difficulty of getting them back up again. So they will be prepared to throw in other extras, like parking, breakfast or WiFi as part of the deal, as counterweights to a higher rate.

Houston said an important factor for buyers to exploit was how much their travellers spent in the hotels they stayed at. “Do they buy hotel meals? Do they entertain guests? Many female travellers like to eat in their hotel. A lot of corporations like their staff to eat in the hotels as it is safer than going out.

“In some cases these meals can be 40% of the spend in a hotel. Companies can never guarantee this but they can point to past trends. When we do a review of a company, we always ask what their hotel spend has been including meals, as this is the true value of their stay,” she said.

The advice for buyers, Brindley said was to be ready to stand your ground and argue. This included resisting dynamic pricing and insisting on last room availability. The deals they get are likely to be less good, on average, than last year but it is not yet fully a seller’s market.

Houston echoes the view. “Corporates have been fortunate in the last two years, but the best buyers will have taken the opportunity to create a new base for negotiations.”