August 11, 2022

Inflation Prompts Corporate Travel Buyers to Hold Off Negotiating Hotel Rates for 2023

Skift Take Companies are holding their nerve, because hotels have the upper hand right now…

Inflation Prompts Corporate Travel Buyers to Hold Off Negotiating Hotel Rates for 2023

Table of Contents

Skift Take

Companies are holding their nerve, because hotels have the upper hand right now when it comes to dictating rates. It’s a gamble leaving negotiations until so late, but you have to question how long prices can keep climbing.

Hotels are set to clash with travel buyers as they try to lock in rates for next year — rates that have been edging north since the second quarter of this year.

Most corporate travel buyers will have enjoyed relative discounts compared to the higher inflation-linked rates tourists will have been paying, thanks in part to hotel chains rolling over their corporate discounts from 2021 as the Omicron variant disrupted travel.

“Covid certainly showed the true value of our relationships with suppliers and partners,” Nikki Rogan, global travel director at Fujitsu, told Supply Management. “Some of the hotels rolled over our rates and some airlines kept deals in place. Covid really did bring the value of those partnership to the fore.”

Those partnerships will now be tested.

Travel buyers typically issue request for proposals and bids in late summer in order to lock in rates for the following year. But many are now delaying sourcing their hotel program, based on a straw poll of 150 travel buyers conducted during Tripbam’s Market Snapshot webinar on Tuesday.

Speaking during that event, the auditing and booking platform’s CEO revealed the average hotel rate for New York in 2019 was $355, while today it was $458, according to its corporate booking data. Companies have been saving an average $32 per night, compared to the general public.

“It doesn’t bode well for negotiating season, because suppliers are going to try and drive these rates up significantly because of where the public rates are,” said Steve Reynolds.

Overall, hotel rates are up 15 percent on 2019 levels, but increasing 8 percent month on month. This is despite volumes and occupancy hovering around 30 percent, which defies typical hotel revenue management practice where it’s rising volumes that should prompt any increase in price.

“So rate is leading occupancy. That’s another indicator that it’s going to be tough keeping the discounts you have or getting discounts going forward,” he added. And until recently most primary markets, such as capital cities, were displaying lower hotel rates than secondary cities, such as Austin and Scottsdale in the U.S., which were getting a boost from corporate retreats. Cities like London and New York in particular will have caught up, buoyed by the lifting of Covid testing requirements.

“In the summer months, there’ll be a lot of families that haven’t taken a trip for two years. You’ve got incredibly high rates and air fares all of a sudden, and then you have these (company) budget caps in place, where companies think about trip avoidance,” Reynolds said during the webinar.

Passing the Peak

Now that those primary markets were recovering, travel buyers are being urged to continue to hold their nerve until the end of the year to contract new deals with hotels.

“Wait until the fourth quarter to put deals in place for 2023. That’s when the market will soften and you’ve got a better chance of getting a discount,” Reynolds added. “I know that doesn’t leave a lot of time.”

The question then will be around which type of discount is the right one. Dynamic pricing involves a discount on the best available rate, while a static rate can also be applied.

“If you think rates are going to flatten out and be down in 2023 because of a recession, you’re better off going dynamic,” Reynolds said. “If you think they’re going to continue to go up, go with static — if you can get it. And if you can, how are you going to know if it’s good if it’s higher than what it was.”

Companies should also vary their approach to working with hotel groups, based around market share and volume goals. For example, a company could commit 80 percent of its market share to a certain chain, in order to strike a good deal, if it felt it was unable to deliver a specific number of nights. “For some chains, market share matters,” Reynolds said. “Prove you can shift share.”

Meanwhile, he added that the platform’s data, which covers 2,500 clients, was showing technology companies had not yet fully resumed travel with volumes at 50 percent of pre-pandemic levels, compared to most other sectors that had reached 80 percent.