September 2009 - After an unprecedented year in which the fluidity of market conditions resulted in many travel buyers renegotiating their 2009 hotel contracts midterm, some buyers this request for proposals season are trying to extend their existing hotel contracts rather than start the process anew. Suppliers say they are receptive, but how much they will yield to their clients remains to be seen.
In a July 8-20
Procurement.travel poll, 37 percent of 100 travel managers said they are seeking longer-term hotel contracts. Longer contracts are also a goal for 25 percent on air agreements, 31 percent for car rental, 28 percent for payment, 25 percent for agency and 22 percent for technology.
"Buyers are [seeking longer-term agreements with their travel management companies] because they are doing so in other parts of their travel program, particularly around air, hotel, self-booking tools and technology," noted Chris Fry, Hogg Robinson Group commercial director. "Those who are extending contracts want to benchmark, and have a review of their key performance indicators and their service level agreements, as well as pricing."
Extending Hotel Contracts
"We are trying to [lengthen contracts] with some hotels especially in the Chicago area," said Integrys Energy Group freight and corporate travel buyer Rick Seymour. "The response is pretty good; they definitely want our business and are interested." He noted that amenities--a bone of contention last year "come up right away" of late. Hotels want "to let you know they mean business," he said.
"It's too early to tell what the demand is going to be or what the push back might be from corporate travel partners right now," said Omni Berkshire Place in New York general manager Dan Piotrowski. "Through the next few months, we will start to have more formal conversations. As we head into 2010, we are hoping there will be some modest rate increases or, if possible, at least to maintain margins even with our cost structure."
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"As we head into 2010, we're hoping there'll be some modest rate increases or at least to maintain margins even with our cost structure."
— Dan Piotrowski, general manager, Omni Berkshire Place New York
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To agree to multi-year contracts, though, suppliers said they need incentives. For example, a buyer must be willing "to lock in something long term in terms of market share, room nights and the number of hotels in the travel program," according to Piotrowski. "We are open to [lengthening contracts] as long as it's a win-win for everyone involved."
Longer-term contracts could be beneficial, said Kimpton Hotels sales vice president Christine Lawson, because they could eliminate some RFPs, but deciding to go that route depends heavily upon buyers' willingness to commit volume.
"[Lengthening contracts] is definitely on a case-by-case basis, and it is based on a hotel's relationship with a client," said Colleen McCollum, Carino Hotels vice president of sales. Buyers who are successful would most likely have delivered on room nights after original contracts were negotiated, she added.
Maruca Malloy, Agility Defense and Government Services global travel manager, said that "suppliers are pretty much receptive to it as long as we can provide the volume." Malloy tried to "push all of our market" to some properties that offered a good rate.
Meanwhile, even though she didn't reach airline contract goals, Malloy said she is seeking to extend her 2009 fares and marketshare commitments due to travel reductions. "So far, we haven't received a positive, but we have not received an absolute no either."
Others are skeptical whether longer contracts can be accomplished this year. "[Suppliers] are all reluctant. The success factor in lengthening contracts beyond this calendar year is minimal," said Bob Lichtman, Corporate Solutions Group partner. "It's a gamble and a risk for both parties."
Still, according to Kimpton's Lawson, buyers have been very aggressive this year. If hotels "want to even get an RFP or want to ensure their placement in a preferred program for next year, they may not raise rates at all. No discussion. Your rates stay the same, or, in some cases, in order to get an RFP you have to be prepared to go down 3 percent to 7 percent from your current rate," said Lawson. "Keeping the rate the same is understandable, although a little painful. I would be open to every conversation, but I would still engage in a pretty rigorous conversation about what the benefit would be to keep my rate deflated."
"We all hope the economy turns, but there is certainly an opportunity out there to extend the current modifications of the 2009 bid process and carry that into 2010," said Mark Vilcsek, senior purchasing manager travel services for National Semiconductor Corp. "In all fairness to the hotel properties, corporations need to be sure they are fulfilling their commitments to the hotel because if you haven't, then it's going to be false promises that you are trying to carry into 2010."
