March 2008 - While every company has unique needs for outsourcing, travel buyers may find some elements of corporate hotel programs--including rate auditing, benchmarking and commission recovery--are best meted out to a third party for optimal efficiencies and savings.
As many buyers have found, the corporate room rate agreed upon in hotel negotiations is not always the rate viewable in the global distribution system accessed by the corporate booking tool or travel agent, because either the individual properties were slow to load rates into the system or they were loaded incorrectly, according to consultants. However, auditing room rates can be tedious work.
"In my world, the only part of the hotel program that I would outsource is auditing of rates," acknowledged Cheryl Davis-West, a member of the National Business Travel Association hotel committee and assistant travel manager for Boise, Idaho-based Washington Division of URS Corp. (formerly Washington Group International Inc.). "That is, audit to see the rates are loaded correctly and that we are getting the correct rate."
By its very nature, rate auditing requires an outside perspective, said Bob Langsfeld, partner in Hotel Solutions by The Corporate Solutions Group. "CFOs and finance understand the importance of using an independent, outside expert" to verify that the rates negotiated have been properly loaded into distribution systems and online booking tools, offered by agents and booked by travelers, he said. Even companies with extensive in-house resources for travel management benefit from outsourcing auditing services.
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"In my world, the only part of the hotel program that I would outsource is rate auditing."
— Cheryl Davis-West, NBTA hotel committee member and assistant travel manager, the Washington Division of URS Corp.
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"The industry is such that the cost of hotels is going up anywhere from 8 percent to 10 percent at a minimum per year," Langsfeld said, adding that rates are projected to continue their rise for the next few years. "Especially in a seller's market, the corporations need to have oversight, and the oversight needs to be independent. It's not very logical to have anybody audit themselves."
External solutions providers also can provide expertise and up-to-date technology that a corporation can use in their travel programs without heavy investments, sources said.
"[Auditing] can be laborious. If you have a program of 1,000 to 2,000 hotels, you need to find a provider that has an automated way to do that," said Neysa Silver, director of the Hotel Solutions Group consulting division of Carlson Wagonlit Travel. Silver said more customers have been signing up for auditing services during the past three years. "Customers are starting to understand the lost savings involved," she added.
For its clients, Carlson Wagonlit Travel's Hotel Solutions Group conducts five annual audits, aiming to effectuate at least 90 percent of client rates being loaded successfully. Last year, 57 percent of all properties in its clients' first audits were flagged for rate loading errors, Silver said.
Langsfeld said audits have revealed that his clients' travelers do not receive the correct hotel rate in more than 20 percent of bookings.
Still, as important as is rate auditing, it is not the only reason to seek third-party assistance. Silver said an increasing number of clients also are using CWT for benchmarking their hotel programs against other companies in their respective industries. Large travel management companies have the wherewithal to compile a base of client information that can be used as a yardstick to measure a program's success.
Some third parties also offer expertise on such specific program components as commissions recovery, Langsfeld said. When travelers book a hotel outside of the corporate preferred program--which happens in about 50 percent of bookings, he said--a company could collect commissions. When a traveler books a preferred hotel and doesn't get the negotiated rate, those bookings also are commissionable. The recovered commissions could cover the cost of outsourcing that task, Langsfeld argued.
"It's silly not to do it. Because of the technological jumps that we've been able to make, we're able to do something you couldn't do a couple years ago," he said.
Outsourcing also offers the ability to easily add staff without permanently putting more workers on the payroll. This is particularly advantageous for hotel programs, since corporate rate negotiations predominantly occur every year during the same small window. Silver said 90 percent of CWT clients negotiate hotel rates during the fall months.
Some companies choose to outsource management of their entire hotel programs to their agency partners. Many CWT clients have what amounts to an entirely outsourced program, though the services are contracted out separately, Silver said.
