Inflation prompts business travel buyers to suspend negotiation of hotel rates for 2023

Skift grip

Companies are holding their cool because hotels have the upper hand right now when it comes to dictating rates. It’s a gamble to leave negotiations until this late, but you have to wonder how long prices can continue to climb.

Matthew Parson

Hotels are set to clash with travel buyers as they try to lock in rates for next year – rates that have fallen slightly since the second quarter of this year.

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

“Covid has certainly shown the true value of our relationships with suppliers and partners,” Nikki Rogan, global director of travel at Fujitsu, told Supply Management. “Some hotels have postponed our rates and some airlines have kept deals in place. Covid has really highlighted the value of these partnerships.”

These partnerships will now be tested.

Travel buyers typically issue RFPs and offers at the end of the summer to lock in fares for the following year. But many are now delaying procurement for their hotel program, based on a survey of 150 travel buyers conducted during Tripbam’s Market Snapshot webinar on Tuesday.

Speaking at the event, the CEO of the audit and booking platform revealed that the average hotel rate in New York in 2019 was $355, while today it was $458 , according to its corporate booking data. Businesses saved an average of $32 per night, compared to the general public.

“It doesn’t bode well for the bargaining season as suppliers will try to drive these rates up significantly due to the public rate situation,” said Steve Reynolds.

Overall, hotel rates are up 15% from 2019 levels, but are up 8% month-over-month. This is despite volumes and an occupancy rate of around 30%, which defies typical hotel revenue management practices where it is the increase in volumes that should drive any increase in prices.

“So the rate is leading the occupancy. This is another indicator that it will be difficult to maintain the discounts you have or to obtain discounts in the future,” he added. And until recently, most primary markets, such as capital cities, had lower hotel rates than secondary cities, such as Austin and Scottsdale in the United States, which were getting a boost from pensions. company. Cities like London and New York in particular will have caught up, buoyed by the lifting of Covid testing requirements.

“During the summer months there will be many families who have not traveled for two years. You suddenly have insanely high fares and airfares and then you have these (corporate) budget caps in place, where companies think about avoiding travel,” Reynolds said during the webinar.

pass the summit

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

“Wait until Q4 to put deals in place for 2023. That’s when the market will soften and you’ll be more likely to get a discount,” Reynolds added. “I know that doesn’t leave much time.”

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

“If you think rates are going to flatten and fall in 2023 because of a recession, you better be aggressive,” Reynolds said. “If you think they’re going to keep going up, go for the 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 must also vary their approach to working with hotel groups, depending on market share and volume objectives. For example, a company might dedicate 80% of its market share to a certain chain, in order to get a good deal, if it felt that it was unable to deliver a specific number of nights. “For some channels, market share is important,” Reynolds said. “Prove you can switch sides.”

Meanwhile, he added that data from the platform, which covers 2,500 customers, showed tech companies had yet to fully resume travel with volumes at 50% of pre-pandemic levels, compared to to most of the other sectors which had reached 80%.

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