At the same time, however, travel managers indicated they would be paying more for less from their hotel partners.

Asked whether the industrywide challenge to rehire hotel employees had impacted their preferred partners’ ability to deliver the right level of product and service to their business travelers over the last 12 months, nearly 88 percent said they had seen their travelers impacted. The vast majority of those travel managers noted, however, that hiring trends and service levels were moving in the right direction, but nearly 20 percent of respondents had seen no improvement from their hotel partners in this area over the last 12 months.

The View from the Top

IHG CEO Keith Barr in June cited employment rates off by 20 percent for the U.K.-based hospitality company. CEO Sebastien Bazin said the Accor brands were down by 25,000 employees compared to where they were prior to the pandemic.

“Filling these jobs and providing better customer service is an issue,” Barr said at the time, also pointing to increased labor and operating costs. In an earnings statement in late October, however, he indicated the situation had materially improved, citing employment rates as “high” for the brand.

Bazin, in June, related an anecdote about how he had previously considered composing a note to customers about the labor shortage and asking them to be “indulgent” with the company as it tried to staff up.

“But it’s actually stupid, because if you ask a guy to pay a lower price, he might be indulgent. But at a higher price, he won’t, and I should not be ... asking for that,” he said. “Thank god we can get the better pricing.”

And the lodging sector continues to do so, with third quarter average daily rates and revenue per available room starting to surpass 2019 levels for a string of hotel companies (some on a global basis and others only excluding China), including Accor, Hilton, IHG and Marriott, which were the first of the large hospitality firms to announce their earnings. At least two brands projected those ADR increases to grow in the fourth quarter.

Yet, the strong pricing power isn’t keeping too many business travelers at bay.

STR noted the rising business travel tide in September, offsetting a long-awaited drop in leisure travel. “Recall that for most of this Covid-era, leisure and/or domestic demand have been the primary drivers of hotel performance around the world. The moderation in recovery pace over the past several months suggests there has likely been a reset in demand mix, as above-average leisure demand heads toward normal levels and corporate travel picks up steam,” STR summarized in an end-of-month report. 

“The shift in demand mix indicates sustainability for the hospitality industry, as reliance on the full historical complement of demand drivers should help hotels maintain demand across the seasonal shifts in demand, political instability and economic challenges affecting the various world regions,” according to STR.

Where Should Corporate Buyers Go with Negotiations?

As corporate hotel buyers ramp up programs for 2023, they are bracing for the double-digit hotel rate increases that several suppliers have telegraphed.

“What’s going on with the cost of a hamburger?” Sonesta VP of global and hotel sales Blair McSheffrey asked BTN rhetorically during a conversation at the GBTA convention in August. “We have to cover inflation, and I don't want to give you a wishy-washy answer but it's hard to say 'that's 16 percent' or 'that's 12 percent.' It's different in different markets.”

Marriott's Capuano offered a number during the company's third quarter earnings call. "The early results look positive for at least high single-digit year-over-year rate growth," he said. BTN's survey results were basically on par with that.

Among survey respondents, 13 percent forecast their negotiated rates would increase by more than 10 percent, but 45 percent believed they were in for an increase between 5 percent to 10 percent. Twenty-nine percent of respondents said they were looking at increases of less than 5 percent. Still, that’s a whopping 87 percent of buyers expecting increased rates going into 2023.

GoldSpring Consulting partner Neil Hammond pushed back on the double-digit hype, at the very least, and advised hotel program managers to have a long memory when it comes to rate.

“You have to remember that by and large companies have been rolling over their rates in 2021 and 2022. But they were rolling over the rate they negotiated in 2020, which was likely to be higher than what they negotiated in 2019,” Hammond said. “But if you look at global hotel rates—and take this with a grain of salt because there are some markets that have surged and others that are really soft and buyers have to look at that—but if you look overall at hotel rates, they aren’t very far above where they were in 2019 and, as corporates, we are likely already paying the higher rate that we negotiated for 2020—you have to account for that and not just expect a double-digit increase at face value.”

That is, however, if the corporate was only using a fixed negotiated rate model. During the pandemic, many companies moved to dynamic model, which hoteliers have been encouraging for years. In the dynamic model, corporates accept a percent off the best available rate in the market, often with a safety valve that the rate cannot go over a defined cap in a particular market—if it does, that hotel drops out of the preferred range, at least for that period.

Suppliers like Hyatt, Hilton and Sonesta, discussing the rate and negotiations environment with BTN during the GBTA convention concurred that the market was split, with about 50 percent of corporate buyers mainly using fixed rates and 50 percent having moved significantly to dynamic.

Hotel program consultants data auditors diverged on how buyers should handle the current environment. Hammond recommended dynamic rates on the grounds that the market remained volatile, and corporates were likely to benefit more from low periods than they would save from negotiating fixed rates off current pricing. He also cautioned that fixed rates would continue to put hotel programs in the precarious position of fending off complaints from travelers who ‘found it cheaper on the internet’ as market rates experience volatile troughs in 2023.

Tripbam’s Steve Reynolds, whose company won the People’s Choice Award at BTN’s Innovate for its real-time hotel and airfare contract auditing “of every single booking,” according to Reynold’s Innovate presentation, had a different view and different reasons for his recommendation that corporate buyers lean toward fixed rates as they re-engage negotiations.

“[Dynamic] is a problem from an audit perspective. It’s really difficult to audit, and we keep finding a lot of issues with dynamic, so much so that I used to highly recommend dynamic all the time, but I’m really leaning more toward static these days until the [assurance levels] with dynamic get resolved,” he said.

Reynolds stopped short of pointing fingers at hotels for not abiding by agreements and instead noted there were too many potential points of failure in the data chain where dynamic rates could drop out. How corporates plan to negotiate and what hoteliers will accept, however, may be different.

Volume thresholds for negotiating corporate deals are changing, and corporates themselves may have little data to project accurate—or at least convincing volumes—to prospective hotel partners. Many are still using 2019 numbers, with an X factor aligned with the percent of that travel volume the company recovered in 2022. Some hotel companies have broadened the scope of their small and midsize enterprise programs, others have ratcheted up requirements to qualify for chainwide discounts.

Regardless of the market dynamics and what type of rates hotel program managers decide to pursue, Hammond said it was time for all companies to reset their hotel programs, taking a close look at all their hotel partners and not take for granted that a hotel that served the program well in the past would still be the right partner.

"Our programs have changed, and buyers have to really look at where they still have volume and if they don't, it's time to let go of those partners and streamline the program."

Corporate Still Essential to the Business Mix

That said, hotels will still fight for corporate travel partnerships and the stability it brings to the overall business mix, according to Hammond. “There is still some softness in the midweek, even though you see those higher ADRs on Thursday, Friday and Saturday. Hotels still have the [appetite] to fill those gaps with transient business travel, and they will continue to look for partners that will deliver that volume,” he said.

Sustainability Check-In

Sustainability continues to be a focus for the hotel industry and one that many CEOs and sales VPs spoke about to BTN as an intensifying driver in the hotel RFP process for corporate programs. BTN's survey found that corporates may be asking the questions, but vanishingly few are excluding hotels based on their answers - at least for now.