EY Overhauls Hotel Procurement

On a Wednesday evening at the end of May, representatives from hotel companies both large and small waited patiently inside a modest-sized room on the third floor of EY's Manhattan headquarters at 5 Times Square. Some chatted politely across the rows of seats arranged in front of a projector screen. Others milled about, waiting for the presentation to begin. Many had met with EY one-on-one hours or days before to learn how their hotel agreements were faring. But now, they would hear in a broader scope the outcome of a new hotel sourcing format designed more than a year prior by EY global travel, meetings and events leader Karen Hutchings and then refined and executed by the EY hotel team, headed by global supplier leader Tim Nichols. 

The approach, a modified fully dynamic rate program, on its face didn't seem terribly groundbreaking. The component parts Hutchings and her team pieced together have been around for years or even decades at EY and within the hotel and corporate travel industries. The difference rested in Hutchings' willingness to rearrange the old ingredients to create a new formula, one that would move EY from a hotel RFP season that spanned six months each year to one that lasts only six weeks.

Massive Scale, Massive Commitment

Globally, professional services and Big Four auditing firm EY employs 255,000 people and operates out of 700 offices across more than 150 countries. As Hutchings put it, there's no major city in the world that EY isn't in.

The travel, meetings and events program not only is broad but also is constantly changing as the firm enters, exits and shifts personnel among global markets. In fiscal year 2017, EY held more than 2,000 meetings and events annually. It booked 1.8 million room nights through its travel management companies—American Express Global Business Travel, Carlson Wagonlit Travel and Hogg Robinson Group—in 105 countries and purchased about 3 million room nights total.

Prior to fiscal year 2018, EY sourced hotels using a hybrid approach: 2,500 preferred properties in primary markets, plus chainwide discounts with five global brands established through long-term master service agreements. To get to the 2,500 property agreements, Nichols worked with Gail Macajoux, Americas lodging manager, and Darren Jeacock, lodging manager for Asia/Pacific and Europe, Middle East, India and Africa. The trio would labor full-time for six months, sending out RFPs to more than 4,000 properties and battling through multiple rounds of price negotiations to winnow that number to the targeted 2,500.

The process was arduous, and even with the hotel team and an EY analytical team to assist, the volume of properties they could source formed just a drop in the bucket of EY's lodging needs. During the first six months of 2017, EY travelers stayed in more than 20,000 properties globally. "There's not the resources and man-hours to negotiate 20,000 fixed-price properties just in case you might end up staying there," Nichols said.

Building a Better Model

Nichols and Hutchings don't know precisely when the idea for a new sourcing structure first hatched. By Hutchings' recollection, the idea sprung out of her meetings every six months or so with Nichols, Macajoux and Jeacock to discuss EY's lodging program. "The hotel chains are often bandying around the concept of dynamic pricing," Hutchings said. "Certainly for me, it felt like the team was spending a significant amount of time going through the whole RFP process each year and didn't think it was the best use of their time."

To participate in the annual hotel RFP season is to buy into a drawn-out, outdated process that nobody likes and most say is dysfunctional but that few are willing to change. For years, hotel industry stakeholders have been prodding corporates to scale back RFPs or eliminate them entirely in favor of dynamic rate discounts.

A dynamic rate discount for corporates constitutes a percentage discount off the best available rate for all room types at a particular property. According to Tripbam founder and CEO Steve Reynolds, the typical dynamic discount at the property level is 20 percent or more and includes some amenities but is not commissionable. This is not to be confused with a chainwide discount, in which a corporate receives a percentage off the best available rate and that discount covers all participating hotels within that chain. Chainwide discounts are typically 15 percent, according to Reynolds; don't include amenities; and are noncommissionable. And hotels can opt out during times of high occupancy.

Why go dynamic? Some argue that these discounts constitute a better deal for both hotels and corporates because they follow the market. During times of high occupancy, the best available rate goes up, costing corporates more. In times of low occupancy, however, the tables turn and corporates can realize better rates. But Gus Vonderheide, Hyatt VP of global sales for the Americas, said the real value of market-based dynamic rates lies elsewhere. "The misnomer a lot of times with dynamic pricing is that it's going to be a big cost savings; that it's either going to make the hotel a lot more profit or it's going to make the corporation pay a lot less in room rate," Vonderheide said. "Neither one of those are really true. This is more about a win-win from a resource and timing perspective." A dynamic model allows for longer-term contracts, Vonderheide said, enabling travel programs to stop spending several months each year embroiled in negotiations for static discounts.

But for many in the corporate travel world, the current setup for dynamic rates isn't good enough. How, for instance, do programs ensure that they're actually receiving a discount off the best rate available and not just a discount off an arbitrary, inflated rate? And how can a massive program with, say, 3 million annual room nights build a budget and keep from getting fleeced?

These were some of the problems Hutchings and the team had to grapple with in considering the shift to a fully dynamic rate program. Add to the list, EY's network of independent hotel partners, as well as some larger hotel companies whose technology limitations prevent dynamic rate discounts.

To address the rate protection problem, EY leaned into a longtime feature of its hotel program. City caps, which are updated annually, limit the rate travelers can pay in a market. But EY's plan was to share those city caps with hotel partners to let them know that if they wanted EY’s business, they would need to ensure that the hotel rates they offered didn’t exceed the caps. Hutchings summarized it: If you're below the city cap, you're a preferred hotel. If you're above the city cap, you're not a preferred hotel. "We reviewed our existing city caps and expanded them to 585 cities," Nichols said. "We also added over 100 different countries or cities that weren't mentioned in the city caps, so we now have city and country caps." The team leveraged EY's internal real estate and hospitality group to benchmark the caps and make sure they were reasonable.

To maintain relationships with hotel partners that didn't have dynamic rate programs in place, the team determined it needed to redefine what "dynamic" meant to EY. "When we talk about dynamic pricing, for us, it's not necessarily the traditional sense," Hutchings said. "We may have fixed, seasonal rates, but for us, that still makes it dynamic because it's moving up and down." This change, Hutchings added, would allow previous hotel partners to participate with what EY deemed a dynamic rate instead of penalizing them for not having one.

With market caps and a new dynamic definition in place, the team needed to devise a way to track the dynamic discounts. The team turned to a partner of two years, Tripbam, to assist. Reynolds said Hutchings and Nichols presented him with the program fully formed and asked not only whether Tripbam could support the structure but whether he could identify potential pitfalls based on his work with other clients that had gone dynamic. "To be honest, we really didn't come up with a whole lot in terms of reasons not to do it," Reynolds said. 

EY uses Tripbam on an "apples-to-apples" basis. After a rate is booked by a traveler through one of EY's TMCs, Tripbam "shops" that same room type with the same amenities at the same property to see if the price drops between the booking and the stay. When it does, the reservation is rebooked with EY's dynamic discount applied to the new, lower best available rate. Tripbam's frequent shops also allow EY to audit its hotel program, keeping track of whether the hotel companies apply the best available rate discounts correctly.

EY currently has Tripbam fully in place in North America and recently established it in Germany, the U.K. and France. It plans to deploy Tripbam in seven more countries in EMEA and move on to the Asia/Pacific region after that. In countries where Tripbam does not operate, EY uses its TMCs to monitor the rates it's paying.

Even though the new structure will, in theory, open up more options to EY travelers, EY also has incorporated Airbnb into its lodging program in some countries. The average age of the EY traveler is 27, Hutchings said, and they are staying in Airbnbs. "You could ignore it, but it would still happen. We'd much rather embrace these things." Airbnb accounts for only about 0.4 percent of EY stays, Nichols said, but it's still a seven-digit figure, so it's important to manage, and usage is expected to grow.

From Hotel Team to Sales Team

During Hutchings' six-year tenure heading EY global travel, meetings and events, she's gained a reputation for changing things up. In 2015, BTN named her Multinational Travel Manager of the Year for consolidating EY's global agencies from 130 to three and introducing a TMC partnership structure predicated on "co-opetition." Most recently, Hutchings has made a name as a bot evangelist, having introduced robotics into EY's travel program to take easily automated tasks, such as prompting employees who are registered for internal events to book their airfare earlier, out of the hands of humans.

The EY travel, meetings and events team—which has adopted "challenge the status quo, keep it simple and keep innovation top of mind" as its guiding principles—has come to expect big ideas and big changes. Nevertheless, Nichols, Macajoux and Jeacock had some selling to do to the larger travel, meetings and events team before they felt ready to move forward with the new program. "EY is a large organization globally with numerous individuals in high-ranking roles that are stakeholders on a day-to-day basis, and our [travel] leadership team went out to those folks and said, 'Here's what we have in mind going forward this year. Here's how it's going to impact you. Here are the benefits,'" Nichols said. "We made sure we had all the pieces in place. We weren't seeking permission or approval, but we were making sure people understood what was going on."

Working with hotel partners required even more nuance. Some hoteliers were happy with the new arrangement; Vonderheide said Hyatt had other corporate customers that had shifted to dynamic pricing, so he connected the EY team with some to discuss how the change was working for their organizations. Others were skeptical. The modified dynamic rate program didn't change just EY's internal way of doing business, it also challenged the well-worn practices of traditional hotel companies.

EY met with its top suppliers in the spring of 2017 to discuss their plans. EY had six-year master service agreements in place with five hotel companies, and they were set to expire at the end of December. EY's new strategy would mean not only reestablishing master service agreements with those companies but also creating a wider network of "preferred" properties than ever before. "And then we waited, and we waited, and we waited some more," Nichols said. During the Global Business Travel Association convention in late summer 2017, where many corporates commence or prepare for hotel negotiations, hoteliers were anxious because EY hadn't sent out RFPs. August passed. September passed. By October, Nichols said, hoteliers "were breaking into cold sweats."

But then, at the end of October, EY's new process commenced. "We said, 'Six weeks—we're going to get it done," Nichols said. "And we did the process in six weeks. It was a hectic six weeks."

The Results

Back in that room on the third floor of 5 Times Square in May, Hutchings provided an overview of EY's travel, meetings and events program and detailed other initiatives the group had underway before passing the baton to Nichols. As he took his place up front, hotel representatives readied their camera phones to snap pictures of the presentation.

Nichols is a data guy. One stop on his career path was a six-year stint at Travel Analytics. Reynolds said he is a travel manager who can look at things with an analytical, systematic view. So, when Nichols stepped beside the lectern to present EY's program results, he first laid out the current hotel industry landscape with specific figures around occupancy in broad global regions using STR and Tourism Economics data. The takeaway was that occupancy has been at all-time highs in Europe and North America. Nichols moved on to the next slide, and camera phones shot up.

How is EY doing?

For the first four months of the year, EY's rates increased 2.9 percent year over year on a constant dollar basis. In the U.S., rates rose 2.5 percent, while the rest of the world increased 4.5 percent. [Editor's note: EY presented these figures to hotel representatives on May 30. Prior to publication, EY recalculated the global rate increases to account for local currency. On a constant dollar basis, EY's rates increased 0.2 percent year over year globally. Rates increased 0.9 percent in the U.S., fell 0.1 percent in Europe and increased 4 percent in Asia/Pacific.]

Those figures outperform industry benchmarks, Nichols said. EY gleans the rate information from TMC data, which accounts for only 60 to 65 percent of EY's total lodging data. That means, Nichols said, the global rates likely are lower because markets like India, where direct booking is more common than booking through agencies and booking tools, are also lower-ADR markets.

EY kept fixed rates for a subset of hotels—primarily independent hotels, properties in high-risk countries and a few in high-demand/low-supply markets. Beyond that, "the program has negotiated dynamic rates with thousands of hotels at levels that make them competitive in their local markets," Nichols said. EY's roster of master service agreements expanded from five chainwide discounts to 16 and established comprehensive options for EY travelers at more than 35,000 hotels. Those master service agreements run through 2023 and cover the legal relationship between the parties; EY still negotiates the discounts annually.

Using Tripbam, EY achieved $1.3 million in gross savings during the first four months of the year. In the new dynamic environment, EY was getting flooded with so many savings opportunities from Tripbam—"a threefold increase," Nichols said—that EY raised its previous threshold for how much savings warrant an offer.

By shortening the sourcing process from six months to six weeks, Nichols, Macajoux and Jeacock can turn their attention to other areas. The team realized a twofold increase in the number of project rates it has established during the first quarter. Corporate housing move-ins increased 223 percent, and EY is working with long-term-stay apartment provider Urbandoor to make that process more efficient. "When you have the time and the ability to focus on other, more productive things like that," Nichols said, "that is huge in terms of engagement with travelers and doing the right thing for the organization."

The program also has performed well with travelers. In a survey of 293 EY travelers and travel arrangers, three-fourths were more satisfied or equally satisfied with the program as compared with last year. Forty-nine percent noticed a change in their booking experience. "The flip side of that is that half didn't notice a change," Nichols said, despite the significant changes put in place. Sixty-eight percent said their online booking tool was providing a good choice of rates. Fifty-eight percent found the city caps too restrictive; that didn't account for the 100 percent of hoteliers who found the city rate caps too restrictive, Nichols joked to hoteliers in the room at 5 Times Square. Some respondents praised the program for offering greater choice; others were frustrated that certain properties showed up as sold out because of city caps.

Nichols said a pleasant surprise is the number of EY travelers who have chosen to be good corporate citizens. Though points and loyalty still drive a lot of behavior, he said, "when they've bumped up against city caps in a given market, we've seen them move down the brand ladder into more cost-effective brands in the same chain.

The new format also has boosted hotel companies that EY had worked with less in the past. For example, Choice Hotels International has seen a significant upswing in the number of stays from EY travelers in Brazil. "That's the whole allure of the program," Nichols said. "By having a price point or a discount in place pretty much anywhere in the world where you exist, as a supplier, you have the opportunity to win EY's business when our business takes us to those locations."

Refining the Model

EY is phasing "RFP" out of its lexicon. Instead, Hutchings said, it's a renewal process. With dynamic rates in place across the vast majority of its portfolio, EY and its hotel partners can opt to roll them over to next year.

For those properties that still need to RFP, EY is building a tool internally, further cutting costs the company traditionally would have spent on an external RFP tool.

Nichols said six weeks might have been "a little tight" to introduce the program and the team may expand it by a week or two. Nevertheless, the heavy lifting is done, he said, and the idea is that the process will get easier year over year.

At the same time EY launched its new rate program, it also unveiled an internal TripAdvisor-style hotel feedback tool called EY Lobby. In its first six weeks, Lobby gained 16,000 hotel reviews and received 5,000 hits from travelers researching lodging options. The tool is linked to travel risk management partner International SOS and is pushed to travelers post stay. EY will use data from the tool to notify a hotel when its travelers are receiving subpar ratings. Additionally, hotels will have the capability to offer promotions to EY travelers through Lobby.

Since Hutchings and Nichols have started discussing the changes they've made to their hotel program, they've gotten some eye rolls and comments to the effect of, "You're EY; it works for you," the implication being that change is only possible at a massive global program. Hutchings counters that small companies can be more agile because they have fewer stakeholders. But people need to be willing to change. "In business, in general, people need to be bold," Hutchings said. "That's exactly what we've done here. That's what companies do, whether it be investment banking, insurance, whatever. They are bold in what they're doing when they're talking about client-facing things, and yet in travel programs, people tend to be more conservative. We just decided that we didn't want to carry on being that way."