With the hotel sourcing season for 2019 corporate negotiated rates well underway, it's expected that U.S. corporate rates will increase between 2.5 percent and 3.5 percent next year, according to an analysis from New York University's Bjorn Hanson.
Hanson, an industry consultant and adjunct professor at the New York University School of Professional Studies Jonathan M. Tisch Center for Hospitality and Tourism, said both buyers and sellers went into this negotiation season from perceived positions of strength. Hotels entered with expectations of increases in the 4 percent to 5.5 percent range and corporates entered expecting increases of 1.5 percent to 2 percent.
For hoteliers, occupancy is the highest it's been since the early 1980s. Though they've struggled to leverage that to drive significant rate growth in recent years, average daily rate is increasing more in 2018 than it did in 2017, between 2.5 percent and 3 percent this year, and that trend is expected to continue in 2019. Group demand, Hanson notes, has already increased more this year than previously forecast.
The hotel industry's inability to grow rates as expected in recent years is no secret to travel buyers. Many, Hanson said, feel they overpaid between 2016 and 2018 by submitting to greater corporate rate increases than the industry was able to realize overall. To illustrate the industry's slow rate growth, Hanson pointed out that the last time occupancy was above 66 percent, as it is now, average daily rate increased 12 percent—9.5 percent over the rate of inflation. In 2018, rate is expected to increase only 0.5 percent to 1 percent over inflation. Another benefit to buyers is the growing range of hotel alternatives, including Airbnb, which has been gaining acceptance in the corporate travel market.
Another factor impacting the 2019 hotel negotiation season is concern around member rates and nonrefundable rates from brand.com websites that, though aimed at cutting into commissions paid to online travel agencies, are sometimes lower than corporate, contract or convention rates. Services and amenities, which have been a major negotiating point in the past, have been less of a priority this year.
Hanson also highlighted the growing trend of a new fee or surcharge that's becoming common for upper-upscale and luxury urban hotels—appearing as an "amenity," "facility" or "service" fee. During a recent BTN Group Business Travel Trends and Forecasts event in Seattle, one buyer noted the emergence of such fees, particularly at hotels in New York City. "If you're not paying attention to it," she said, "if you don't have the ability to evaluate your total cost of hotel spend, these things can really add up." Hanson said buyers who have caught the change are requiring contract wording that prohibits such fees. That same buyer in Seattle, who preferred not to be named, instructed peers to dig down and look for the fees in what they're paying to hotels because "it's very buried."
Corporate Negotiated Rates' Shrinking Share of Demand
Hanson's analysis detailed the declining share of corporate negotiated rate demand as a portion of total hotel demand. For decades, he said, corporate and contract rates have comprised about 20 percent of occupied U.S. room nights and almost 30 percent of U.S. lodging revenue. Since the 2009 recession, however, negotiated corporate demand's share has been shrinking. Though specific data for corporate negotiated rate demand is unavailable, estimates peg those shares at 15 percent of occupied U.S. room nights and 25 percent of U.S. lodging revenue.
There are two major culprits behind the shift, Hanson said. First is travel programs' growing embrace of open booking, allowing travelers to book non-negotiated hotel rates. "It'strying to be responsive to, especially, younger travelers who say, 'I'd rather stay in a $120 hotel of my choice than your $220 good deal. I can be happier and spend less,'" Hanson said. Second, leisure demand has been growing faster than corporate negotiated demand since the recession, suggesting that while the pie has gotten larger for occupied room nights and revenue, corporate negotiated makes up a more modest piece than it once did. "When we read headlines about the growth in corporate meeting demand, well, it's better than it was but it's not back to where it was [pre-recession]," Hanson said. "There continues to be downward pressure on the amount of travel and traveler budgets within companies."
Other influences, Hanson said, are changing behaviors around customer relationship management—which have resulted in fewer face-to-face meetings and more engagement through digital channels—and the shrinking appeal of business travel for the current workforce as a whole. "The glamour of business travel isn't what it used to be," Hanson said.
His report and estimations are based on selected discussions with industry executives and corporate travel executives, analysis of industry financial data, press releases and information available on hotel and brand websites.
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