Hotels: Trading places

Another day, another acquisition. Hotel takeovers show no signs of slowing, but how does this trend affect rates and quality, and does it present new opportunities for buyers?

Making sense of what’s going on in the hotel space right now, particularly with four-star properties, and how it affects travel buyers is like trying to make sense of Brexit. There’s so much going on, yet so little clarity of a complicated and constantly evolving situation.

As travel bookers spend their next quarter buried in hotel sourcing reviews to arm themselves with a strategy prior to that once-a-year negotiation, the task looks daunting. The hotel market is fragmented with many providers, brands and sub-brands coalescing and multiplying. Buying habits are evolving fast, with multiple ways to book the same room. 

At the same time there’s consolidation in some sectors. Prices in others are on the rise, yet in many cases opaqueness is still a big factor; it is no wonder that the RFP process sucks in a lot of time and effort. 

“We’ve never seen such a dynamic playing field than at the present time,” says Lukasz Dabrowski, senior vice-president for hotel solutions at HRS. “Transparency is an issue and it’s increasingly difficult to align or marry the supply side with corporate travel programmes. It is also difficult to know what’s worth negotiating.”

The biggest story in the hotel sector is still one of acquisition, such as Accorhotels’ billion pound-plus purchase of Fairmont, Swissotel, and Raffles brands, as well as other purchases, not forgetting Marriott’s gobbling up of Starwood. More than a year later, the effects of these mega-mergers are still reverberating throughout the industry, with a global race for scale and distribution.

“The corporate market is now dictated by price and location,” explains Chris Roe, vice-president for sales, distribution and loyalty, UK and Ireland, at Accorhotels. “The whole dynamic is changing. There is still a lot of competition and integration may have allowed us to become sticky, but you cannot rest on your laurels.”

Growth driving demand
In the four-star market demand for rooms remains strong. Global economic growth is driving this demand, as are the burgeoning middle, leisure and business classes increasingly travelling worldwide, buoyed by robust emerging markets.

According to corporate travel consultancy Advito, while there has been a solid impetus by big chains, led by Marriott, to push up room rates in some regions (backed up by recent STR global average rates analysis), rising prices are in turn tempered by increased supply.

“We’ve found that the proliferation of available rooms in major cities has led to a decrease in the average daily rates for corporate hotel chains,” notes Kevin Mauffrey, senior director for global lodging, at Egencia.

“I’m not convinced that consolidation will directly cause rates to rise in the future,” he adds. “Mega-brands such as Hilton and Accor have multiple brands under ownership and are careful not to cannibalise their own businesses. Major chains are unlikely to hike their prices as it will cause adverse knock-on effects for their subsidiary brands.”

At the same time, independent hotels are becoming increasingly popular, with traveller expectations of what a business hotel should offer now shifting demand. Airbnb and Homeaway have also blurred the lines as they work in this space, bolstering the sharing economy. They have a huge inventory online for business travellers now, while others are fawning over the rising millennial executive.

“Buyers are having to keep up with a fairly rapid pace of change in the four-star hotel market,” states Tom Rigby, commercial director at Reed & Mackay. “TMCs also need to be actively supporting clients and assess the impact on hotel programmes. Market consolidation can bring about price increases so flexibility to tailor rates can also make independent hotels good-value for money.”

Four-star hotels, both chains and independents, are now becoming more sophisticated in using yield management techniques. They’re blocking preferred rate availability when demand is high. They can do this by regularly re-designating what constitutes a standard room. Analysis by Advito found that in Europe, preferred rates were unavailable over one-third of the time; in the other regions it was at least one-fifth.

“The risk of inventory control by a few is real and present. We already see in some cities like New York and Washington DC the number of hotels controlled by Marriott is at an unhealthy level and reportedly affecting room rates,” decries Neil Armorgie, chief executive of WIN Global Travel Network.

“Staying on top of the developments and understanding the myriad brands and what they stand for is a challenge. As well as understanding what is included and what is extra to the room rate, consolidation in the sector is a concern.”

More than a bed factory
On a positive note, it’s increasingly advantageous for buyers that this segment is working hard to be more than just a glorified, upscale bed factory. Increased competition and brand proliferation means there is a lot more on offer.

“Much of this is due to the growing demand for less generic hotel environments. With such diversity now in the market, the star ratings system has almost become archaic and does not necessarily enable brands to think outside the box,” says Adrian Parkes, chief executive of the GTMC.

There is no doubt that it is difficult for hotels to distinguish themselves from competitors when their base product is a spot to sleep, a bathroom, a television and a wardrobe.

“There is a squeeze on the four-star sector to up their game and differentiate from what is an improving and generally good-quality, midscale property category. Therefore, four-star hotels need to improve enough to have a differential from three-stars, but without moving into the five-star sector, where they could be excluded from certain RFPs,” reiterates Armorgie.

Certainly, there is a trend for more open and multi-functional lobbies, with the melding between meeting, living and casual, coffee house-style spaces. There is also a stronger connection with the local culture, people and sense of place whether it be through food, art or music. Destination food and beverage spots within hotel spaces are all the rage.

Investments in technology have also made check-in, check-out and personalisation more seamless and hassle-free. Modern design aesthetics are crucial, too. Executives expect more from their travelling and business lives as their home and consumer lives evolve at an ever quickening pace.

“A lot of four-star hotels are finally catching up with the market. For instance, the Premier Inn or Express by Holiday Inn-type hotel has proved popular with travellers who just want a comfy bed, clean bathroom, a G&T and sausages for breakfast,” states Sarah Marshall, travel and security manager for operations at DAI Europe. “The main drive behind the popularity of this product was cost. My travellers aren’t going to request a hotel that is like a Premier Inn but more expensive, they’ll just stay in a Premier Inn.”

The issue, as cynical players in the market point out, is that someone has to pay for improvements to the four-star offering somewhere down the line. Possible investments and the pursuit of the cooler, brand-agnostic millennial executive traveller could end up being paid for by seasoned, road warriors with entrenched brand associations and loyalties.

“Hotels traditionally will start with an early offer to gain interest and for new customers to experience and love the product, but this is usually short-lived and then, if the occupancy levels are good, the prices will start to spiral upwards, again nipping at the heels of five-star brands in some locations,” explains Pauline Houston, senior global director for hotel strategy at American Express Global Business Travel.

So, what does this all mean for travel buyers in their upcoming RFPs? There have been distinct calls for buyers to do more, to audit hotel room availability, challenge hotel chains on their offerings and consider a move to dynamic rates and continuous sourcing, although this does not always suit buyers. HRS says it has seen a movement in this arena, with many corporations outsourcing solutions. “It’s a growing trend,” says Dabrowski.

If you can’t stomach this, at least you can grill your hotel suppliers this third quarter, in the knowledge that you hope that it’s a buyers’ market.

Rethink your hotel strategy

  • It is important to have a solid knowledge of the drivers of change and clarity when deciding which hotel to choose for your programmes. ¢ The key drivers still remain the same: location, price, quality and service delivery.
  • There is a growing demand for less generic hotel environments, but you need to get down to the finer details as to why properties and new brands are different.
  • The expansion in hotel group portfolios can lead to confusion among brands which, in turn, can make it a challenge to really understand which is the best hotel.

Five-star wages beget five-star hotels
the mean pay of chief executives in the FTSE 100 is 120 times the average salary of a full-time worker in the UK, according to the High Pay Centre think tank. It is no wonder that the luxury, five-star segment is still strong when it comes to the c-suite.

If they expect a good life in their private lives, they aren’t going to plump for a downmarket B&B in their corporate one. “We’ve experienced an increase of luxury hotel rooms being added to our clients’ hotel programmes,” states Julie Shorrock, managing director of Hotel and Travel Solutions.

Some still see a travel programme that treats the top rungs of business with the full respect they deserve as a real draw for executives. “Naturally, having a superior travel programme is an extremely good way to attract the best talent to work within your business,” states Christine Jones, head of cluster sales, UK & Ireland, at Radisson Hotel Group.

There is also a move for the five-star product to complement the rest of the travel policy. “The evolution has been about having to negotiate targeted programmes just for those travellers sitting alongside the main corporate ones,” says Erica Livermore, managing director of Prestige Hotel Reservations.

However, what luxury properties are suffering from is the race to the bottom that the internet and online booking tools serve only too well. “They only hold minimal information on a property and therefore the added value may be overlooked. That is why it’s important to regularly showcase top hotels to key corporate planners,” states Wendie Esposito, vice-president, global sales – Europe, Preferred Hotels & Resorts. The advice is: treat this segment differently to your normal policy.

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