With the hotel industry’s 2015 contracting season upon us, corporates should have now started the rate negotiation process. But how can you lock in more competitive rates with hotels to attain better value for the year ahead? This paper gives you the insight and strategies to strengthen your negotiation prowess so everyone wins.
One of the best ways to achieve competitive rates is to make a start on your Hotel Program from the beginning of the new financial year.
Early action puts you one step ahead of the many other corporates and hotels that will soon be commencing their annual reviews and locking in their room night volumes.
By talking to suppliers early, you will not only have more choice of properties, but also greater chance of rate flexibility among suppliers. Choice and rate flexibility decline as the Request for Proposal (RFP) season peaks and availability becomes more limited. The key is to be organized and plan your hotel program for next year, now.
Equally important is to study your historical data, know where your business is heading and identify any potential changes which could affect your total hotel expenditure.
Understanding the big picture
Before you start negotiating your hotel program, it’s important to understand the main factors that influence pricing in the industry and what you are likely to achieve. These include market conditions, what hotels are looking for in terms of volume commitment, and your company’s anticipated activity for the year ahead.
Understanding these factors will allow you to negotiate with hotels more effectively to achieve rates that better match your company’s accommodation needs and budget.
Each of these elements are discussed more closely in the following sections.
The hotel’s perspective
Before launching into negotiations, it’s important to know where hotels stand in the negotiation process and what outcomes they are trying to achieve.
Typical questions asked include: “Has the client stayed with us before? How many room nights did they book and how much revenue did we generate?” And, of course the ultimate question: “How can we leverage more business from them?”
These questions are an important part of the hotel yielding process for their inventory. As much as a hotel wants to lock in your business for the year, they need to ensure it is at the right price so as not to dilute their average room rate. They will therefore keep a close eye on your room night volumes, monitoring regularly to ensure you are tracking towards your room night targets.
Hotels also want to know if there are opportunities to generate more revenue from your company, so they will look at your meeting and conference needs. This is a win-win situation as you can often negotiate enhanced value (or value adds) for your event booking, while the hotel benefits from further expenditure on items such as catering and AV equipment hire.
Similarly, a hotel will view ancillary services such as dining, Wi-Fi and parking as additional revenue generating streams, and encourage your travelers to use these services as part of their stay.
All of these elements combined will give hotels a picture of how much business you will create for the property, and allow them to contract a rate accordingly.
Know your own business
Now that you understand what hotels are looking for, it’s imperative that you know what your own company will bring to the table. Prior to negotiations, you need to look at the fundamentals of what your travelers are doing.
Providing hotels with information on your overall productivity figures i.e. your expected booking volume for the year, will assist greatly when negotiating. If your company has any upcoming projects or major events to be held in certain locations, consider the extra room night volume and how this can help boost your negotiations. You could either sharpen rates further with the hotel, or source additional options.
Also consider your office locations and look at sourcing accommodation in the vicinity to avoid extra spending on taxis, for example. Take into account potential office relocations throughout the year and how this will affect room night volumes.
How FCm Travel Solutions can help
FCm’s Global Hotel Contracting Department and our US Hotel Solutions Team offer extensive hotel industry knowledge and can manage your hotel program from start to finish. Our team will guide you through the negotiation strategies to help you achieve your objectives and add value to your hotel program.
FCm will: work closely with your business to understand your room night volume, and report on your room nights to help your business track its accommodation spend take a targeted approach to identify the best selection of properties for your business in each city based on proximity to your offices, standard of accommodation required, and budget identify the opportunities for your business to reduce costs by negotiating value add inclusions to help save costs on ancillary services pinpoint areas of hotel consolidation to optimize leverage.
Consolidation – less is more
While companies without a mandated policy may perceive that using a wider variety of hotels provides access to cheaper rates, the best overall savings come from a consolidated approach.
Building relationships with just two or three hotels in each city gives you more strength in negotiation, resulting in more competitive rates for the longer term. And by working with FCm to carefully target your hotel selection, you can achieve the dual benefits of company cost savings and accommodation that fits the needs of your travelers. With a consolidated approach, you can also promote your preferred hotels to your travelers more easily, which increases your policy compliance. The more effectively you can consolidate your hotel selection and booking processes (through your TMC), the more savings your hotel program will deliver.
Once you have identified the properties you want to be part of your hotel program, FCm can help you negotiate on:
- the best price option specific to your volumes
- fixed last room availability rates, particularly for large companies with high booking volumes
- value-added services such as Wi-Fi or breakfast, dynamic rates for companies that don’t have sufficient volumes to contract fixed rates.
Companies with a high number of room nights can expect to receive more in terms of competitive rates and value-adds. However, companies with lower volumes can benefit through strategies such as dynamic rates and negotiating their hotel programs before the RFP season peaks.
By acting now and working with FCm to implement the above strategies, you can tackle the contracting process with confidence and achieve good outcomes for your business, your travelers, and your hotel suppliers.
How well do your employees follow company guidelines for business corporate travel? Are there areas in your travel program where improved compliance could save you more?
As demand for air travel and accommodation increases and market conditions continue to change, traveler compliance will become even more important for corporates keen to maintain control of their travel spend.Compliance however, has a broader focus than just being about whether or not your employees are following policy guidelines. Compliance also relates to metric and culture, both of which can help to generate travel cost savings in different ways. If you can’t measure how compliant your travelers are, or you’re unsure how to enhance your corporate culture, improving your company’s overall travel performance and ultimately your bottom line could be a challenge.
What’s the value of compliance?
FCm research shows that by optimizing your travel policy design and improving traveler compliance via a travel management company (TMC) provided online booking tool, corporates can save more than 30 percent on their travel spend. A lack of compliance among your traveling employees can result in significant ‘missed savings’ through unauthorized and/or non-compliant bookings for air, hotel and ground travel, which over the course of a year, or even a few months, can significantly erode potential savings.
When it comes to improving traveler compliance corporates need to know what areas of their travel policy are capable of delivering maximum return for best practice traveler behavior. While the drivers will be different for every company, there are a few common policy items that can be used to measure how compliance impacts travel spend including:Advance bookingsAn FCm study showed that companies could save on average up to 72 percent on the cost of their tickets by booking 21 days or more in advance of their departure date. Although these savings are dependent on the time of travel and which airline you fly with, significant savings can be made by encouraging your travelers to book as far in advance as their business travel allows.Restricted airfaresMake sure your policy has clear recommendations or a mandate around restricted airfares. If your travelers know their plans aren’t going to change, encourage the use of restricted airfares for both the inbound and outbound flights or if they have to make flight changes in the afternoon, they should be booking a restricted fare for the outbound leg and flexible ticket for the inbound leg. High levels of compliance and understanding of this policy item can save companies around 10 percent of their air spend.Preferred suppliersProperly educate your travelers on what is expected of them when it comes to booking through preferred suppliers and your business will have a greater chance of converting negotiated discounts and preferred supplier pricing into actual savings. Your supplier preferences need to be clearly articulated and reiterated on a regular basis to your employees.Travel class/categoryHow well do your employees follow your policies for class of air travel for domestic, short-haul and long-haul travel? And what does your policy recommend if your preferred hotel or room category is unavailable? Corporates need to have clear policies for travel class, category and preferred suppliers in the event that preferences are unavailable or there are issues with delayed approval processes.Booking channelsMandate that all of your bookings go through the one TMC and you can actively improve compliance by increasing the monitoring, tracking, visibility and accountability that comes from the expertise of having one travel manager to oversee your activity.
There is a range of strategies that corporates can use to boost company-wide compliance. These range from policy consulting, traveler training and education, incentive based rewards for compliant behavior, TMC provided online booking tools and data analysis designed to identify opportunities for missed savings (e.g. exception reporting).FCm’s online booking tool has a robust best fare of day capability, which captures missed savings and traveler details when non-compliant fares are booked. Best practice booking behavior and travel times can also deliver savings.
If non-compliance is an ongoing issue, corporates can adopt any number of strategies from up-front traveler education, information sessions or for repeat offenders written warnings, the circulation of repeat offender lists and or individual accountability for repeated policy offenses. If there is no redress for out-of-policy bookings, your policy has no impact and no authority. FCm can help you establish a strategy for policy enforcement that is tailored to suit your corporate culture.
The balancing act
To generate additional savings through improved levels of compliance, corporates should try to achieve a good balance between enforcement and traveler needs.If there is an area where you are having serious compliance issues it may be due to more emotive circumstances e.g. one of your preferred hotels may not be conveniently located or does not meet traveler standards for safety, cleanliness and amenities. While aggressive compliance enforcement may help to achieve your financial objectives, it may limit your company’s ability to attract and retain top performers that are used to a more flexible approach to travel policies. FCm suggests working with your travel manager to determine how policy enforcement is best approached for your organization.
- Define your travel policy.
- Make your policy manageable and measurable.
- Communicate and educate.
- Promote compliance through booking processes.
- Leverage TMC intelligence.