WAKE-UP CALL

Ho­tel group con­sol­i­da­tion, rising rates, new pur­chas­ing tac­tics... it's just the lat­est round of chal­lenges faced by busi­ness travel book­ers and buy­ers, writes Rob Gill

The Business Travel Magazine - - Hotels -

Con­sol­i­da­tion has been all the rage within the ho­tel in­dus­try for a few years now – most no­tably the mega-merger of US gi­ants Mar­riott and Star­wood, while France’s Ac­cor con­tin­ues to go on an im­pres­sive ac­qui­si­tion spree.

The im­pact of these moves on both ho­tel prices and cor­po­rate pur­chas­ing trends have yet to fully play out as in­te­grat­ing mas­sive ho­tel com­pa­nies takes time.

Even though Mar­riott’s ac­qui­si­tion of Star­wood was of­fi­cially com­pleted nearly two years ago, there is still plenty of work to do, in­clud­ing the much-her­alded merger of their re­spec­tive loy­alty pro­grammes, due to take place in Au­gust.

There could be even more M&A (merg­ers and ac­qui­si­tions) ac­tiv­ity to come, with ru­mours about In­ter­con­ti­nen­tal Ho­tels Group (IHG) be­ing a pos­si­ble takeover tar­get. Mean­while, the Radis­son Ho­tel Group could be put up for sale by its owner, the Chi­nese con­glom­er­ate HNA Group, as HNA looks to re­duce its debts by sell­ing off some of its as­sets.

Mar­riott could also be in the mar­ket for more ac­qui­si­tions to add to its ex­ist­ing port­fo­lio of 30 brands – al­though not on the same scale as the Star­wood deal. CEO Arne Soren­son has hinted it may look at com­pa­nies in the $100-$200mil­lion price bracket, sim­i­lar to the deals it pre­vi­ously did to buy AC Ho­tels and Delta.

Pres­sure on pric­ing?

Gen­er­ally, when there is this kind of sig­nif­i­cant con­sol­i­da­tion in an in­dus­try it can have an up­ward pres­sure on prices with fewer ma­jor play­ers to com­pete for busi­ness. But the ho­tel busi­ness is a di­verse and com­pli­cated beast with lots of re­gional vari­a­tions.

Penny Munn, Head of Sup­plier Re­la­tions at travel man­age­ment com­pany CTM, says: “The con­sol­i­da­tion within the ho­tel sec­tor gives chains like Mar­riott and Ac­cor a stronger po­si­tion when it comes to over­all ne­go­ti­a­tions. How­ever, in most ma­jor cities there are still plenty of com­peti­tors so we need to have a broader and wider ap­proach to part­ners who may not have come to the ta­ble pre­vi­ously.”

There are also new pro­cure­ment strate­gies be­ing de­vel­oped by cor­po­rates when it comes to travel pur­chas­ing (see pages 68-70). A good ex­am­ple is pro­fes­sional ser­vices or­gan­i­sa­tion EY’S move away from the tra­di­tional RFP process for ne­go­ti­at­ing with sup­pli­ers (see case study over­leaf).

David Marcus, Vice Pres­i­dent of ho­tel sourc­ing firm HOTELCONNEX, says buy­ers are in­creas­ingly look­ing at al­ter­na­tives to RFPS, such as dy­namic pro­grammes and “con­tin­u­ous sourc­ing”, as they look to strike the “right bal­ance” be­tween ne­go­ti­a­tions, us­ing TMC ho­tel pro­grammes, emerg­ing tech­nolo­gies and open book­ing pro­cesses.

Tech­nol­ogy is play­ing a cru­cial part in this chang­ing dy­namic by open­ing up more di­verse ways to source ho­tels and other forms of ac­com­mo­da­tion – par­tic­u­larly in the in­de­pen­dent and non-tra­di­tional sec­tors – which should help to act as a coun­ter­bal­ance to the ne­go­ti­at­ing power wielded by the multi­na­tional ho­tel com­pa­nies.

Rachel Newns, Ho­tel Pro­gramme Man­ager at Flight Cen­tre and FCM Travel So­lu­tions, adds: “Only 40% of ho­tels in Europe are part of a chain, mean­ing 60% are in­de­pen­dent. My ex­pe­ri­ence of work­ing with smaller, usu­ally pri­vately owned ho­tel chains and prop­er­ties is that they can be far more re­spon­sive and cre­ative when it comes to ne­go­ti­a­tion with cus­tomers.”

Newns con­tin­ues: “These types of ho­tel groups tend to be able to take a much more holis­tic view of the busi­ness op­por­tu­nity pre­sented by a cus­tomer and may choose to of­fer dis­counted rates in one lo­ca­tion in or­der to agree a rate else­where.”

Spead­ing the net

The ma­jor ho­tels com­pa­nies are also con­tin­u­ing to di­ver­sify by of­fer­ing a wider range of brands (see pages 64-66) tar­geted at cer­tain types of trav­ellers. The rapid growth in apartho­tels (p75-77) is a great ex­am­ple of this kind of seg­men­ta­tion where the likes of Ac­cor and Mar­riott are com­pet­ing with tra­di­tional ser­viced

When there is sig­nif­i­cant con­sol­i­da­tion in an in­dus­try it can have an up­ward pres­sure on prices, but the ho­tel in­dus­try is a di­verse and com­pli­cated beast”

apart­ment op­er­a­tors to cre­ate a prod­uct  that fits in be­tween the two con­trast­ing cat­e­gories of ac­com­mo­da­tion.

Ex­pect to see more of these de­vel­op­ments in the com­ing years as these brands have so far proved to be a highly prof­itable part of the ho­tel mar­ket and carry much lower fi­nan­cial risks to in­vestors than build­ing mas­sive “big box” ho­tel projects.

They can also be seen as a par­tial re­sponse to the com­pe­ti­tion pro­vided by vo­ra­cious 'shar­ing econ­omy' plat­forms such as Airbnb and others in the space.

Rates in fo­cus

As for what to ex­pect on ho­tel pric­ing in the near fu­ture, lead­ing TMCS Carlson Wagonlit Travel (CWT) and Amer­i­can Ex­press Global Busi­ness Travel – which has re­cently com­pleted the pur­chase of HRG – have both is­sued their pric­ing fore­casts for 2019.

CWT ex­pects ho­tel prices in Western Europe to in­crease by 5.6% next year as strong economies in the re­gion will “keep oc­cu­pancy lev­els at an all-time high for most of the key cities”.

Av­er­age daily rates (ADRS) are also fore­cast to in­crease by 2.1% in North Amer­ica. Ho­tel rates have been rising in the re­gion for the past five years and CWT ex­pects this trend to con­tinue in 2019.

It an­tic­i­pates rate hikes of around 5.1% in Asia-pa­cific but fall­ing rates of 1%-2% in Latin Amer­ica, East­ern Europe, the Mid­dle East and Africa.

Amer­i­can Ex­press GBT has drilled a lit­tle deeper by look­ing at key global busi­ness travel cities. The TMC is pre­dict­ing prices to be flat in Lon­don, partly due to the po­ten­tial im­pact of Brexit; while over­all UK rates are set to rise by a mod­est 1% in 2019.

Else­where some of the largest ho­tel rate in­creases in Europe are ex­pected in Paris (+6% in 2019) and Dublin (+7%). While in North Amer­ica, Toronto (+7%), Chicago (+6%) and Seat­tle (+5%) are ex­pected to see some of the high­est price in­creases.

But what­ever hap­pens with rates over the next year, there’s no doubt the ho­tel in­dus­try is go­ing through a ma­jor pe­riod of change that will shape the land­scape for years to come, presenting both more chal­lenges and op­por­tu­ni­ties in how travel buy­ers work with the sec­tor.

My ex­pe­ri­ence of work­ing with smaller, usu­ally pri­vately owned ho­tel chains is that they can be far more re­spon­sive and cre­ative when it comes to ne­go­ti­a­tion with cus­tomers”

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