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

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”