Rate expectations

European hoteliers have cast longing looks to the United States in recent months as its domestic market recovers at an impressive rate. In Europe, the recovery is more protracted and, over the summer, was driven by leisure rather than corporate business.

“We will have the best leisure summer we’ve ever had in the history of this business is my guess,” Hilton CEO Christopher Nassetta said back in June. “Business transient and group will take a bit longer to come back, but we do have real reasons for optimism.”

In the UK, Premier Inn’s head of sales and distribution David Cooney describes business travel as “a juggernaut coming up behind leisure travel”. It’s going to come back, he believes, “but it’ll be a long, slow burn”.

In its Q1 trading update published in mid-June, Premier Inn said UK accommodation sales were down 60.9 per cent compared to the same period in 2019, but reported a “continued gradual increase in business demand”.

At the start of July 98 per cent of its 800-plus UK hotels were open, with business travellers accounting for a third of its guests compared to a near-even business/leisure split in normal circumstances, says Cooney.

As vaccination programmes continue to penetrate Europe’s populous, most in the industry still anticipate concerted corporate recovery in the autumn. The speed and extent of that recovery is less clear.

“Hotels have outperformed air travel throughout the pandemic because you have domestic markets [propping them up], but in the last four weeks we’ve seen a real acceleration in hotel bookings driven predominantly from North America. In Europe we’re seeing positive numbers but not at the same level,” says Margaret Bowler, director of global hotel strategy at American Express Global Business Travel.

“What’s interesting is that the customers who kept going [during the pandemic] were more of the smaller and middle market customers, but now we’re really noticing our bigger global customers are starting to move again.”

THE RATES AND RFPs CONUNDRUM
As travel recovers, so will the hotel rates that had plummeted during the pandemic. Last year, most hotel groups were quick to offer corporates the opportunity to roll over the rates they’d negotiated for 2020 into 2021.

With staff shortages on the supplier and buyer side alike, many took that opportunity but also added a safety net for when rates fell below their corporate deal. It was very much a buyer’s market, but is that changing as we enter the RFP season for 2022?

“Rates are still depressed but as each month goes by they’re starting to rise in all regions. It’s double-digit growth in North America; single digit in Europe,” says Bowler. “Hotel groups have learned from previous world events that it takes a long time to grow your rate back.”

Premier Inn’s Cooney is under no illusion that rates will bounce back quickly. “Our broad aim has simply been to fill hotels. Only now are we really looking at rate opportunities. You need the volume back in the business first,” he says.

And what of the future? “It’s too difficult to estimate. You’ve got hybrid working policies now, it’s difficult to gauge how long the online meetings phenomenon will last, and international demand is a big mystery. What I can say is that it [rising rates] will be regional and pocketed. In London and at airports it could be two years [until rates fully recover].”

With rate recovery unclear, some hotel groups are again keen to roll over corporate rates that were first negotiated in 2019. “They are still good rates for hotels right now,” says Bowler.

On the other hand, Tripbam founder and chief executive Steve Reynolds suggests that the trajectory of current rate recovery (see sidebar) could mean hotel groups are keen to renegotiate. “Hoteliers are more motivated to negotiate deals with you rather than just you rolling over, because those 2019 discounts will start to be acceptable. They will provide value [to buyers] in the second half of the year, quite a bit of value in 2022.”

Indeed, Bowler has seen some cases of corporates who have chosen to renegotiate with hotel groups emerge with higher rates than they had previously.

Another complication at the negotiation table is that corporates have no meaningful recent data – only numbers that are now several years old. “The reality is that corporates are not going to have the same travel habits as before and nobody knows the answer to how much that will be,” says Bowler.

The best option, she believes, is to roll rates over again but also secure a guarantee that, should the BAR float below the negotiated corporate rate, the hotel group will offer them the lowest rate.

She adds: “Hotels are also really pushing dynamic pricing as a model. The fundamental issue that corporates still have is that that’s great in a market that’s depressed but in a market that’s coming back, there’s no cap, so you win sometimes and you lose at others. The big issue there is there’s no safety net. I don’t see fixed pricing in key locations going away any time soon.”

Premier Inn’s Cooney says there is no mass clamour for negotiating rates currently but he does expect that to pick up and to see more activity than last year, with more active staff on both the supplier and buyer side than 12 months ago. “New business has been relatively quiet through TMCs but busier through Business Booker [the group’s direct booking and management portal for SME customers]. We offer credit which is important to businesses right now.”

CHANGE MANAGEMENT
While many corporates stuck to their usual hotel category during the pandemic rather than cautiously trading down, two notable changes were observed: advance booking times fell and the average length of stay increased. Will those trends last?

Amex GBT reports that, pre-pandemic, 23 per cent of hotel bookings were made within three days of the stay. In May this year that figure stood at 44 per cent. “That is because of a lack of certainty, but we are seeing that decrease again now. Confidence is growing and people are booking further out again.”

Meanwhile, the TMC also says length of stay has increased by 21 per cent in 2021 over 2019 as business travellers seek to combine more appointments in the same trip. That trend is driven by both sustainability concerns and the practicalities of organising travel in the current environment. Bowler believes average length of stay will remain higher post-pandemic, but “not necessarily 21 per cent higher”.

Another area of interest has been the management of guest expectations. TMCs and travel managers have worked hard to inform travellers that their experience in the current environment is going to be very different to what they would normally expect. In hotels, that can mean fewer staff, rooms stripped of ‘high-touch’ items, and hotels and bars that remain fully or partially closed.

“While we’ve been operating under government guidelines some guests have been turning up with expectations that things are normal. They don’t appreciate that room turnaround is longer or that it’s all table service in bars and restaurants,” says Premier Inn’s Cooney. “Some guest behaviour has been challenging”, he says, although that’s generally been in leisure hotspots at weekends when occupancy has been at its highest.