With major hotel mergers allowing already massive chains to gain even greater negotiating power over room rates, it is vital that corporates take enhanced steps to ensure that any arrangements made between them and their travel accommodation providers need to be in their utmost interest.
While this may seem like a given, it is not always the case in reality. Taking a look at one common form of arrangement, the chain wide discount, also known as dynamic or floating rates, we can see why companies can do more to empower themselves.
Under such an agreement, a company is given a percentage discount off the hotel chain’s prevailing Best Available Rates (BAR) – essentially the public rate – when booking rooms using their corporate booking tool. In return, the said hotel’s inventory is more prominently displayed on the company’s booking platform, often with preferred status or similar mechanisms conferred, resulting in very high visibility.
This may seem logical at first glance. However, feedback from our corporate partners indicate that a dynamic pricing plan would only complicate rather than aid travel managers in their work.
Most ostentatious is the apparent savings and impact on budgeting. As BAR rates fluctuate according to public demand, room prices can easily soar without prior warning. Budget planning becomes redundant if this is allowed to happen.
Where a dynamic pricing plan has a place as a complement to a company’s negotiated rates programme, they don’t consider chain-wide discounts.
This leads to a second issue regarding transparency, specifically with regards to what is included at the point of purchase by the traveller.
Besides a supply-and-demand driven BAR rate that may or may not be working in favour of a company’s travel budget, floating rate agreements often entail other things such as whether there is last room availability, flexible cancellation policy, type of amenities, and whether or not rooms will even be open for booking during peak periods.
If the agreed terms are complex and contingent upon so many variables, it only becomes harder for the travel manager to monitor each aspect of each transaction made by the company’s travelling workforce. Without the right solutions, it may become impossible to track if what is agreed upon is what the traveller actually gets. Often, transparency then becomes forfeit.
Furthermore, hotels are now less prone to budge and simplify the deal. Most travel managers we spoke to, while aware of such problematic intricacies, can do little by themselves to remedy the issue. This is due to negotiations with hotels having become harder and more intense in recent times as the balance of power tips more and more in favour of accommodation suppliers with a vast inventory.
One final point lies with how dynamic rates are usually portrayed to the travelling workforce. From a holistic perspective, hotels marked preferred on the booking system may not actually be the best option for the intended traveller. Particularly for those uninitiated with the booking tool, this may not be apparent from the get go. The interface should be intuitive rather than having obfuscating details that lead users into making misinformed choices.
As an example, preferred status is given solely because of the discounted rates provided, rather than taking into account other equally important factors such as proximity, location, available facilities and preferability in comparison to other properties in that city. Another room could be available at comparable quality with a better price and location without the traveller ever being aware.
This point becomes more pronounced and exacerbated considering that independent hotels, which taken together boast more rooms than chains combined, are often not entered into meaningful negotiations with many corporates due to fragmentation.
While travel managers can attempt to circumvent these problems by trying to implement real-time inventory and rate monitoring, this will come at great cost to the organisation, and not all businesses have the infrastructure to put in place such a robust corporate accommodations solution.
Thus, it remains a key element for companies to be in control of their hotel spend. It is more crucial than ever to manage a well-balanced portfolio. This not only allows proper forward planning in terms of budget by the travel manager, but more importantly, empowers them with the ability to compare rooms across a broader spectrum of the market on aspects that really matter. However, leave all these time-consuming and tedious negotiations to professional third-party providers who can help achieve cost savings, good inventory, duty of care and good reports.
This article is based on a white paper study conducted by HRS through conversations with corporate travel managers. HRS provides end-to-end hotel management solutions to more than 3,000 businesses globally, offering its customers individual consulting and bespoke solutions for their travel accommodation needs. Clients of HRS include global players from Fortune 500 companies such as Google, China Mobile, Hitachi, Huawei, Alibaba and Panasonic.
Emmanuel Ebray is the managing director of HRS Global Hotel Solutions, taking charge of South-east Asia, South Korea and India. HRS is a global hotel solutions provider with more than 40,000 corporate customers worldwide, including Fortune 500 companies. His core responsibilities include setting the business direction, driving organic growth with new and existing customers across the markets, establishing strategic partnerships, and talent development.