Alicia Pieterse, Senior Consultant, Hotel Spend Management
Wondering what lies ahead for your travel program?
With markets changing rapidly, it’s time to revisit your strategy to be ready for full recovery.
How the market is shifting
In the last couple of years, volatility caused by the pandemic led to 50-60% decreases in travel markets, directly affecting how travel managers handled their programs. With no one sure when travel would resume, many hotel chains tried to make the process easy by offering rollover rates and price-protected chainwide discounts, along with matching rates offered to travel managers to BAR (best available rate).
All that is set to change with strong signs of recovery in the market going forward. According to Business Travel News, PwC is predicting a rise of 28.1% in RevPAR, taking it above pre-pandemic levels. Hotel occupancy rates are expected to rise to 63.1%, with average daily room rates up 16.9%.
PwC’s data matches the trends we are seeing at Advito. After seeing volume decreases up to 60-70% for some of our clients in the last couple of years, recovery is well on the way. While there’s still some volatility in major markets, some secondary markets are already registering growth of 10-20% over 2019 levels. That means it’s time to change your hotel rate strategy. Here’s what we recommend going into 2023:
1. Stop relying on historical data
For the last couple of years, travel programs have based their negotiations and strategy on historical data from 2019, as the last full year of normal business travel. It’s time to ditch this approach and look at your current spend volumes through a new lens. With recovery kicking off towards the end of 2021, it’s time to go back to relying on actual travel data, from year to date, as you plan your hotel sourcing strategy and travel program for 2023 onwards.
2. Implement rate targets
Hotels are looking to recover lost revenue and may push for the use of average booked rate (ABR) in negotiating rates. However, we recommend using rate targets to keep increases in line with a 5-10% range. These will also help encourage your travelers to make smart buying decisions when booking their hotels.
3. Don’t accept rollover rates
Changes in the market mean rollover rates no longer make sense, and many of our global chain partners have confirmed that they won’t be using this strategy. In fact, in the last six months, we’ve seen hotels beef up their management staffing – those who would respond to RFPs – which is a clear sign of an expected return to a more standard sourcing process.
4. Use dynamic rates with a ceiling
We’ve recommended implementing dynamic rates as a key element of any hotel program, and they have proven effective even with the major shifts in the last two years. But it’s critical to have a ceiling or cap when accepting dynamic rates. Rates have increased significantly in some markets as hotels seek to recover their costs, so putting a cap in place allows you to get some price protection and cost control while still driving savings for your hotel program.
5. Pay attention to market inflation for flat rates
While dynamic rates are generally the best option, it’s important to understand how the market is moving in different global locations, so you know where you may face challenges. In the few markets where rates are still consistent with 2019 levels, you should continue to negotiate flat rates.
6. Talk to local stakeholders
In addition, talk to local stakeholders to understand what’s happening with the current volume and the pace of recovery in specific markets of interest. We’ve seen a number of scenarios with clients where markets may not have been open in the first quarter, but the volume came back quickly once they did. The best advice here is to be proactive rather than reactive, and negotiate a rate now at properties in those markets.
7. Know where to expect continued compression
Of course, volatility remains in some business travel sectors. In domestic markets, expect continued compression in key locations for group travel, meetings and conventions, like Orlando and Las Vegas. Corporate travel volumes to those locations are still down, and the revPAR index is expected to remain at or above 2019 levels even though we expect to see volumes next year at only 70-80% of a traditional year.
8. Use dynamic program management
We’ve been recommending continuous sourcing for a while now to ensure that travel managers get the most competitive rates as soon as they’re available. This is a better approach than waiting until Q3 or Q4 to launch an RFP. A key part of this process is identifying which markets you should do your sourcing in. Concentrate on those where volume is increasing, and add more markets as they start to recover in turn.
These tips will help you get your business travel program in the best shape as the recovery continues. Get in touch to learn more about how Advito can help.