This year’s hotel request-for-proposals season, currently underway, will be like no other, thanks to the Covid-19 pandemic’s effect on the industry and its resulting uncertainty. Still, the average 2021 U.S. corporate negotiated rate compared to 2020 will decrease 20 percent to 25 percent year over year, predicted industry expert Bjorn Hanson, adjunct professor at the New York University School of Professional Studies Jonathan M. Tisch Center of Hospitality, in his annual analysis.
Hanson in August and early September conducted his research, which includes discussions with industry executives, corporate travel executives, an analysis of industry financial data, press releases and information available on hotel and brand websites.
“For 2021, generally, buyers have somewhat of the advantage, although most buyers have dramatically less travel volume and more uncertainty and therefore, less with which to negotiate,” according to Hanson’s report. “Most sellers are facing the lowest occupancies in history, generally to be forecast to be 50 percent for the U.S. for 2021, and the largest decrease in average daily rates in history, at 20 percent to 35 percent. Making negotiations even more difficult is that buyer and seller staffing is reduced in many organizations with employment reductions and furloughs.”
What Cards do Buyers Hold?
With lower volumes, what can buyers bring to the negotiating table? Hanson told BTN that even though corporate volumes will be down, so too will occupancy, so the volume share on behalf of corporate clients may be similar.
Another potential benefit for buyers is that “in a period of lower occupancies, corporate accounts create a base of occupancy,” he said, which can help hotels’ revenue-management strategies. When fewer numbers of available rooms remain, the higher their rate structure, and to the extent that a corporate account builds that occupancy base, it helps the hotel get other, higher rates.
“[Corporate is] part of [the hotel’s] solution in a difficult environment,” Hanson said. “Not only does it provide occupancy, but the base will be helpful.”
There’s also the history that sellers have had the upper hand for at least a decade. In recent years, buyers accepted rate increases based on expected increases in ADRs, but those higher rates did not materialize, and they likely won’t this year either. Therefore, “many buyers believe they have been overpaying, and this is the year to reset at lower room rates,” according to the report.
Though his report lists four primary approaches for rate negotiations this year, Hanson believes the hybrid model—a negotiated rate of 10 percent to 20 percent lower than the 2020 rate or the best available rate, whichever is lower—makes the most sense, he told BTN. The challenge is that many hotels’ property management systems are not really set up for this.
“What is the BAR that day? What is the corporate… ->
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