The Cost of Business Travel Will Increase Next Year

Business travelers can expect to pay more for travel next year, about 5% to 6% more for hotel rooms. This is according to a New York University study that was released this week.

Every year in the fall, U.S. companies meet with hotels to come up with an agreement on corporate rates and amenities for the following year. This year, Bjorn Hanson, a divisional dean of the Tisch Center for Hospitality at NYU, says the two sides are further apart than normal as the negotiations get underway.

Business travelers are a lucrative market for hotels. Hanson claims, that almost 20% of occupied U.S. room nights and almost 30% of U.S. lodging industry revenue comes from corporate and contract rates.

This year, occupancy levels and average daily rates are up at hotels across the country. Hotels have made it clear that they are unwilling to drop corporate rates or even throw in perks like free Wi-Fi and breakfast, now that the economy has improved and people are once again traveling in large numbers.

This year, the average negotiated corporate rate increased by about 5%. The average daily rate for hotels in the U.S. increased overall by about 4.5%. Hanson based his study on interviews with industry executives and financial data.

According to the Nashville-based firm STR, which tracks hotel rates, the average daily rate for U.S. hotels through July is $109.95.

Graeme Gibson, a corporate travel manager at Dental Departures in Seattle, a network of dentists, says he is finding it much more difficult to negotiate with hotels this year. When he started booking for Dental Departures in 2010, hotels’ corporate sales managers were much more willing to negotiate a lower price. “While this was not during the absolute panic of 2008, it seemed that people were much more eager to have our business at a more reasonable cost, Gibson said.

Marriott International’s senior vice president of global sales, David Townshend, says, “Our hotels are extending fewer deals to fewer accounts.”

“Corporate travel managers want to do everything they can to keep pricing as flat as possible,” he says. “On  the supply side, we’re looking for ways to drive increases wherever possible. It’s critical the industry be profitable so we can continue to invest in it.”

Hanson claims that, as a result of the tighter market, corporations will probably start sending employees to more select-service and limited-service hotels rather than luxury properties. More like Holiday Inn Express than Le Meridien.

“Some companies are trading down,” Hanson says. “It may be that the guestrooms in many select-service hotels are just as nice and in some cases nicer than traditional, full-service hotels. The rooms may be larger, the decoration more appealing to younger travelers and the informality may appeal.”

Some business travelers feel that limited-service hotels are not a bad option because they often offer free Wi-Fi and breakfast.

“In fact, I have noticed that certain brands of select-service hotels often deliver superior services for the business traveler over so-called luxury brands,” says Roger Phelps, a promotional communications manager in Norfolk, Va.

In the past, corporate travel managers were able to persuade full-service hotels to add favorable perks such as the use of a fitness center into the negotiated rate. This is no longer the case, says Hanson.

“Some of the business travelers have been able to use the hotel’s fitness center and not have to worry about charging it and getting it approved, and now those travelers will have to be aware of the corporate policy,” Hanson says.

Karoline Mayr, director of global travel procurement for Deltek, a Virginia software company, says that amenities are not as important to her as the rate when she’s at the negotiating table.

“Best rate is the focus, not the amenities,” she says. “Sometimes the hotel doesn’t have the ability to lower the rate but can offer an amenity. In those cases where they don’t have the flexibility to lower the rate, we would accept free breakfast or internet.”

Hanson added, “That is especially appealing to young Millennials who like to make their own decisions about how they travel.

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