With demand up, hoteliers emboldened for rate negotiations


The hospitality industry is feeling new strength as a result of a rapid recovery in demand, setting the stage for a potentially contentious contract-renegotiation season.

After years of attempting to fill rooms in advance by offering travel managers attractive rates, U.S. hoteliers appear poised to not just hold the line but to demand rate increases in the 7% to 10% range next year.

In recent years, hoteliers have typically asked for rate increases about 1 percentage point higher than what buyers were offering. But Bjorn Hanson, divisional dean at New York University’s Preston Robert Tisch Center for Hospitality, Tourism and Sports Management, said that spread is likely to be closer to 2 percentage points in the 2014 negotiating season, which ends in early January.

In fact, with overall U.S. occupancy rates approaching the 70% level for higher-end properties, PKF Hospitality has forecasted that U.S. room rates will increase 4.2% this year, followed by rate increases of more than 5% each in 2014, 2015 and 2016. If that’s the case, rates would average about $130 by 2016, 33% higher than the 2009 low of $98.10.

“The upper-priced segments are all forecast to achieve occupancy levels of 70% or greater through 2017,” said Robert Mandelbaum, PKF’s director of research information services. “At that high level of occupancy, managers have a high level of leverage.”

Regionally, said Lisa Maloney, global project manager of the hotel division for Carlson Wagonlit Travel’s CWT Solutions Group, the most challenging areas to secure blocks of rooms for corporate travelers are the tech-industry-fueled San Francisco Bay Area, and in Houston, which is buoyed by a strong oil-exploration industry.

Maloney added that rates in New York appear little changed from last year, while some discounts can be negotiated in the Washington area.

Those projections are consistent with figures from the STR research firm, which said Houston’s revenue per available room (RevPAR) through September jumped 14% from a year earlier. Washington was the only large U.S. market where RevPAR fell.

Globally, such gains already may be taking hold in terms of reservation numbers.

Pegasus Solutions said last week that September global hotel bookings for business travel rose 4.4% from a year earlier after falling 1.5% in August. And TravelClick added that group sales’ committed occupancy at U.S. hotels for the year ending September 2014 is up 7.4% from a year ago.

Not surprisingly, travel managers and hoteliers foresee substantially different scenarios when it comes to what kind of room rates their negotiations will produce.

While two-thirds of corporate travel buyers recently polled by AirPlus International said they expected negotiated hotel room rates to increase next year, just 5% projected increases of more than 5%, while 26% forecasted no change in rates.

“CWT projects around 3% to 4% in overall increases, but there are markets that are going to be quite a bit higher,” Maloney said.

And American Express Global Business Travel last week forecast that pricing for rooms at upscale hotels in North America will rise about 4.5% next year.

Alice Harrington-Caravello, vice president of global corporate sales at Starwood Hotels & Resorts, countered: “There’s no reason not to believe that we will see rate increases in the high single digits.”

And Marriott International CEO Arne Sorenson, speaking on a conference call with analysts, also hinted at a more hard-line approach with travel managers.

“We’re seeing more corporate business in more training meetings and product launches,” Sorenson said on the Oct. 31 call. “We plan to further reduce price-sensitive accounts.”

Follow Danny King on Twitter @dktravelweekly. 

Correction: In a prior version of this article, it was incorrectly reported that American Express Global Business Travel forecast a 4.5% rise in demand for U.S. upscale hotels. The forecast was for pricing, not demand, at hotels in North America, not just the U.S. 


From Our Partners

From Our Partners

2021 Antigua and Barbuda: Paradise Awaits
Antigua and Barbuda: Paradise Awaits
Register Now
Xanterra Travel Collection Main
Xanterra Travel Collection
Read More
2021 Discover how United Airlines is making travel easy to top sun and ski destinations this winter!
Discover how United Airlines is making travel easy to top sun and ski destinations this winter!
Register Now

JDS Travel News JDS Viewpoints JDS Africa/MI