There has been a call recently from certain travel industry bodies to eliminate Hotel RFPs for a year or more. This approach would see 2021 rates mirror those set for 2020, and no new negotiations until the 2022 season. While we see the conceptual appeal to this approach, FCM, together with our consulting division 4th Dimension, do not agree with this position for a few very practical reasons.
1. Market conditions have changed
Companies need to review their existing hotel programs in a new light, focusing more on health and safety than they may have in the past. This may mean adding or deleting hotels from their travel programs. RFPs provide companies the opportunity to do this en masse, rather than one by one.
Due to prevailing conditions, customers that have previously been using 3rd party content may want to switch to direct relationships. Furthermore, there are many organizations that may not have had a formal preferred hotel program pre-COVID and are now realizing that they need one. These firms will not be able to wait until 2022 to address these issue.
2. Cash is king
Few businesses have seen their revenue untouched during this crisis, making expense control imperative as the economy transitions back to some semblance of normal. The RFP process, for all its flaws, remains the best method to quickly and accurately build a successful hotel program that reduces lodging expenses and contributes positively to operating margins.
It is expected that not all markets or all properties will see an overall decline in room rates. Some may rise in an effort to regain lost revenue or to take advantage of local market conditions. Other markets may see hotels offering dramatically reduced rates as corporate and leisure travel slowly returns. In any event, companies will still require the best local rates that their volume can justify. Using corporate rates negotiated during the completely different pre-COVID environment ignores the new reality we are all experiencing.
3. Enter the dynamic marketplace
In the recent past, many hotels have been seeking to transition from static property-level rates to dynamic rates for their corporate clients. More companies will be willing to consider dynamic rates, perhaps combined with a rate ceiling, given the uncertainty of the market. This shift could outlast the recovery period and become the new normal for corporate programs.
4. Everything has changed, but nothing has changed
The basics of the industry are still supply and demand. Each party seeking the right price point to optimize value for their respective interests given the market conditions. It’s true that the list of hotels temporarily or permanently closed makes the overall supply uncertain, while government and corporate restrictions and the general reticence to travel make demand figures unknowable. Therefore, finding the right room rate that offers good value for a reasonable return will be an evolving process over the next months and years.
The opposite of a moratorium on Hotel RFPs may in fact be required in favor of more frequent semiannual, or even quarterly RFPs, in high-flux markets. Hoteliers and client companies will need to continually iterate their programs as conditions change, travellers get more comfortable travelling, borders open, and the industry rebounds.
If done correctly, a Hotel RFP at this point may derive multiple benefits. Travel managers will benefit from the assurance that their hotel program will provide the best possible savings during an unsure period. Travellers will take comfort in the knowledge that the hotels in your program meet a certain standard of care and service. Hotel partners will benefit from the ability to forecast based on your needs and room night production which may encourage them to reopen and stay open.
To view the present market conditions as an opportunity for hard-lined rate shopping and continual adjusting of preferred hotels would be unprincipled and prove confusing to travellers. However, we do advocate tailoring, tweaking, and partnering to make sure both buyers and suppliers can find an equitable partnership.
For more information on how FCM and the team at 4th Dimension Business Travel Consulting can support your travel program framework please reach out to us.