Window on a buyer's market

8 December 2008
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08 December 2008

Purchasers are taking advantage of the recession to renegotiate their business travel agreements or even ignore them. Amon Cohen finds out how and why

"This is a golden age for procurement," Wolfgang Steck, AT Kearney vice-president for procurement, told a group of travel buyers in London last month.

In his view the "window of opportunity" created by the recession will allow purchasers to make permanent changes to the behaviour of internal stakeholders - including tightening travel policy and moving them over to video-conferencing (News, page 8).

Away from the on-the-record speeches made to members of the Association of Corporate Travel Executives (ACTE), buyers and suppliers alike told a different story. They made it clear purchasers are taking advantage of falling demand in an even more direct and time-honoured fashion: by renegotiating their agreements.

This trend has been particularly apparent for accommodation. The last quarter of the calendar year is when buyers put in place their preferred hotel programmes for the next 12 months. But this isn't happening.

Buyers told SM they have either delayed their request for proposal process or completely scrapped agreements reached only a month.or two ago.

"We have seen some huge differences between the rates we were offered in September and the ones we are being offered today," said one travel manager. Another suggested carrying out monthly rate reviews because the market is changing so quickly.

Back inside the ACTE meeting, Grant Appleton, commercial director at hotel booking agency HRS, proposed an even more radical solution.

"At this point, the best deal is to have no deal at all," he said. "There are four-star hotels in central London offering rooms for £70 tonight."

Appleton agreed it is worth retaining corporate agreements to serve as a cap when dynamic pricing does not provide a better buy on the day. He also stressed the importance of choosing an intermediary able to search for dynamic prices rather than simply book at the corporate rate, because, said Appleton, "hotels are not going to tell you they have a rate which is £50 lower".

If dynamic pricing means hotel rooms are likely to become cheaper the closer they are booked to the time of arrival, then buyers may need to revisit their travel policies.

Meanwhile, travel suppliers are none too happy to see some clients tearing up agreements when the ink on them has barely dried.

One leading hotel chain sales chief complained privately to SM that customers are not respecting the spirit of partnership they like to espouse.

Buyers, on the other hand, feel they are extracting some redress after four years of steep rate increases, often in double figures.

It remains the case that air fares are the opposite - the earlier they are booked, the lower the fare.

A leading airline sales executive told SM his clients are also seeking renegotiations. This tallied with another speech at the ACTE forum made by independent aviation analyst Chris Tarry, who noted a major swing from a seller's to a buyer's market.

"The airline industry has 20 per cent too much supply," he said. "It cannot reduce capacity quickly enough to maintain price. Who will blink first? The airlines, because they need the cash."

Tarry said there are bargains to be had in premium cabins in particular. Virgin Atlantic matched a promotion by British Airways offering business-class seats to New York this month for as little as £1200 return - less than one-third on the published fare.

He was able to offer little comfort to airlines. Not only did he forecast passenger demand to drop again in January and February, he also tipped the recession to last in the UK until 2011.


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