Hotels are becoming ever more sophisticated in the way they manage their bookings ©123RF
Hotels are becoming ever more sophisticated in the way they manage their bookings ©123RF

Hotel rooms a 'vexing dilemma for procurement'

15 September 2017

Finding preferential hotel rates will be one of the most vexing dilemmas for corporate procurement in 2018, according to travel consultancy Advito.

As hotels become ever more sophisticated in the way they manage their bookings, firms will find it increasingly difficult to find preferential rates on standard rooms, Advito’s 2018 Industry Forecast report said.

On top of this, demand for rooms is outpacing supply meaning rates are expected to rise by 2-4%, although the report did say the price increases would be moderated in some emerging markets by a steady pipeline of new supply.

Hotels are increasingly manipulating the number of preferential rate rooms available to firms by by regularly re-designating what is classed as a standard room in their booking systems, the report said. By doing this, hotels can reduce the number of preferential rate rooms available for firms to book at peak times, while still meeting its contractual availability averaged across the year. This trend can reduce the value of negotiated rates, said Bob Brindley, vice president of Advito.

“To address this challenge, we recommend that clients track rate availability and renegotiate where appropriate. In certain cases, clients may consider dropping a property from its programme or shifting to a dynamic discount to improve savings,” he said.

The report also forecast a modest rise in air travel rates in 2018.

Business class fares are projected to rise by 1% in 2018, as are regional economy fares, while intercontinental economy flights are expected to remain stable.

Brindley said: “In many ways, global corporate travel in 2018 will be remarkably similar to 2017; demand continues to grow slowly, but steadily, for the air and hotel sectors.

“The relatively low price of oil means that airlines can add capacity in step with demand, while keeping prices in check. Generally, the market favours buyers as price increases in dominant markets will be offset by lower fares in competitive markets, producing balance in the overall picture.”

The report said air traffic grew at 8% year-on-year in the first five months of this year and, while airlines are cautiously expanding their capacity, prices may still trend upwards for the highest demand routes.

From a regional perspective, flight prices within the African region are expected to remain constant, although the report notes connectivity is still poor internally and many travellers find it easier to fly via a third city in Europe or the Middle East rather than direct. However the region’s low-cost carriers are increasing capacity, and carriers like Ethiopian Airlines are modernising fleets. Increasing competition means the cost of flights to most intercontinental destinations are likely to fall, with economy flights to the Middle East seeing the steepest fall of 4%. 

Is Asia increasing demand in both domestic and international routes is likely to increase regional prices by 2%. Intercontinental flights from the region to Australasia and North America also saw a slight increase while flights to all other regions were either steady of dropped. Capacity on international routes has increased dramatically causing a 22% over supply, the report said. 

Demand in Europe is booming, the report said, but competition between low-cost carriers is ensuring prices stay low for business travellers. Within the region, business class flights are expected to increase 1% and economy flights 2%. Most business class intercontinental flights leaving Europe are expected to increase by around 1-2%, while economy class flights are mostly staying flat.

Airlines in the Middle East had a challenging year, the report said, as the region’s three largest airlines have slumped. Emirates is restructuring, Etihad is in the middle of a strategic review and Qatar has been hit by a blockade from a coalition of regional neighbours. As a result both regional and interregional flights have remained largely flat.

Australia’s biggest airlines are cutting capacity, which will cause prices to rise by as much as 5% between the main cities of Sydney, Melbourne and Brisbane. Flights within the Southwest Pacific region more broadly are expected to increase by 3% for business and 2% for economy class flights. However flights out of the region are expected to remain steady or fall by as much as 3% across the board as capacity grows, the report added.

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