Business Travelers Key to Pricing Power

BALTIMORE—Business-transient customers, the holy grail of guests for hotels because they travel on their companies’ expense reports, have been a strong part of the hotel industry’s recovery from the recession. But there might be bumps in the road ahead, according to experts who participated in a roundtable discussion led by HotelNewsNow.com following the Hospitality Sales & Marketing Association International’s Chief Revenue Officer Roundtable in late June.

Sloan Dean Interstate Hotels & Resorts

Sloan Dean, senior VP of sales and marketing for Interstate Hotels & Resorts, said traffic from business travelers is up significantly year over year, but hoteliers might be the ones who are squeezed as corporations try to rein in travel expenses.

“If you talk to the head of procurement for Travelers (Insurance), IBM, etc. they look at it from a holistic perspective: What is the food, air, car rental and hotel—what’s the total travel spend?” Dean said. “Their air travel from year-over-year increase is up double digits. You then have car rental negotiations with Avis and Hertz and some of the big players that have gone through some significant contract negotiations … so then you have a procurement department judged upon how much cost can they get out of travel.”

With double-digit increases in two of the big-ticket travel items, companies are turning to hotels for relief, he added.

“That’s where you have the rebid process, and as the transient business volume has grown, procurement departments have more (flexibility) on hotels so we’re not getting the lift on business transient rates we would like to see,” Dean said. “The pressure they’re seeing on the air and car rental is something hoteliers don’t pay attention to enough.”

Greg Cross Hyatt Hotels

Greg Cross, senior VP of revenue management for Hyatt Hotels, said the hotel industry has to look back five years to see a complete opposite picture.

“Year over year you see a lot of growth in the business-travel segment,” he said. “But if you think back to 2007, we were firing our customers from the point of view that we would have to very carefully scrutinize business travel accounts to decide if we would let them in because we actually had more of that demand then we knew what to do with and it was competing with other high-priced markets.

“Now the macroeconomic factors we’re not talking about here are still in the driver’s seat in 2012,” Cross continued. “The Gaylord (Entertainment) sale is a microcosm of what’s happened to the group industry. That company, even with just four hotels, once upon a time was a very serious threat. Now in the absence of the association market performing well, they have found a new business partner in Marriott (International) because clearly they did not have any transient business to fall back on.”

Add to this the European financial crisis and the economic drivers are giving off warning signals, he said.

Ash Kapur Starwood Capital Group

“Right here at home a lot of the companies that are doing well making profits aren’t reinvesting, aren’t traveling as much as they used to, so we find ourselves with a mix of business that is less expensive than we would like to see,” Cross said.

But all is not lost, said Ash Kapur, VP of revenue management and distribution for Starwood Capital Group. He said there’s one key metric to monitor.

“If you see strengthening of (gross domestic product), you will see a strengthening of consumer confidence, you will see strengthening of organizations and companies wanting to spend to invest to travel, invest in their own people and training and stuff like that, and hotels will benefit from that,” he said.

“But a weakening GDP will have an adverse impact on the hotel economy. That said, after a record (2006 to 2007) and … the slide after September, we are in a cycle that is gradually going up, and we have got to see how long it is before we see the next piece of bad news.”