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Many Hotels in the Driver Seat as Corporate Travel Managers
 Negotiate for 2007 Hotel Room Contracts

By Suzanne Marta, The Dallas Morning NewsMcClatchy-Tribune Business News

Nov. 20, 2006 - The Thanksgiving holiday kicks off a relatively slow period for road warriors, who are juggling end-of-the-year projects and family time.

But for corporate travel managers, the last weeks of the year are crunch time as they finalize negotiated discounts with hotel companies and update internal Web sites with 2007 travel policies.

Although hotel negotiations are still ongoing, one theme has become clear: Costs are going up.

Overall, prices for midrange hotels are expected to rise between 3 percent and 6 percent next year, according to the annual American Express Business Travel Forecast. For higher-end properties, increases are expected to be between 4 percent and 8 percent.

In key business markets such as New York, American Express predicts rates will climb as much as 18 percent.

Most of the activity this time of year surrounds hotel contracts. Negotiated discounts for airline tickets and rental cars are brokered throughout the year.

Growing demand, coupled with little added hotel supply, has put operators in the driver's seat when it comes to negotiations.

Even as hotels look to flex their pricing muscle, corporate travel managers are girding themselves for a fight and looking for ways to build leverage where possible.

"We're just not going to roll over on someone trying to bring a higher rate to us and just accept it," said Michael Spooner, who manages more than $40 million in travel and entertainment spending for Plano-based J.C. Penney Co. He added that price increases during the latest round of negotiations have been "significant."

In New York, where prices are rising the fastest, Mr. Spooner's team slashed the number of properties it uses by 30 percent, in an effort to cobble together more market power. Penney employees are also booking rooms earlier to avoid running into situations where the company's preferred hotels are sold out.

And, Mr. Spooner said, the company is more open to reviewing contracts throughout the year, rather than waiting until the next round of negotiations.

Bolstering negotiations

Gordon Gunther, who heads the corporate travel program for a large electronics manufacturer in Plano, said he hopes to maintain existing hotel contracts for 2007.

But Mr. Gunther is analyzing how proposed rate increases correspond with local occupancy trends on a hotel-by-hotel basis. And to bolster his negotiating power, he consolidated his business into as little as one hotel per segment in each market.

"If we're giving 100 percent of our business to a hotel, they can't expect to get a big increase in rate," Mr. Gunther said. "If a hotel tries to gouge us, I'm going back out to bid."

In cases where rate increases are unavoidable, Mr. Gunther has worked to include other amenities, such as breakfast, parking and high-speed Internet, in the price.

"Let's face it, you always want to get the best rates you can get and find savings for the company, but switching properties is also a headache for travelers," Mr. Gunther said.

Rising hotel rates are pushing more companies to analyze how their negotiated rates compare to ones won by others in their peer groups, said DeAnne Dale, vice president of account management for Southlake-based Travelocity Business, which manages more than $800 million in travel spending.

They're also analyzing how frequently specific properties were sold out during 2006 and what the last-minute scrambling for a room elsewhere cost them.

For some clients traveling to New York, Chicago, Las Vegas and Orlando, Fla., that happened as much as 10 percent of the time, Ms. Dale said.

"We're being very aggressive about that this year," she said.

In the busiest markets, many companies are accepting higher hotel rates for stronger guarantees of room availability, Ms. Dale said.

Making up for lost time

For hotel companies, 2007 represents an opportunity to make up for lost time. When taking inflation into account, hotel room prices still haven't returned to 2000 levels, according to PriceWaterhouseCoopers.

Irving-based Omni Hotels, whose corporate rates are rising between 10 percent and 12 percent, has looked to negotiate more changeable, or dynamic, rates and also implement pricing based on the time of year, especially for busy markets where filling rooms hasn't been difficult.

"There more of a mix on pricing products," said John Hackett, Omni's corporate director of business travel sales.

A client's ability to make sure its employees book as many rooms as they project -- or compliance to a travel program -- continues to be a key negotiating point for hotels, which have lagged behind airlines in their ability to demand that corporate customers bring the volume of business they pledge in exchange for discounts.

"If a company is able to demonstrate good compliance, then we'll negotiate differently than someone who doesn't," Mr. Hackett said.

Irving-based LQ Management LLC, which operates the La Quinta and Baymont brands, is taking a more aggressive look at its corporate clients, saving its best discounts for its most elite customers.

"We're looking much more closely to see what a company has been able to give us historically before offering discounts, to make sure they're holding up their end of the bargain," said Feliz Jarvis, executive vice president of sales. She added that room rates for La Quinta and Baymont are expected to rise 5 percent for 2007.

E-mail smarta@dallasnews.com

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Copyright (c) 2006, The Dallas Morning News

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