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Hotels Are in the Drivers' Seats;
Some Hotels Walking Away from Deals that Don't
 Meet their Pricing Demands
By Suzanne Marta, The Dallas Morning News
Knight Ridder/Tribune Business News

Nov. 24, 2005--Travelers, prepare to pay more for hotel rooms next year.

For the last four years, road warriors and vacationers firmly held the reins when it came to pricing, pushing hoteliers to discount rates to put heads in beds.

But that's expected to change soon. Demand has strengthened considerably during the last year, and with little new supply to compete, hotels are feeling emboldened to raise prices.

As corporate travel managers finalize negotiated room discounts during the next month for 2006 travel itineraries, early indications suggest it will be a vigorous process.

"It's very apparent that hotels are in the drivers' seats," said Neysa Silver, a corporate hotel travel manager for Carlson Wagonlit Travel.

Across the United States, average room rates are expected to increase to $95.32 a night in 2006, according to estimates from PricewaterhouseCoopers. That's up 5.1 percent from this year and up 10.5 percent from 2004.

During last year's contract season, demand was starting to show some strength, following a travel slowdown that began in 2001 and was exacerbated by the Sept. 11 terrorist attacks.

While hotels were able to negotiate some increases, they were also hungry to keep contracts in place.

This year, more hotels are walking away from deals that don't meet their pricing demands. The number of hotels that have declined to bid for corporate accounts is "significantly up," Ms. Silver said.

For many corporate buyers, the type of discounts they can get is also changing.

Instead of negotiating on a fixed room rate, perhaps $100 a night, hotels are shifting more customers over to a rate discount, say 10 percent off the going price, giving hotels the flexibility to benefit from peak periods.

Perks such as discounting rooms even when they're the last available -- such rooms typically fetch top dollar -- are being offered only to the best customers.

For corporate buyers, it's taking more work to negotiate favorable deals.

Gordon Gunther, who oversees travel procurement for a large electronics contract manufacturer in Plano, started the negotiations early this year as part of an effort to pare the company's $48 million in global travel expenditures.

Knowing hotel rates were expected to climb, by May he locked up new contracts to go through the end of 2006. And in the cities where employees most regularly visit on business, he required travelers use one of four hotels, rather than the dozen or so that were suggested for bookings before.

By mandating where travelers stay, Mr. Gunther was able to get better discounts that also included amenities such as free breakfast and high speed Internet connections.

"We didn't want our employees getting nickel-and-dimed at checkout," he said. "That makes a big difference because they know what to expect."

The company also switched to a global travel agency, rather than a regional one, to better serve the company's travel needs and get more sophisticated spending reports.

"We have another 25 percent to 30 percent in volume that we weren't tracking before," Mr. Gunther said.

Throughout the nation, corporate travel professionals have become more sophisticated at how they use data to negotiate deals.

Travel managers "are ready to go to bat and do what it takes to get a good rate," Ms. Silver said.

At Nokia Oyj's North American headquarters in Irving, travel managers are working to keep 2006 travel costs flat from this year, "at a minimum," said Susan Edstrom, the company's sourcing manager.

Travel managers for the Finnish cellphone maker are prepared to shed some hotels and add others in order to get savings, Ms. Edstrom said.

"Negotiations are intense this year," she said, adding that the increases of 7 percent to 12 percent she's heard from hotels are "just too big of a change."

Hotels, too, have girded themselves for more rigorous negotiations.

Steve Richard, a vice president in Marriott International Inc.'s global sales department, said there's still a disconnect between what corporate travel managers want and what hotels are willing to offer.

"They're expecting reductions, and that's just ridiculous," Mr. Richard said. "The lodging industry as a whole is looking to be more aggressive."

Dallas-based Wyndham Worldwide is projecting its 2006 prices will rise as much as 15 percent in key business markets as hotel managers negotiate more aggressively, said Jamie Walters, Wyndham's executive vice president of operations.

"Last year was the first time we actually had the wind at our back," Mr. Walters said. "That's been ratcheted up a couple octaves this year."

Irving-based La Quinta Corp. is working to shift more customers to floating rates that can go up as the marketing becomes stronger, said Feliz Jarvis, the hotelier's vice president of sales.

"We are raising rates and lowering discounts," she said. "We're trying to get the profitability back that we lost over the last several years."


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