hotel procurement strategies in covid-19 times · with pricing that factors in this element. ......

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PROCUREMENT STRATEGIES IN COVID-19 TIMES

HOTEL PROCUREMENT STRATEGIES IN COVID-19 TIMESDefine the right procurement strategies for the ‘new normal’

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As the world takes steps – some nations faster than others – to recover from the Coronavirus pandemic, the outlook for corporate hospitality evolves seemingly every week. This comprehensive report, looking at the realities for managed lodging programs and the hotels that serve them from multiple perspectives, captures the depth of the industry’s losses while exploring avenues for its comeback.

THE WAY BACK –MIXING NEW PRIORITIES WITHREFINED EXISTING TECHNOLOGIESSince 2009, hoteliers have overseen a remarkable supplier’s marketplace, with average daily rate (ADR) and revenue per available room (RevPAR) growing every year for the vast majority of the world’s top business travel destinations. New hotels have opened in growing numbers all around the world; STR reports that the number of rooms in London has grown by a stunning 41% in the past decade alone. Corporate hotel procurement leaders were laser-focused on room rates and other fee-related elements of their contracts with preferred hotels, straining to maximize the value of their lodging allocation.

COVID-19 has swiftly redefined dynamics for both buyers and suppliers. Travel program leaders are now asked to be experts on how travelers can safely traverse every step of their journey, covering air and ground transport, cleanliness and distancing

EXECUTIVE SUMMARY

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in hotels, even guidelines for dining in restaurants and/or room service.

This challenge for travel leaders also creates an opportunity for them to showcase quick competency to address serious employee concerns. They need to develop data-driven procurement strategies that factor in hygiene protocols - with smarter rate/fee insights - in an uncertain time that demands a high degree of planning agility.Beyond duty-of-care priorities, the realities of physical distancing and the traveler’s newfound need to minimize personal engagements on trips sets the stage for a major leap forward for touchless payment. Automated payment technology – which has been enhanced and refined at a rapid pace in the past five years – is ready for corporations and hotels to take advantage of its many benefits (speed, accuracy, savings, fraud reduction, increased preferred supplier use, etc.). Widespread use of touchless services at hotels also enhances the traveler’s sense of personal safety, a key factor in getting people back on the road.

HOTELS RESPOND WITH EN-HANCED HYGIENE PROTOCOLS & REVAMPED PRICING BUNDLESHotels are quickly reacting to these changing guest priorities. With 86% of corporations in an HRS survey saying they will ONLY consider hotels with revised cleaning protocols in their 2021 RFPs, hotels have no choice but to enhance hygiene protocols. Most have already begun. One large global chain announced that they will hire a dedicated director of hygiene for each of its 1,000+ properties.

Revenue managers are also exercising newfound creativity to win more market share from streamlined corporate programs – marrying transient and group volume, offering more flexible cancellation fees, building new individualized food and beverage offerings, deploying robots, etc.

With each passing week, we see a trend in pricing for corporates. As a result of lower occupancy, Last Room Availability (LRA) options no longer make sense for buyers to pay extra for. Due to new health guidelines, breakfast buffets are now relegated to the past. These savings are counterbalanced by hotels baking in the costs of their new hygiene protocols.

With companies requiring greater cancellation flexibility as the pandemic’s path is clearly unpredictable, hotels are experimenting with pricing that factors in this element. New bundles are being developed around enhanced touchless service options and flexible terms. Hotels that used the downturn in second quarter volume

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to recalibrate their proposals to preferred corporate clients will be best positioned to come back faster as government regulations lift and companies travel again.

A TIME FOR MANAGED TRAVEL TO SHINEThe industry’s challenges will be trying for many entities, especially due to furloughs and staff reductions. However, the practice of travel procurement has a clear opportunity to demonstrate its value for any company, in every vertical market. Travel managers are becoming experts on travel safety and touchless experiences at precisely the right time. They are collaborating with colleagues like never before, focusing on key destinations as companies narrow their most important post-quarantine business objectives. HRS’ flash survey of corporate travel program leaders in May found that 51% of buyers will issue overhauled RFPs to get vital new information they need, as well as review proposals that fit their downsized travel budgets.

HRS anticipates the bulk of these new RFPs will be sent in September to a recovering hotel industry that will be motivated to secure projectable corporate volume for 2021. This report provides vital insight to all parties – for buyers considering their RFP queries, for hoteliers seeking to win volume – as we look forward to playing our facilitating role in helping the corporate hospitality industry recover.

Tobias RaggeCEOHRS Group

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INDEX

CONTENTS

1. Coronavirus impact on corporate travel industry 06

2. Direct impact of the corona virus on companies 11

1. Duty of care 12

2. Product bundles and savings 13

3. Planning reliability 13

3. How companies should react 14

1. Duty of care 14

2. Product bundles and savings 17

3. Plannning reliability 27

4. Manage your RFP in 2020 29

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1.

ACCOMMODATION INDUSTRY IN SPECIFIC

GLOBAL TRAVEL AND, HENCE, THE GLOBAL ACCOMMODATION SEGMENT AMONGST MOST IMPACTED INDUSTRIESThe global travel industry has never experienced an external demand shock like this.

Through July, the daily variation in the number of flights compared with equivalent days in 2019 is down dramatically year-over-year, according to Eurocontrol. More than 160 internationally operating airlines had their entire fleets grounded at one point; another 91 were using less than 10% of their capacity for multiple weeks.

The International Air Transport Association (IATA) assumes that the airlines’ turnover will drop by 44 percent in comparison with 2019 or by $252bn USD. This assumption is based on restrictions on air transport for three months.

Regarding the accommodation segment: the unprecedented demand shock has hospitality reeling on every continent. Occupancy rates ranged from 0-20% across almost all global markets for weeks during the second quarter.

1 https://www.eurocontrol.int/sites/default/files/2020-07/covid19-eurocontrol-comprehensive-air-traffic-assessment-08072020.pdf 2 https://www.eurocontrol.int/sites/default/files/2020-04/eurocontrol-aviation-recovery-factsheet-27042020.pdf

CORONAVIRUS IMPACT ON CORPORATE TRAVEL INDUSTRY

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STR detailed the steep year-over-year occupancy drops across the globe for May:

› Europe: Fell 82% to 13.3%

› U.S.: Reduced 51.7% to 33.1%

SLOW RECOVERY WITH SIGNIFICANTLY LOWER LEVEL OF OCCUPANCY EXPECTED UNTIL 2022Even after recovery commences, corporate travel will not go back to supply and demand levels we saw in 2019 due to the following factors:

1. DEMAND

HRS data proves that domestic travel will pick up first, with international travel recovering slowly with different levels of speed. A deeper look into the pace of China’s recovery shows a trend which we expect to see on multiple continents as travel recovers: Increasing domestic travel but international travel remaining at a very low level.

Generally, the return to the new normal is expected in three phases:

1. Domestic

As many borders are still closed around the world, or entry is at least limited drastically, domestic travel – with drive-to and train-to destinations leading the way - will pick up first.

2. Regional

Travel in regions which are culturally and economically strongly interwoven (e.g. inside the EU, North America) will return next. With most of Europe’s borders opening in July, mixed with manageable virus infection rates and pent-up demand, third-quarter activity should be noticeable. Conversely, in the USA, with the virus rampant in southern and western states, third quarter rebound figures will be inconsistent. More than 77,000 new coronavirus cases were announced in the USA on July 16, a new single-day high for the country. By mid-August, more than 5.5 million Americans were infected. These figures surely weigh down hopes for short-term recovery.

› Asia-Pacific: Dropped 47.3% to 35.8%

› Central/South America: Fell 73% to 15.3%

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A survey of 263 global travel managers released in July – conducted by Uniglobe4 – found that 61% of European respondents said their firms either are traveling already or expect to within the next three months, compared with only 32% of North American respondents. Different nations have varying quarantine regulations still in place, limiting opportunities for re-opening. Therefore, predictions on the pace as well as magnitude of recovery remain crystal ball gazing.

1 https://www.oracle.com/a/ocom/docs/industries/hospitality/data-driven-hosp-recovery.pdf?elqTrackId=2424d5b5c0c34071aa6010189eb99f3a &elqaid=95552&elqat=2 2 https://www.seattletimes.com/business/ boeing-aerospace/boeing-ceo-air-travel-wont-return-to-2019-level-for-two-to-three-years 3 https://public.tableau.com/profile/ the.boston.consulting.group#!/vizhome/BCGsTravelRecoveryInsightsPortal/PortalHome?publish=yes 4 https://www.businesstravelnews.com/Global/Survey-Travel-Managers-Lifting-Restrictions-More-Quickly-in-Europe-than-N-America?utm_source= newsletter&utm_medium=email&utm_campaign=eltrglobal&oly_enc_id=2871H4119645H3G

› LOWER AIRLINE CAPACITIES reduce the potential number of passengers. Boeing CEO Dave Calhoun stated that “air travel won’t return to 2019 level for at least two to three years2.

› PROTECTIONIST measures from top corporate travel markets like China, the U.S. and Europe limit the number of foreign inbound travelers who could provoke another outbreak3.

3. Intercontinental/Global

This segment will suffer and take much longer to recover. According to a research study by Oracle and Skift1, over 60% of hotel executives expect that the number of international travelers will be less than before.

The analytical forecasting model by HRS, which is based on our data and recovery scenarios as well as external industry sources, predicts that we will see demand to recover to only 70% of pre-COVID-19 times far into 2022 – main reasons are as following:

› EXTENSIVE HEALTH AND SECURITY CHECKS as well as aggravated immigration procedures are expected to lengthen travel duration extensively.

› Increasing NEAR-SHORING ACTIVITIES by companies to get less dependent on other countries diminish travel demand .

› Corporations will reduce TRAVEL BUDGETS to save costs and mitigate the widespread drop in overall revenues.

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As a reference, the 2008 financial crisis, according to the Bernstein report, resulted in a net closure of around 1 percent of hotels in the UK.

Another effect which is expected on the supply side are increased Merger & Acquisition activities. The industry already has some supporting facets for high M&A attractiveness: market fragmentation, benefits of scale and multibrand/product platform, improved bargaining power with online travel agencies and expanded loyalty programs. Once, the most severe effects from the crisis have been overcome by the bigger, more global chains, the consolidation trend from the past year will surely go on and even accelerate as many smaller and regional chains may become easy targets through the effects of the crisis.

2. SUPPLY

The effect on supply will be minor. A Bernstein Research report from late April estimates that only 2% of the global hotel supply will permanently shut down due to COVID-19. Recovery is possible for the remaining supply through government assistance or lenient lenders:

› In Europe, the lenders and landlords need to play ball to keep the hotels in business. When European hoteliers reopen properties, they might need to rely on flexibility from lenders to relax payment schedules on mortgages until occupancy and revenue per room return

› In the US, it is more governmental support that will keep hotels open and operational. The Paycheck Protection Program under the $2 trillion coronavirus relief fund is accessible for hotels, helping them get through the initial months of the crisis. As the third quarter hits the midway point, there is a lobbying effort underway to secure more Federal government support given the rise of the virus in southern and western states. With the dominance of more financially-sound chains in the U.S., there remains a high sense of confidence that the vast majority of properties will survive.

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HOTEL PRODUCT OF THE FUTURE WILL CHANGE IN MANY ASPECTS

The hotel stay of the future will definitely look different in many aspects than before the arrival of COVID-19. We anticipate changes in almost every area of the hotel stay, including:

› More digitization of core processes like online check-in/ check-out options, as well as virtual payment solutions

› Arrival kits for guests, which include hygiene kits with masks, gloves, sanitizer etc.

› Breakfast buffets are likely rendered to the past. Hotels are investing in creating packaged, single-meal options for guests, for pick-up in dining areas or delivered as room service.

› Some corporate programs may even require such options, as they seek to keep the traveler in their (safe) hotel room and out of restaurants until there is a vaccine.

› There are new standards for typical guest room services, e.g. supply of all necessary towels/linens before the stay and no room service during stay etc.

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The Coronavirus situation presents huge challenges for travel management, procurement and HR-related matters.

The most severe constraints are around duty of care, product bundles and savings and planning reliability for the next 18 months. Procurement leaders will need to expertly manage these three dimensions to adapt to the “new normal,” and deliver more broadly-understood results for company:

2.DIRECT IMPACT OF THE CORONAVIRUS ON COMPANIES

MANY CHALLENGES EXISTS FOR 2021 PROGRAM MGMT-COVID-19 OFFERS UNIQUE OPPORTUNITIES FOR CORPORATIONS

DUTY OF CARE

Employees’ health and safety importance create need for safety and hygiene certification/label of hotels

PRODUCT BUNDLES & SAVINGS PLANNING RELIABILITY

Increasing internal cost pressure and need for savings lead to strong push for hard & soft savings in travel

Provision of adjacent services to fulfill duty of care and ensure safety of travelers (e.g. food and beverage, transportation)

Changing needs of corporates due to COVID-19 leading to adapted product bundles and rate composition

High desire for agility in hotel program management. to adapt program to changing economic and hotel market conditions

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1. DUTY OF CAREOf course, health and security of employees comes first before everything else. Companies should undertake all necessary actions to protect their employees – and most have used the downturn in recent months to do just that. Travel policies will be much more directed at security and health related issues.

An HRS survey shows the immense interest of corporate travel managers in revised hygiene standards for the hotels within their managed programs. It will be one of the core tasks of travel managers to restore the confidence of travelers into traveling safe and return healthy when traveling for business purposes.

The crisis will change the practice, with more programs going towards more mandatory travel policies that include rigid cost and content control. Duty of Care is now the top priority. It will be comprised of procurement, authorization flows, carefully selected and managed booking channels, touchless stay experience and employee tracking possibilities. The general strategy will focus on Compliance Enforcement, ensuring booking channel management, and use of procurement experts and central virtual payment.

ARE YOU SEEKING HOTELS THAT HAVE A REVISED COVID-19 DRIVEN HYGIENE STANDARD?

86,5%

Yes

13,5%

No

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2. PRODUCT BUNDLES AND SAVINGS

The HRS COVID-19 Travel Buyer Sentiment Survey in June found out that 65% of corporations are recalibrating travel priorities for post-coronavirus business activities. Additionally, the survey showed that for 73% of companies, the most important aspect for the hotel program is to ensure that hotels are following hygiene protocols, leading to the result that 62% see revising duty-of-care guidelines as a priority topic. Procurement will make sure that ‘new normal’ product bundles incorporate such changes and, therefore, evaluate the various components of product bundles such as breakfast, LRA and/or flexible cancellation rates. These items are prime for negotiation without harming the pure bid rate of hotels.

3. PLANNING RELIABILITY

Solving leakage problems by ensuring channel and content control strengthens duty of care (know where the traveler is) and planning reliability (know what the traveler paid). Travel managers will reinforce (via stricter travel policies) that their travelers should book in appropriate managed channels. In combination with the consolidation of most programs on a destination level, there is the potential for programs to have consistent, recurring demand for select single properties in some locations.

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“THE GREATEST DANGER IN TIMES OF TURBULENCE IS NOT THE TURBULENCE ITSELF, BUT TO ACT WITH YESTERDAY’S LOGIC.”

Managing in Turbulent Times by Peter F. Drucker (1980)

There are many elements and strategies corporations can put into place when preparing and issuing 2021 RFPs to sufficiently address the three challenges mentioned above: (1) duty of care, (2) product bundles and savings and (3) planning reliability.

1. DUTY OF CARE

MAKE YOUR TRAVELERS FEEL SAFE THROUGH HOTEL HYGIENE CERTIFICATIONSAt HRS, our main priority is to ensure the health, safety and security of our customers and business partners. This is why HRS partnered with SGS, the world‘s leading inspection, verification, testing and certification company, to develop the Clean & Safe Protocol.

3.HOW COMPANIES SHOULD REACT

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The HRS Clean & Safe Protocol provides both corporations and hoteliers with a well-defined, transparent standard of property hygiene. The Clean and Safe Protocol is based on guidelines from:

› The World Health Organization (WHO)

› World Travel & Tourism Council (WTTC)

The Clean & Safe Protocol comes in two different labels, Self-Inspected and Expert-Inspected (compliance audited by a 3rd party). These labels are visible across all HRS booking and procurement channels, as well as the RFP platform.

The Clean & Safe Protocol helps corporations to:

✓ Meet duty of care requirements throughout the sourcing, searching and booking process

✓ With more than 350 thousand hotels in the HRS portfolio alone, it provides transparency of cleanliness standards with two unique labels

✓ Provides a guideline for travelers, with the label visible throughout the booking process

DIGITIZE TRAVEL RELATED PROCESSES (E.G. TOUCHLESS CHECK-IN/CHECK-OUT)While there have been efforts in the last few years to use technology to make business travel more efficient, the COVID-19 pandemic has put this at the forefront of the industry. Many industries are looking at how they can use technology to increase automation and efficiency in their processes, while reducing physical touchpoints. The overall consensus is that digital strategies will help minimize the impact of COVID-19. As cited in a study by the World Economic Forum, digitization helps businesses stay open while reducing the spread of COVID-194 and other diseases. As customer expectations and demand have dramatically shifted, organizations that anticipate those needs will be positioned for long-term success.

✓ Help travelers feel at ease traveling knowing that their health and safety is being looked after

✓ Build a safe hotel program with the label visible in the RFP

› The U.S. Center of Disease Control and Prevention (CDC)

› The Research Institute for Exhibition and Live-Communication (RIFEL)

4 WEF. 2020. https://www.weforum.org/agenda/2020/04/10-technology-trends-coronavirus-covid19-pandemic-robotics-telehealth/

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Digitizing the check-in/check-out process benefits both individual and chain hotels. Even before the pandemic, hotels like CitizenM began incorporating digital processing to attract more tech-savvy consumers5, standing out in a highly competitive market. COVID-19 has only heightened the demand for technology. In May 2020 McKinsey published a study demonstrating that in eight weeks businesses and customers have jumped five years forward in their adoption of digital technologiess6. Digitalization has shifted from a convenience to a necessity.

For corporations, the imperative is to reduce costs and improve transparency and control over their travel programs, while keeping their travelers safe. The touchless experience addresses two of the biggest reasons of why travelers don’t follow the corporate travel policy: complexity and time consumption. The touchless experience incentivizes program adoption by simplifying travel and reducing pain points through digital check-in/check-out and virtual payment. At the same time, it provides greater transparency of employee movement and spending for the corporate.

The digitization of the registration and payment information increases data processing speed and the quality of the information. Corporates can then continuously improve their travel program based on analysis of this information. For example, if they need to include parking in their procurement of certain cities because their employees tend to drive to that location versus using a train and taxi. Providing a touchless experience helps corporates save time and money, enables hotels to differentiate themselves, and ultimately gives travelers a better experience.

DRIVE COMPLIANCE AND CHANNEL CONTROL TO ENHANCE YOUR TRAVELER TRANSPARENCYThere was a period when, due to a lack of advanced technology, travel procurement professionals saw the only way to drive savings in a corporate lodging program was through strict compliance into designated booking platforms. Unfortunately, for too many, this led to more travelers booking outside of managed channels. The corporate Online Booking Tools (OBT) had limited functionality and could only bring in a single source of content. Hotels were becoming more advanced in their revenue management and direct marketing to corporate travelers – leveraging higher loyalty points and free WIFI to drive travelers to book at the hotel website.

As technology and advanced analytics progressed, there was a shift from channel control to traveler centricity. Travel procurement professionals saw that they could still show volume and savings through multi-source data integration, while allowing travelers to choose their booking method. Nevertheless, this practice led to the inability to locate travelers in extreme times of crisis – a reality that many programs discovered when the pandemic first hit and companies needed to quickly get travelers home.

The outbreak of COVID-19 initiated a wide-spread global crisis that has impacted corporate travel like we have never seen before. But corporate travel will resume. As employees get back on the road, more responsibility falls to procurement to deliver both safety and savings within the hotel program.

5 Kim, Chan; Mauborgne, Renée. “CitizenM Hotels: A Blue Ocean Chain in a Red Ocean Industry: Blue Ocean Blog.”, www.blueoceanstrategy.com/blog citizenm-hotels-a-blue-ocean-chain-in-a-red-ocean-industry/.6 McKinsey. 2020. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-covid-19-recovery-will-be-digital-a-plan-for-the- first-90-days

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So, what is driving the urgency and what can you do?

› Duty of care: Knowing where your employees are in times of further corona outbreaks: • Modify your travel policy and compliance

(open booking is dead) to provide guidance to employees that ensure the ability to find travelers in times of need and provide a level of confidence in their safety

• Implement a central Payment option as an instrument to drive a more contactless traveler experience and provide additional data transparency and incentivize your travelers to use the managed channel.

› Cost control: Channel control helps drive savings through content management, consistent traveler communication and payment options. Especially if all transactions are channeled through one globally managed platform

› Loyalty to be available through managed channels to decrease maverick bookings of heavy travelers.

This is the time when procurement departments can demonstrate their value by expanding their strategic toolbox. As the “traditional” RFP season begins, they can include a variety of existing and emerging instruments to achieve the best possible impact at the market level. This includes technology-driven savings and duty of care strategies via real-time benchmarking, automated and selective re-bid processes, and e-auctions that provide measurable results with less time and resources. By providing the booking tools, content, and amenities that drive both cost savings and traveler confidence, procurement increases channel control and transparency.

2. PRODUCT BUNDLES AND SAVINGS

ADAPT PRODUCT BUNDLES TO CHANGED TRAVELER NEEDS AND “NEW NORMAL”Clearly, the “new normal” leads to different needs and expectations by corporations and travelers towards hotels and, therefore, to changed product bundles and pricing. Product bundles from the pre-COVID-19 era must be reevaluated and adapted to the new buyer’s market.

The HRS Travel Buyer Sentiment Survey highlights that companies mainly focus on two things in adapting their desired product bundles: Increased flexibility with T&Cs (88%) and enhanced hygiene protocols (86%). The survey shows that travelers will simply expect that negotiated rates include hygiene kits as well as high flexibility on cancellation policies. Increasing investments into personnel, touchless elements and COVID-19 related hygiene measures and the increased need for higher cancelation flexibility might influence rates into becoming more expensive. While properties that adopt minimal legal hygiene measures may not add to the price point, other properties that try to differentiate themselves by offering high-end hygiene practices are more likely to increase rates.

On the other hand, changed rate packages will also be reflected in lower rates. For example, due to new health guidelines, breakfast buffets are now relegated to the past. Many companies have the cost of breakfast included into their rate as part of their legacy contracts. This cost can be reduced, cut or modified, depending on the

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changed travel policies of corporations. The HRS survey highlights that the companies now prefer take-away breakfast for their travelers.

Also, as a result of lower occupancy, Last Room Availability (LRA) options no longer make sense for buyers to pay extra for in all destinations. By leveraging the HRS database - the most extensive benchmarking database in the industry - the surcharge of an LRA rate in comparison to NLRA was analyzed in detail. The results showed that for the top 100 business travel destinations, the average LRA surcharge on the rate was 10% in 2019. A thorough analysis of required destinations and the anticipated pace of occupancy increases in those locations should take place when readjusting the corporate program to the “next normal.”

Source: HRS Data

With companies requiring adapted product bundles as the pandemic’s path is clearly unpredictable, hotels are experimenting with pricing that factors in this element. Hotels that use the downturn in second quarter volume to recalibrate their proposals to preferred corporate clients and develop new bundles will be best positioned to come back faster as government regulations lift and companies get back on the road.

SURCHARGE OF AN LRA RATE IN FIVE SELECTED BUSINESS

Berlin Shanghai Paris Sao Paulo Chicago

10% 9% 11% 14%9%

71%

86%

52% 52%

80%

Avg. LRA Surcharge 2019

Avg. Availability

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Corporations and procurement leaders must reevaluate their hotel program and adapt to their post-COVID-19 travel requirements and needs. Due to the ongoing uncertainty, the following factors need to be taken into consideration and prepared thoroughly by procurement leaders:

› FOCUS ON DATA-DRIVEN PROCUREMENT: Establish an even stronger focus on data-driven procurement strategies

› UPDATE TRAVEL POLICY: Essential travel, approvals, end-to-end hygiene (flight, smart check in/out, touchless payment), smart rate caps, cancellation clauses…

› SET SAVINGS TARGETS: Define savings need and target

› ADAPT PRODUCT BUNDLES: Analyze amenities and define requirements of product bundle in general and per destination

› AUDIT HOTEL PROGRAM: Check hotel program on hygiene and safety requirements and derive necessary measures (e.g. include hotels which are certified by a universal program, such as the HRS Clean & Safe Protocol)

› ANALYZE VOLUME AND TARGET RATES: Identify lower volume destinations, national / regional / global, high volumes (negotiations) vs Mid/Low destinations (bundling

› UNDERSTAND TRAVELER: Incorporate employee’s preferences, feedback and risks

ENSURE COMPETITIVE RATES AND ATTRACTIVE BUNDLES DESPITE LOWER EXPECTED VOLUMES

While negotiating rates with new suppliers can drive savings in top travel destinations for the program, what about low-to-medium volume destinations or those with artificially lower volume in early 2020? Typically, low volume destinations in a travel program are left to book a public rate, or possibly a discount off public rate via a chain-wide discount. However, as COVID-19 pushes volume down across corporations worldwide, procurement leaders should make use of a provider who can bundle travel volume across multiple programs to achieve more competitive fixed rates in so-called consortia rates while delivering steady and sustainable revenue to the hotel.

In order to cover secondary locations not close to Points of Interest (POIs), with a lower production, within a large destination city (e.g. airports, train stations, etc.), consortia rates are the most convenient choice to grant coverage, attractive bundles and savings.

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This scalable solution provides coverage to “bridge” the gap from current low volume until travel recovers at different rates across geography and industry. Important safety standards or amenities (think hygiene kits with masks or in-room dining) are pre-negotiated, and destinations can be re-evaluated as volume returns to a level justifying a dedicated corporate rate.

BUNDLING OF LOW VOLUME ROOM NIGHT DESTINATIONS IN CONSORTIA RATES

Bundling low volume room night destinations of several buyer’s ensures

>OPTION A

OPTION B

Hotel program company A

Low volume = moderate savings potential

CCRHigher bundled volume = higher savings potential

Company A Company B Company C

100

100100100 100100100

HRS HAS THE MOST SUCCESSFUL CONSORTIA PROGRAM IN THE WORLD, WITH STRATEGICALLY TARGETED RATES BASED ON MARKET FLUCTUATION

8,700+ 8,700+ hotels with hotels with worldwide worldwide coveragecoverage

99%Wifi6pm cxl

76% incl. breakfast

HRSCONSORTIAPROGRAM

89€avg. rate

3.7avg. stars

8.3google rating

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MONITOR RATE COMPLIANCE TO TRANSLATE PAPER SAVINGS INTO REALIZED SAVINGS The Coronavirus pandemic only emphasizes the need for real-time information, enabling a focus on the current most important topics of security and costs to ensure more reliable and flexible planning7.

The goal of travel and procurement managers should be to utilize data as a predictive tool, forming the decision grounds for their future portfolios. Valuable data about the following items can translate into valuable benchmarks:

› Their markets’ developments,

› available suppliers and their compliance, as well as

› other buyers and

› their own data

One example when it comes to the rate is to identify and analyze the gap between a fixed negotiated rate and the actual averaged booked rate over the course of the year. In reality, there is a gap between the average displayed rates and the average actual spend: inclusion of amenities, availability, different cancellation policies, and incorrectness of the displayed rate will impact the real spend compared to the original evaluation.

Driven by a commitment for transparency, HRS developed an estimation of the “actual” average rate a given room will be associated to - dubbed “Normalized Rate” - to enable a fair comparison between offers, and also provide a better evaluation of the realized savings a given portfolio optimization will lead to.

To evaluate normalized rates, HRS takes advantage of its comprehensive booking data history and its unique innovative tool set, including automated Rate Auditing functionality. These tools incorporate historical information on the costs of amenities (such as Breakfast and Wifi), but also the impact of the rate availability and rate correctness based on actual retrospective scans of the rates proposed by the hotels. In addition, the overall impact of cancellation policy associated to the original rate is also integrated. The additional average costs are evaluated for a given hotel and a given customer based on their historical cancellation pattern (average share of cancellations and average cancellation period).

7 Whitehill, 2020; UNWTO, 2020b

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Procurement Tool

Bid

11010 8 7

10,5 5,5 151

Breakfast Wifi Cancellation

Normalized Rate Breakdown

Unavailability Incorrectness Normalized Rate

VIZUALIZATION OF THE BREAKDOWN OF THE NORMALIZED RATE ALONG WITH NORMALIZED RATE DISPLAY IN OUR eRFP TOOL

SMARTLY APPROACH DYNAMIC RATES AND PROLONGATION OF 2020 RATES

It is commonly agreed that the annual corporate lodging RFP process needs an overhaul. Spending six months negotiating a yearlong program every year is not efficient or effective. Opinions vary on how to manage that change.

GBTA announced in April 2020 that they were endorsing a full rollover of 2020 rates for all of 2021 due to the limited resources at the hotel level8. As discussed before, while there are many logical and expedient reasons to overhaul your program to COVID-19 endorsed needs, some corporations might still decide to prolong their 2020 rates. In theory this does seem to free up everyone’s time. However, this strategy and logic does not take into account the effort and potential impacts to “just prolonging rates.”

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8 https://www.gbta.org/blog/gbta-endorses-postponement-of-2020-hotel-rfp-amid-coronavirus-pandemic/

RATE COLLECTION

› Even if your program relies heavily on chains, there is still analysis and communication necessary - blanket vs individual property efforts to determine if the hotel will honor the 2020 rate, amenities, and if they are even open

› Collection of hotel extension agreement & Official T&C agreement

› Check Rate / Tax / Amenities compliance with Previous Year. Several countries are lightening the VAT tax for a specified period of time

› Collection of updated Seasons, Trade Fairs and Black Out Days. Holidays and trade fairs will shift from year to year, and are especially hard to project as the impact of the pandemic extends into 2021.

› Missing Official T&C agreement for Rate Extension

NON-COMPLIANT HOTELS

› Duty of care: security & hygiene norms not respected

› Ensure hotels and hotel referent are available

› Chase manually the hotels to agree on same rate

› If refusal:

• Find an alternative to cover the need

• Negotiate a rate not to impact ADR

CLOSED HOTELS

› Find an alternative to cover the need

› Negotiate a rate not to impact ADR

› What will be the negotiation process?

RATE LOADING

› Heavy work to ensure format & client’s specific request compliancy

› Offline rate management

REPORTING

› Impossibility to update Directory & OBE reports

AUDITS

› Misalignment between previous year rate and activated rate in CRS/GDS

• Check Rate compliance with Previous Year

• Check Tax compliance with Previous Year

• Check Amenities compliance with previous Year

EFFORT

IMPACT

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IMPACT

ECONOMICS

› Missed Savings

› Potential ADR increase

› On site costs for additional amenities

TIME

› Extended time to negotiate & replace hotels afterwards

› Long cycle to collect, verify & chase hotels on various metrics

› 2021: time consuming to manage dissatisfaction of higher rates, to renegotiate better rates or new hotels to get better offers, potential contaminations

QUALITY

› Leakage on both program & tools due to higher rates than market

› Risk of uncovered destinations

› Risk of inconsistent rate conditions

› Lack of transparency on hotel level

› Duty of care risk: extending hotels non COVID compliant

› Cancellation policy flexibility

› Traveler experience worsened with amenities you might not benefit from without negotiation

› Rate Activation delay due to closed hotels

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WHY NEGOTIATE RATHER THAN PROLONGING 2020 RATES?STRATEGIC RELEVANCE

SAFETY, HYGIENE AND DUTY OF CARE

Corporate now have a strong desire for a unified standard hygiene protocol within their lodging programs next to enhancements of duty of care protocols. Chains are developing different safety protocols while HRS is trying toharmonize on this.

SAVINGSOPPORTUNITY

After 10+ years of rates increases we will now face a period of heavily decreased demand while supply is anticipated to still grow.

TRAVEL BUYERROLE IN A

BUYER MARKET

It is part of the travel buyer role to renegotiate the rates, since there is a huge imbalance between supply and demand, to meet the actual corporate demand pressure for cost savings.

AMENITIES

It is important to revise the list of amenities, because world has changed after COVID-19 and those negotiated in 2019 will not cover travelers’ needs.

EFFORT

Extending rates does not necessarily save time: hotels have to be contacted in any case to agree on the extension, to check if they are open or close and to ask them specific questions (safety / hygiene, new amenities, blackout rates, tradefair rates etc), heavy rate loading process, audits. There are heavier administrative costs involved.

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On the other end of the spectrum, there is the opinion that a 90-100% dynamic program is the way to go. That is not the answer either. This approach doesn’t consider the fact that 84% of global hotel market share is owned by independent hotels. This approach favors global chains that have the technology to either implement dynamic rates at the property level, chain wide discounts across all properties or dual load static/dynamic rates. In addition, there is very little alignment on how to capture savings and audit the application of a dynamic rate. Even with a LRA (last room available) dynamic rate and comparable amenities included, there is still a lack of reliable technology to apply and audit the discount.

Dynamic rates limitations, including:

› BUDGETING AND PLANNING HARDLY POSSIBLE – Corporates lose ability to plan ahead and budget costs professionally

› DYNAMIC RATES HELP IN TIMES WITH LOW AVAILABILITY – Availability will be of no big concern for the next 18 months+

› NO COMMITMENT OF CHAINS – Dynamic rates infer no chain commitment to agreed rates, availability & best price delivery

› TIME-INTENSIVE MONITORING OF RATES – No transparency of rates leads to high workload to monitor rates and availability

Both sides of the argument are assuming that there is a one-size-fits-all strategy. However, years of rate analysis say there is not. There is a time and place for extending static rates, implementing dynamic rates and renegotiating both. In addition, both sides fail to acknowledge that after a decade of being in a seller’s market, the tables have turned. Therefore, it has never been more critical to build a strategy that works for your specific company’s needs and culture through a hybrid approach.

Whether or not we know the exact volumes in the recovery period, what we do know are the percentages and distribution within a corporate’s program. Historical data can show us where the highest volumes will be and advanced forecasting logic will show us which rate strategies to apply and what a corporate should be paying in those markets.

One of the biggest deterrents to a negotiated dynamic discount or hybrid approach has been how to calculate the savings for internal reporting. In recent years, there has only been a focus on the savings methodology for a dynamic discount applied at the time of booking. As global chains have adapted to the current environment, offering dual rate loading (static & dynamic), the need for an updated negotiated savings methodology has become critical to this RFP season.

When travelers do return to using updated booking channels, some savings drivers will stand out for their proven ability to turn negotiated results into realized savings:

› Sourcing alternative suppliers

› Bundling travel volume across corporates, and

› Implementing dynamic adoption within a 15 to 18 months portfolio horizon.

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3. PLANNNING RELIABILITY

MAKE YOUR RFP LEAN AND AGILE TO PREPARE TO ACT FAST IN UNCERTAIN TIMES

While it is acknowledged that there are limited resources on the supplier side to manage RFPs, it is unreasonable to ask corporates to do nothing to adjust their programs to the current market conditions. Travel procurement professionals would be negligent in their corporate responsibility to duty of care and competitive bidding if they did not go to RFP.

So, how can the 2020 RFP process feature advantages for both corporations and hotels?

› DELAYED START OF RFP SEASON: While peak RFP season has traditionally begun in the beginning of June, RFPs have been generally postponed and delayed until September. This will allow for better responses as hotels reopen and furloughed employees return to work.

› SHORTENED RFP CYCLE: Through an innovative paralleled approach to the RFP process that HRS put in development pre-COVID, the negotiation timeline is shortened from an average 16 weeks to 4 weeks.

• Multiple RFPs are launched at the same time with a one-bid request in order to improve process efficiency and reduce the burden on hotels and chains that would normally be responding to hundreds of ad hoc RFPs.

• Data is pre-released to allow for response preparation and the ability to submit a best-and-final offer the first time.

• Live benchmarking gives assurance to both hotels and corporates that the offer is competitive

› CONTINUOUS REVIEW AND ADAPTATION OF THE PROGRAM: The market environment is extremely volatile, fragile and agile, therefore adapting the hotel program continuously is crucial. By utilizing historical data, we can create a solid and reliable 2021 program foundation. However, HRS recommends re-assessing in late Q1 to early Q2 2021. This will provide early recovery data to consider:

• Market price shifts in key markets

• Travel pattern changes

• Organizational changes

• Hotel partner accountability

• Any unexpected events

The corporate hospitality industry is at an unprecedented juncture. This calls for action and innovation – not inaction and complacency. Through transparent communication, partnership and agility, the industry has a unique opportunity to modernize the outdated annual RFP and create a sustainable continuous sourcing process.

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USE NEW BI MODELS BASED ON COVID-19 DATA AND INSIGHTSThe crisis caused by the COVID-19 pandemic has had repercussions in all aspects of our industry, including our ability to evaluate future volume of travelers and room rates, which was traditionally based on pattern analysis of historical data.

HRS adapted its approach and built a new set of forecasts. These approach combines advanced statistical modeling, in form of an additive regression model for decomposing the time-series into different factors such as general trend and seasonality effects for a given destination for instance, and the in-depth knowledge of our travel experts, including the specifics of particular client relationship, travel patterns and post-COVID-19 priorities.

As we look ahead, the most critical aspect to understand is the volume of demand for travel, as supply and availability is no longer a limiting factor. HRS’ demand forecast assembles all available data, with the addition of Google trend data to model the new behavior of travelers. HRS experts can input various recovery scenarios in the forecast to better reflect the reality on the ground (certain markets will recover faster than others, domestic travel will recover faster than international travel, etc.). This unique approach enables a forecast tailored to the new reality and specific needs of customers and partners.

In addition, future rates are evaluated from the prior year’s rates, while also incorporating the new reality of our travelers, as mentioned above in section 3.2 product bundles and savings. Accordingly, these new rate forecasts allow for transparent communication with corporate clients and hotel partners.

Screenshot of the output of our demand volume forecast

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As the globe emerges from the Coronavirus pandemic, corporations are recalibrating their managed travel programs as they plan to get back on the road. Companies are revising their duty-of-care guidelines, and sharpening their focus on prioritized destinations.

Due to increased pent-up demand, detailed volume and capacity planning is crucial for success. The newly-defined goal for decision-makers in travel management is clear: they need to take steps to ensure traveller safety and health, even as they maximize the value of reduced lodging allocations. This trend is driven by the financial pressure many companies face due to the slump in sales caused by the global economic downturn. New bundles that appropriately balance critical hygiene and safety issues with financial considerations are quickly becoming the next normal in managed travel.

DUTY-OF-CARE AND HYGIENE ARE THE NUMBER ONE PRIORITY FOR HOTEL PROGRAMSThe coronavirus outbreak has redefined priorities for corporate hotel program managers. Leaders are examining traveller safety for every part of the business trip – literally from the moment the employee leaves their home, through the “traditional” elements of the business trip (air / hotel / ground transport / dining / meeting location), and on to the completion of the journey and return home.

4.MANAGE YOUR RFP IN 2020

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On the hotel front, RFPs are totally revamped, with safety and hygiene questions dominating the document. Queries include topics such as:

› Guest and meeting room cleaning protocols and frequencies,

› Sanitizing chemicals the hotel uses,

› Distancing guidelines for public areas like lobbies, elevators, and gyms, and

› Enhancements to food and beverage preparation, individual item options, etc.

With the pace and penetration of the virus varying by location, flexibility is also a highly-ranked priority. Companies are placing a premium on same-day cancellation to account for local virus trends, as well as concerns travelers may have about going to a specific location.

THE NEW BUNDLE: FACTORING HYGIENE & SAFETY WITH LOCAL PRICING REALITIES

With each passing week, HRS sees a pricing trend for corporate hotel programs. The changed circumstances are reflected in changed product bundles and, hence, pricing. Factors include:

› At a time when occupancy rates have dropped dramatically, companies no longer need to pay the (on average) 10 percent premium to have Last Room Availability clauses in hotel agreements in all destinations. A thorough analysis of required destinations and the anticipated pace of occupancy increases in those locations should take place.

› As properties adjust to Coronavirus-related hygiene protocols, buffet breakfasts have been removed from the vast majority of hotels. Many companies have the cost of breakfast negotiated into their rate as part of their legacy contracts. This cost can be reduced, cut or modified, depending on the changed travel policies and breakfast/food guidelines of corporations

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› As discussed above, fluid on-the-ground realities with local COVID transmission levels are placing a premium on cancellation flexibility. Hotels...enduring lower demand in most markets...are more willing to offer that flexibility.

› Hotels have had to make investments in personnel, cleaning materials and other touchless elements to address the need for enhanced hygiene and distancing practices. These recurring investments inevitably are reflected in hotel rates. Properties that adopt the minimal legal cleanliness requirements may not add to the price point, while other properties that seek to differentiate with high-end sanitization practices are more likely to increase rates.

› With general demand uncertain, corporations that have the proven capability to truly steer volume to preferred hotels can secure deeper discounts with market share commitments.

› Finally, as companies ask their travelers to get back on the road to visit clients and sell to prospects, travelers rightly seek assurance that preferred hotels are clean and safe. To address this baseline requirement, hotels should engage with universal programs, such as the HRS Clean & Safe Protocol, which provide labels that showcase the hotel’s newly enhanced standard in both procurement and shopping processes.

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For more insights on the Corporate Travel and the lodging industry visit hrs.com/corporate

In addition, companies are taking steps to drive more travellers to book within the travel policy, thereby enabling better tracking in the event of medical or regional crises. Given the fragmentation of the global hotel market, with ongoing challenges in benchmarking, the optimizing of the lodging program remains a major task for procurement leaders worldwide.

Accordingly, new bundles are being developed around these elements, as well as touchless service options and flexible terms. Moving forward, corporations need to be more thorough as they prepare for hotel negotiations. They should have more pre-RFP exchanges with hotels to have a better sense of the bundles preferred partners are considering. Hotels using the downturn in second and third quarter volume to recalibrate their proposals to preferred corporate clients will be best positioned to come back faster once companies travel again. This client-partner transparency is essential to a successful negotiation season for both parties.

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hotel procurement strategies in covid-19 times · with pricing that factors in this element. ......

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