Pressure on the Industry Causes Decline in Hotel Rates/Airfares

Boarding PassIn the past we blogged about how hotels are offering value add options to encourage more business from meeting planners. However, when it came to getting reduced rates on airfare or hotel rooms, you were out of luck. Until now.

It seems the industry is starting to realize it needs to offer better rates and fares or risk losing business all together. Tom Stone, founder of Sirius Management, recently told the Financial Times, "It is astonishing that some [hotels] have put forward rates that are up year-on-year. They do not seem to be aware that the boot is now on the other foot.

"Corporates are looking for reductions and I think those hotels are in for a rude shock, particularly in the five-star market. There is strong evidence that a lot of companies are downgrading from five- to four-stars."

Some planners, though, are willing to stick with certain suppliers—provided they can negotiate lower rates. According to a recent survey by the Association of Corporate Travel Executives (ACTE), 61 percent of travel managers have approached suppliers to renegotiate deals midway through contract periods. Of this percentage, 83 percent focused on hotel companies to find savings while 46 percent looked to airlines. About 31 percent were trying to find savings on rental cars.

When it comes to hotels, survey participants said that 44 percent of suppliers have taken the initiative to contact clients and discuss ways to cut costs. The majority (67 percent) of these approaches were from preferred hotel companies.

Travel managers may be seeing more flexibility when it comes to air providers. Chief Executive and President of Travelport Jeff Clarke told the FT, "For the first time in recent weeks, air fares have been decreasing. We have seen average fares down by 15 to 25 percent on a year ago. The average fare for travel to New York from London was down 34 percent in February compared with the same month in 2008. Sydney to Hong Kong, for example, was down 14 percent, Paris to Madrid 46 percent and Seattle to Los Angeles 29 percent."

Airlines are also seeing a huge drops in traffic volume, prompting them to offer deals when necessary.

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