Travel management companies are in the midst of negotiating next year’s hotel and airline rates on behalf of their corporate clients, an annual ritual that was thrown into turmoil last fall when the economy collapsed, dragging down business travel with it.
The question this fall is whether the rates negotiated now will survive or whether they will be renegotiated and renegotiated again, as they often were over the last year.
At the moment, according to travel management company executives and other industry experts, companies have the most leverage over hotel rates, since the supply far outstrips demand in many business travel destinations.
But, the travel managers say, companies have far less control over airfares, particularly those set by American carriers, which have significantly cut capacity and, along with it, much of the room in negotiations.
What is still negotiable with the airlines, the travel managers say, are allocations of elite frequent-flier program status or upgrades, which can lead to a waiver of fees for baggage checking and other services.
Whatever rates are negotiated, corporations are expected to manage their employees’ travel expenditures even more stringently next year. A forecast of 2010 costs, issued last month by the National Business Travel Association, a trade group of corporate travel buyers in the United States, found that 71 percent of the group’s members planned to reduce nonessential travel next year.
In a survey being released Tuesday of travel manager clients of Egencia, the travel management arm of Expedia, 52 percent of the managers say they now rigorously enforce their company’s travel policy, compared with 44 percent of those polled in October 2008.
American Express and Carlson Wagonlit Travel have forecast that fares on flights used by business travelers will rise in 2010.
The Hogg Robinson Group, a travel management company based in Britain, does not anticipate a lot of fare increases in 2010, said Stewart Harvey, group client director. But, he added: “I do expect to see increases in additive income, fees. I think there will be far more price increases loaded onto those.”
Carol Salcito, president of Management Alternatives, a travel consulting company in Norwalk, Connecticut, said airlines had been giving her large corporate clients discounts from 5 percent to as much as 50 percent, if the companies were willing to purchase specific numbers of seats on specific routes.
As to the hotel rate negotiations, Bjorn Hanson, a clinical associate professor at the Preston Robert Tisch Center at New York University, said corporations’ leverage “has never been greater, because occupancy is at historic all-time lows,” estimated at about 55 percent this year. The only times when occupancy rates have been lower were in 1971 and 1933, he said.
American Express forecasts that hotel rates could fall as much as 4 percent or rise as much as 2 percent on average worldwide next year, depending on the type of hotel. It expects the greatest increases in the Asia-Pacific market. Carlson Wagonlit expects hotel rates in North America to be flat or to decline by as much as 8 percent from last year.
Hogg Robinson also expects hotel rates worldwide to be flat except in Shanghai, Beijing and Abu Dhabi, where Harvey predicts that hotel rates will rise 5 to 6 percent.
Egencia predicts the ability of corporations to negotiate 2010 hotel rates will be “strong” in most North American cities except Boston and Washington, as well as in Amsterdam, Barcelona, Madrid, Milan and throughout Asia.
Besides negotiating hotel rates, travel management executives say corporations are asking for — and often receiving — amenities like free breakfast, Wi-Fi or high-speed Internet access and health club use.
What is also being negotiated, said Craig Banikowski, president of the National Business Travel Association, are the services of the travel management companies themselves. About a quarter of association members said they planned to renegotiate such contracts in 2010.
Mark L. Walton, a principal of Consulting Strategies, a travel management consulting company in Buffalo Grove, Illinois, said corporate travel buyers were now using an automated, reverse-auction system to get competing bids for both travel management companies’ services and for hotel rates, yet another sign of the buyers’ control.
Perhaps the biggest unanswered question is whether air and hotel rates now being negotiated will hold firm.
“In 2009, I think an unhealthy pattern of renegotiation was established,” Harvey said. “I think it will continue in 2010.”
Henry H. Harteveldt, travel analyst for Forrester Research, said he, too, was not sure this round of negotiations would hold. “I hope what’s negotiated now will stick, because this will mean the economy is more stable and demand is slightly better,” he said. “But if anything significant happens to the global economy, all bets are off.”