How Will COVID-19 Impact Hotel Sourcing?

May 7, 2020 Partner Solutions Group

With the spread of the COVID-19 virus globally, many hotels remain closed with others continuing significantly limited operations as a result of the unprecedented drop off in demand.  With the most dense locales being most impacted, hotels in large metropolitan areas (New York, Chicago, London, and Singapore) have been most affected. Many secondary and tertiary markets are experiencing closures, as well.

Source

Period Ending

Occupancy Rate

% Change (M-O-M)

Smith Travel News

3/31/20

39.4%

-42.3%

Smith Travel News

2/29/20

62.2%

+0.2%

 

With unprecedented economic uncertainty and many locales issuing stay-at-home orders, hotel demand is significantly depressed with little reliable forecasting as to when consumer demand will return.  Travel and Transport’s Partner Solutions Group (PSG) expects these conditions to persist for the remained of 2Q20, at least. Additionally, we are seeing that many property reopening dates are being pushed further into the year. The “new normal” is almost impossible for hotels and analysts to predict.

Current Hotel Sourcing Environment

With the significant reduction in staffing, at the present time, many hotel sales organizations are not able to respond to lodging RFPs, rate reduction requests and/or rate loading activities.  The hotel industry is experiencing the largest workforce furlough in history and the earliest estimated return date for many impacted is 3Q – 4Q 2020.

Recommendations from Partner Solutions Group (PSG)

1. Rest of Year 2020: 

With so much uncertainty, little ability to forecast and limited hotel sales personnel available, PSG recommends maintaining your current 2020 negotiated rates for the remainder of this calendar year. We are already witnessing significant promotional rates being made available in order to stimulate demand. PSG finds that negotiated fixed rates will behave more like “price ceilings” as promotional rates deliver better value to those who are traveling in the near term.

2 – 2021 Sourcing Strategy: 

Global Business Travel Association (GBTA), on the advice of their North American and European lodging committees, top travel buyers and 50+ hotel/representation companies, has endorsed postponing the hotel RFP process that would normally take place in the second half 2020 for the 2021 travel program year – effectively having 2020 negotiated hotel rates rolled into 2021.

While PSG understands the challenges and limitations that the current situation poses, we firmly believe that a “one-size-fits-all” approach of simply extending current rates will result in costs that are misaligned with the current demand environment. If the economy experiences a prolonged recession or one with a “deep valley”, as many are forecasting, 2020 negotiated rates would be artificially inflated for 2021 and represent little value for travelers. During such significant economic turndowns, a dynamic pricing strategy tends to drive greater savings and lower costs. This was especially evident during the 2009 Financial Crisis and PSG believes the same will hold true for 2021. In order to consider this shift in hotel buying strategy (negotiated flat rates → dynamic pricing), we believe that buyers and suppliers will need a level of engagement this year.

Considering the above, PSG has commenced conversations with major hotel supplier partners as it relates to the sourcing of 2021 rates. We are seeking clarity as it pertains to resources that will be made available and how we can all productively collaborate to facilitate the best outcomes. Based on our learnings, PSG will be defining our approach, recommendations and adapt our client deliverables/offerings to meet the challenges posed by this new environment.

About Partner Solutions Group

Whether your needs involve air, hotel, ground, travel policy or travel-related technology, Travel and Transport’s Partner Solutions Group provides customized consulting services uniquely designed to improve supplier savings, program optimization, category management and traveler experience. Ask your Travel and Transport account manager or sales manager for more information. 

Previous Article
Authenticity Will Rule during, after COVID-19, Say Loyalty, Marketing Execs
Authenticity Will Rule during, after COVID-19, Say Loyalty, Marketing Execs

Travel and Transport Loyalty's Michelle Holmes was featured in this article from Engagement Strategies Medi...

Next Article
Why booking hotel stays with a TMC is critical during a pandemic
Why booking hotel stays with a TMC is critical during a pandemic

This article outlines some of the reasons why booking hotels through a business travel management company h...