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Room for Savings:
Optimizing Hotel Spend
Welcome to the CWT Travel Management
Institute research series
The CWT Travel Management Institute conducts in-depth research into effective
travel management practices to help clients worldwide derive the greatest value from
their travel programs.
Drawing on the global resources of Carlson Wagonlit Travel (CWT), the institute aims
to provide a regular flow of business intelligence and best practices, offering actionable
insights into the eight key levers to effective travel management identified by CWT.
The research presented in this report focuses on how companies can optimize their
hotel spend.
Other original research publications include:
Playing by the Rules: Optimizing Travel Policy and Compliance (2008)
Global Horizons: Consolidating a Travel Program (2007)
Toward Excellence in Online Booking (2006)
In addition, the CWT Travel Management Institute publishes white papers, case studies
and the global periodical CWT Vision.
Eight key levers to effective travel management
1. Provide the right services and assistance to travelers and optimize
transaction processing
2. TACKLE HOTEL SPEND IN A DISCIPLINED AND PROFESSIONAL MANNER
3. Continue to drive air and ground transportation savings
4. Increase policy compliance and optimize demand management
5. Further consolidate travel programs
6. Address security needs and corporate social responsibility
7. Integrate meetings and events in the travel program to control and optimize
the related spend
8. Develop executive dashboards and actionable performance measures
Contents
Introduction
Overview ...................................................................................................................................................3
Research objectives...............................................................................................................................4
About this research................................................................................................................................5
Key findings in brief...............................................................................................................................8
A complex market...............................................................................................................................................12
Key findings explained
1. Hotel spend is often underestimated although it represents nearly 40 percent of
the total travel budget .......................................................................................................................21
2. Companies can save 21 percent of hotel spend by adopting best practices...........26
3. Seven steps enable companies to optimize hotel spend ..................................................31
Consolidate data ..................................................................................................................................32
Understand traveler needs and behavior ...................................................................................37
Design an effective hotel policy .....................................................................................................47
Optimize the preferred hotel program ........................................................................................62
Negotiate effectively ...........................................................................................................................80
Improve traveler compliance........................................................................................................110
Track performance............................................................................................................................123
Conclusion ...........................................................................................................................................................133
Appendices
Glossary ..............................................................................................................................................134
List of companies researched in case studies......................................................................135
Overview
Hotel spend has been left unmanaged in many companies, due to the complex nature of the hotel
market and the difficulty of gathering data to accurately evaluate spend.
This situation is changing as travel managers experience greater pressure to reduce costs and look
for new ways to achieve savings. As this research indicates, hotels represent nearly 40 percent of
the travel budget on average. The stakes are therefore high.
CWT research shows companies can save 21 percent of their hotel spend by adopting best
practices. Room for Savings: Optimizing Hotel Spend explains recommended measures and their
impact, along with step-by-step advice on how to improve performance in this area of the travel
program.
This study also debunks several myths. It explains, for example, which hotel and booking features
travelers value most, why it is important to favor preferred hotels unless alternatives offer
significantly lower room rates, how dynamic pricing can out-perform flat-rate deals in certain
conditions, and the value of city caps.
Optimizing hotel spend can pay, bringing savings and sustainability to the travel program while
enhancing service and security for travelers.
3
Research objectives
This CWT research has four main objectives:
1. Provide a clear overview of the corporate hotel industry and key trends
2. Evaluate the amount companies typically spend on hotels within their total travel budget
3. Calculate the savings companies can realistically achieve by adopting best practices
4. Identify the keys to success for optimizing hotel spend
About this research
For an in-depth understanding of key issues in
hotel program management, CWT combined
several research techniques:
An audit of hotel rates in global distribution
systems to analyze rate- loading
performance and fluctuations in the best
available rate over time
Surveys
A detailed, online questionnaire on hotel
spend optimization involving 101 travel
managers from companies of all sizes
worldwide
An online survey of 5,016 corporate
travelers and travel arrangers on their
hotel preferences and booking behavior
In-depth interviews
Interviews with 19 experts, including highlevel executives from hotel chains
(general management and sales/pricing
managers), credit card companies, global
distribution systems, travel research
organizations and travel management
professionals
Case studies
Analyses of spend data and interviews
with travel managers from six companies
on issues such as hotel policy,
compliance, dynamic pricing, chain deals
and sustainable travel
This research was carried out from May 2008 to
January 2009 and involved a wide sample in
terms of company size and industry, travel
managers’ scope of responsibility and travelers’
home region, as shown in Figures 1-3.
Quantitative analyses
An analysis of hotel spend and
transactions made by CWT clients in
more than 60 countries worldwide
An in-depth review of credit card
transaction data and CWT booking data
from two companies in four countries
A study of preferred hotel programs to
examine coverage and pricing
5
Figure 1: Breakdown of surveyed companies by sector and travel spend
Sector
Consumer goods/retail
12%
IT/technology/
telecommunications
12%
Transportation/logistics
2%
Other
4%
Aerospace/defense
6%
Heavy industry/
manufacturing
12%
Professional services
6%
Energy/chemicals
8%
Banking/insurance/
financial services
10%
Food/beverages
9%
Government/
not-for-profit
10%
Total travel spend (US$)
$50-100M
8%
Pharmaceuticals
9%
Hotel spend (US$)
> $100M
7%
$20-50M
20%
$15-30
12%
$30-50M
7%
> $50M
2%
< $5M
30%
< $2M
32%
$5-15M
27%
$5-20M
35%
Source: CWT Travel Management Institute
Based on a survey of travel managers (101 responses)
$2-5M
20%
Figure 2: Breakdown of surveyed travel managers by scope of responsibility and region
Scope of responsibility
Region
Global
46%
National
43%
Regional
11%
Asia Pacific
7%
North America
37%
Latin America
2%
Europe, Middle East & Africa
54%
Figure 3: Breakdown of surveyed travelers by region
76%
North America
18%
Asia Pacific
6%
Based on a survey of travelers (5,016 responses)
7
Key findings in brief
The research highlights three key findings:
1. Hotel spend is often underestimated
although it represents nearly 40 percent of
the total travel budget on average.
To arrive at this figure, CWT used three different
methodologies, including case studies that reveal
companies can spend as much as 46 percent
on hotels, nearly as much as on air transportation.
This finding may surprise travel managers, who
estimate their hotel spend at just 28 percent of
the travel budget on average. Nevertheless, travel
managers acknowledge the importance of
optimizing hotel spend, making it a higher priority
in their travel programs.
2. Companies can save 21 percent of hotel
spend by adopting best practices in hotel
spend management.
These savings are found in four main areas:
traveler compliance (9 percent), policy and
program (8 percent), negotiations (6 percent)
and performance tracking (1 percent), taking into
account an estimated overlap of 3 percent. Client
transaction data and case studies were used to
calculate companies’ room for improvement
(moving from average performance to best-inclass performance).
3. Seven steps enable companies to optimize
hotel spend. These are described below.
Consolidate spend data.
Comprehensive data is essential for buyers
to leverage maximum volumes during
negotiations, check that travelers are being
charged the correct rate at preferred hotels,
and monitor policy compliance. Yet the
required data is notoriously difficult to gather
and companies usually need to “cleanse”
data from several sources (e.g., by
harmonizing different coding systems and
eliminating duplicate entries), which can be
challenging. This partly explains why 39
percent of travel managers believe they
capture at most 75 percent of their hotel
spend data.
Nevertheless, it is possible to obtain all the
necessary data from reports on TMC
transactions and payments made by
corporate credit card, and consolidate it
with the help of specialists such as the TMC.
Ideally, travel managers also ask chain hotels
to provide e-folios (itemized electronic
invoices), where available, for a better
understanding of spend on amenities.
Understand traveler needs and behavior.
Needs vary among four segments identified
by CWT (“comfort seekers,” “demanding
customers,” “easygoing guests” and “pragmatic
travelers”) and travel managers should take
these into account when designing their
hotel programs. As a general rule, travelers
place practical considerations before
comfort. Surveyed travelers say a hotel’s
proximity to business locations is critical, far
ahead of the next most important feature,
hotel category.
Although travelers tend to choose highercategory hotels for longer stays, the category
does not appear to be a direct driver of
satisfaction. Similarly, travelers take a “no
frills” approach to booking, ranking
features such as photos and traveler
feedback low in importance compared to
speed and convenience. Contrary to popular
belief, travelers tend not to shop around
when booking a hotel and just 14 percent
surf the Internet for this purpose. Thirty-five
percent of travelers know where they want
to stay before booking, which could explain
why travelers place fairly low importance on
having a wide choice of hotels and advice
provided by the travel management
company.
Design an effective hotel policy.
Mandates should be used, as travelers are
more likely to comply with policy requirements
than simple recommendations. In particular,
companies should mandate the use of
preferred hotels whenever available. This
said, some companies authorize nonpreferred alternatives if they are significantly
cheaper, at the risk of diluting the volumes
spent at preferred hotels and decreasing
related savings. In this case, CWT recommends
stipulating that the room rate must be at least
20 percent lower.
At the same time, companies should provide
clear guidelines on what to do when
preferred properties are unavailable,
including using a preferred chain, respecting
a city cap, and following recommendations
made by the TMC or online booking tool.
Another important rule is booking through
TMC channels, which enables travelers to
access significantly lower prices both at
preferred and non-preferred hotels. (CWT
research shows that TMC-booked rates are
on average 18-21 percent lower.) In addition,
TMC booking enables travelers to be tracked
in the event of an emergency, as well as save
time when booking. An effective hotel policy
also mandates booking at least two weeks
in advance whenever possible and paying by
corporate credit card. Finally, reimbursable/
non-reimbursable amenity charges should be
addressed in the hotel policy.
Optimize the preferred hotel program.
A methodical approach can help companies
select the right hotels in the right locations.
First, they should consider any property or
location that accounts for at least US$10,000
in spend, bearing in mind that this threshold
can vary between markets and companies.
As volume discounts are at stake, buyers
should concentrate spend on the smallest
number of properties that meet the
company’s needs. Moreover, significant
savings can be achieved by reviewing the
hotel categories included in the program.
With an average rate difference of 21-25
percent between categories, it is worth
considering a multi-tier program, providing a
range of properties for different populations of
travelers or different destinations (e.g., lower
categories for domestic travelers or specific
business units).
Another important decision is whether to
retain current providers or work with
competitor hotels. Although the latter often
offer savings, CWT research indicates that
companies that retain at least 80 percent of
their preferred hotels from year to year tend
to be more effective at limiting rate increases
than companies that introduce more
9
changes. In addition to providing the right
services for travelers at the best rates, an
effective hotel program should address
security concerns and environmental
friendliness.
market conditions change in favor of buyers,
companies should consider asking preferred
hotels to renegotiate rates during the year.
Negotiate effectively.
Policy compliance is notoriously low for hotel
bookings. Case studies show that as few as
26 percent of transactions involve preferred
hotels and only 20 percent go through
preferred booking channels. Higher levels
of compliance are possible, although
companies cannot expect 100 percent use
of preferred hotels, as no program can cover
all destinations.
Approximately one-third of companies sign
deals with at least 100 properties and
therefore need to vary their approach
depending on the expected return on
investment. Top-volume properties require
full-scale negotiations using all possible
negotiating levers such as including spend on
amenities and conducting multiple rounds of
negotiations. Other hotels may be approached
with “light” property-level negotiations.
When companies do not meet the room
night/spend threshold for negotiating propertylevel agreements, they can strike chain-wide
deals to extend the hotel program.
Although flat-rate agreements are generally
recommended for preferred properties,
some companies have opted for dynamic
pricing deals. The latter, which provide a
percentage discount off the hotel’s public
best available rate, can bring savings over flatrate deals when conditions are right (e.g.,
when hotels provide regular reporting and
agree to renegotiate rates if the company’s
rates evolve less favorably than the corporate
market average).
Where possible, companies should negotiate
last-room availability (i.e., a hotelier’s
commitment to offer the negotiated rate
even if only one room of the negotiated type
is available). This results in lower average
room rates over the year, even if up-front
negotiated rates tend to be slightly higher. If
Improve traveler compliance.
Among the best practices are ensuring the
preferred hotel directory is up-to-date and
easily accessible, communicating the travel
policy to travel arrangers as well as travelers,
configuring the corporate online booking tool
to promote compliance, and taking follow-up
action when travelers fail to comply.
Moreover, the hotel program should be
reviewed regularly to take into account
travelers’ needs, as travelers most often cite
practical business reasons for booking
non-preferred hotels (even though
surveyed travel managers tend to think noncompliance is driven mainly by travelers’
personal preference).
Track performance.
Close monitoring is key to the success of a
hotel program in terms of improving traveler
compliance, ensuring hoteliers deliver the
agreed conditions, and taking corrective
action as needed. As a general rule,
compliance tracking could be improved by
looking at indicators beyond the use of
preferred hotels, which travelers do not
always have access to. Examples include the
use of appropriate room types and
compliance with city caps.
Moreover, companies should conduct
regular audits of rates loaded into global
distribution systems (GDSs) and last-room
availability as many errors tend to occur. In
fact, in five case studies, only 50 percent of
rates were loaded correctly in the initial
period following negotiations and incorrect
rates were on average 15 percent higher.
Another study showed that squatter hotels
(i.e., non-preferred properties that erroneously
use the GDS codes intended for a company’s
preferred hotels) accounted for 4-5 percent
of two companies’ bookings and were on
average 3-21 percent more expensive than
preferred hotels.
11
A complex market
The complexity of the hotel market can make managing hotel spend seem particularly
challenging. A vast number of suppliers, a diverse offering, different pricing strategies and
multiple distribution channels are key features that travel managers need to understand
when designing their hotel sourcing strategy and travel policy.
A vast number of suppliers
Business travelers stay at an estimated 250,000
hotels around the world. These include both
independent hotels, which dominate the market
in all regions except North America, and chain
properties, as shown in Figures 4-5. In any given
city, corporate buyers and travelers may have a
wide choice of suitable options. The largest
companies can have hotel spend at hundreds or
even thousands of properties every year, making
effective sourcing particularly challenging. Working
with chains can reduce this complexity, although
the best deals still tend to be negotiated at a
property level, even when properties belong to a
chain.
Figure 4: Number of hotels used by business travelers per region and percentage of all
hotels worldwide
Number of
corporate hotels
Percentage of
all hotels
105,000
42%
North America
72,500
29%
Asia Pacific
50,000
20%
Latin America
22,500
9%
Total
250,000
100%
Region
A complex market
Figure 5: Independent hotels dominate the business travel market in all regions except
North America
30%
70%
Europe, Middle East
& Africa
15%
85%
20%
80%
11%
89%
Independent hotels
Chain properties
(% of total properties)
13
A lack of global standards to
define hotel quality
The potentially confusing choice of hotels is
exacerbated by the fact that each hotel is unique
in terms of pricing, amenities and quality of
service, and yet there is no single standard to
accurately assess properties. Numerous
classification systems are in use by national
governments and industry associations, and
even those that look the same (e.g., star ratings)
can have different definitions. Corporate hotel
experts therefore use their own criteria to help
clients classify hotels. For example, CWT
Solutions Group, the consulting arm of CWT,
uses four categories that align with those used
by other lodging industry consultants (Figure 6).
Figure 6: Examples of hotel classification systems used by global industry consultants
CWT global classification
Deluxe
Luxury property providing
personalized amenities
and services
First
Full-service hotel with
comfortable accommodations
and public areas
Smith Travel Research
(STR) classification
Hotel and Travel Index
(HTI) classification
Superior Deluxe
Luxury
Deluxe
Moderate Deluxe
Upscale
Superior First Class
First Class
Limited Service First Class
Standard
Full-service hotel with
comfortable but sometimes
simple accommodations
Moderate
Superior Tourist Class
Tourist Class
Moderate Tourist Class
Economy
Property providing basic
amenities
Economy
Budget
Unclassified
A complex market
Diverse markets
Each city is unique in terms of economic
conditions, the average size of hotels and
negotiation styles, all of which impact hotel
selection and corporate agreements. Figure 7
illustrates the changes in average room rate
observed across different markets between
January 2008 and January 2009, highlighting
dramatic decreases in cities like London, Sydney
and Paris, compared with continued strong
increases in Tokyo.
Figure 7: Average room rates (ARR) have dropped dramatically in some cities in response to
the economic downturn
ARR January 2009 (US$)
250
New Y ork
Paris
Rome
London
Sydney
Hong Kong
Tokyo
200
Buenos Aires
150
Madrid
Los Angeles
Toronto
Berlin
Beijing
Cairo
100
50
-40
-20
0
20
40
ARR change January 2009 vs. January 2008 (%)
Based on data provided by Smith Travel Research
15
Complex pricing
Hoteliers use different pricing strategies that take
into account supply and demand.
Macro-economic rate fluctuations. Hotel
supply is relatively inelastic in that new hotel
rooms take time to come onto the market in
times of strong demand and do not
disappear when demand weakens. Strong
economic growth therefore tends to be
accompanied by high hotel occupancy and
fast-growing room rates, while slower or
negative growth leads to lower occupancy
and rates that rise more slowly or even drop.
This is illustrated in Figure 8, which shows the
evolution of average room rates in the United
States during the last recessions (1990s,
early 2000s, and the end of 2008).
Figure 8: Economic growth impacts hotel occupancy and rates
Year-over-year changes in occupancy and average room rates (ARR)
in the United States, January 1988 – January 2009
(12-month moving averages*)
Year-over-year
change in ARR
Average occupancy (%)
10
65
5
0
60
-5
55
-10
1988
1990
1992
1994
1996
Year-over-year change in ARR
1998
2000
2002
2004
Average occupancy
2006
2008
Recession
Based on U.S. hotel performance data provided by Smith Travel Research and STR Global
* Twelve-month moving averages mean that the occupancy for January 2009 is the average occupancy from February 2008-January 2009
and the year-over-year change is the difference between the annual average for January 2008 and for January 2009
A complex market
anticipated demand and competitors’ pricing
(Figure 11).
Seasonal, weekly and daily rate
fluctuations. Hoteliers have traditionally set
different rates for high and low seasons.
Many also differentiate between peak
weekdays (Tuesday to Thursday), weekends
that are typically cheaper at destinations
attracting few tourists, and special
promotional periods used to maximize their
room yield or revenue per available room
(RevPAR), as shown in Figures 9-10.
Moreover, hotels that have adopted yield
management techniques may change their
rates daily to optimize revenues based on
These fluctuating prices represent the best
available rates (BAR) offered to any
customer of the hotel. Companies that
negotiate a deal either obtain a fixedpercentage discount off the BAR, which is
known as a dynamic pricing agreement, or,
more commonly, a flat rate that applies
throughout the year except during “blackout” dates that are specified in advance.
Figure 9: Example of daily rate fluctuations at a hotel
A hotel in Charlotte, North Carolina
400
Peak pricing
300
Rates
(US$)
200
Typical mid-week
Typical weekend
Promotional rates
100
0
July
August
September
October
November
December
2008
* Best Available Rate
Based on rates available on 148 different dates, July-December 2008
17
Figure 10: Rates remain fairly constant during the business week
A hotel in London
Rates in US$
2.5% difference
679
696
696
696
705
Mon. Tues. Wed. Thurs. Fri.
696
705
Sat. Sun.
A hotel in Singapore
Rates in US$
5% difference
227
239
227
227
199
199
227
Maximum price
reductions (2.5-12%)
occur mainly
on Mondays
Sat. Sun.
A hotel in Berlin
Rates in US$
12% difference
121
135
135
135
121
A hotel in Stuttgart
Rates in US$
268
271
271
271
162
A hotel in Minneapolis
Rates in US$
169
169
169
169
79
Based on rates available on October 16, 2008
148
121
Sat. Sun.
162
162
Sat. Sun.
79
169
Sat. Sun.
Major discounts
occur on Fridays
and Saturdays
at properties that
attract few tourists
A complex market
Figure 11: Examples of daily rate fluctuations at hotels that use yield management techniques
Based on GDS rates available for a stay on October 8, 2008
Fragmented distribution
Hotels use a variety of distribution channels,
including travel management companies, their
own branded Websites and call centers, online
hotel booking agencies and other travel agencies.
To limit distribution costs, many properties,
especially those that are independently run, do
not provide inventory to global distribution
systems (GSDs). The content available in GDSs
is increasing (thanks to agreements with Web
aggregators), but the proportion of TMC hotel
bookings made through GDSs still varies widely
between regions, from an estimated 99 percent
in North America to 65 percent in Asia Pacific,
50 percent in Europe and just 35 percent in
Latin America. Major travel management
companies fill the gap with proprietary databases
that reference hundreds of thousands of
independent hotels and chains.
This is a major reason why TMC booking
channels (online booking tools or TMC
counselors) have shown strong growth over
recent years, despite the emergence of
alternative channels. As Figure 12 shows, TMC
bookings have grown to approximately 25
percent of corporate hotel bookings over the last
decade while the use of Internet booking
agencies accounts for just 15 percent. Moreover,
the proportion of corporate hotel bookings made
by contacting hotels directly (by phone, fax or
email) has dropped. Nevertheless, an estimated
50 percent of all corporate hotel bookings are
still made by contacting hotels directly, which
complicates traveler tracking and data
consolidation for travel managers.
19
Figure 12: Most corporate hotel bookings are made by travelers contacting hotels directly,
although the proportion made through TMC booking channels is growing
Estimated use of different distribution channels as a percentage
of corporate bookings
Mid-1990s
2008
Internet
~10%
~90%
(online travel agencies,
online hotel specialists and
hotel-branded Websites)
~15%
Hotel/chain
call center
~10%
TMC
(online booking tool
or counselor)
Hotel directly
(phone/fax/email)
Future trends
ì (hotel-branded Websites)
è (online travel agencies and
online hotel specialists)
î
~25%
~50%
ì
î
Today, business travelers have little incentive to
shop around. Notably, travelers who book
through Web hotel booking specialists cannot
access their negotiated corporate rates, nor
benefit from the one-stop shopping for hotels,
flights and ground transportation provided by
TMC booking channels. Moreover, “price parity”
is common practice today, meaning hotels offer
the same public rates via multiple booking
channels. This practice emerged to help hoteliers
regain control over their room rates, instead of
enabling Web resellers to offer major discounts
(which occurred particularly after 9/11, when
occupancy dropped dramatically). With price
parity, many hotels no longer keep their best
rates for their own Websites, even though this
distribution channel enables them to limit GDS
costs while building direct contact with
customers. Lower prices are sometimes available
on different channels, but often they come with
restrictions (e.g., cancellation penalties and
immediate payment).
Hotel spend represents nearly 40 percent of total travel spend
1. Hotel spend is often underestimated,
although it represents nearly 40 percent
of total travel spend
Hotel spend accounts for nearly 40 percent of business travel spend on average and even
more in some cases, according to CWT analyses. This finding may surprise travel managers,
who estimate their companies spend on average 28 percent of their travel budgets on
hotels. At the same time, survey respondents acknowledge the benefits offered by
improved hotel spend management, making it a priority in their travel programs.
Underestimated spend
Surveyed travel managers say hotels account for
28 percent of their companies’ total travel
budgets on average. Eighty-three percent believe
the share of hotel spend is under 35 percent
(Figure 13).
Figure 13: Surveyed travel managers believe hotels account for 28 percent of their companies’
total travel spend on average
21
evaluate the share of hotel spend. Several
sources were used, including travel suppliers,
travel booking information, trade associations,
business
intelligence
companies
and
international institutions. The analysis separated
transient travel from meetings and events spend.
Data on hotel spend is however, notoriously
difficult to obtain, implying that many companies
may not have accurate figures. (This challenge is
described further on Pages 32-36.) CWT
therefore carried out analyses to evaluate the
typical share of hotel spend in the transient travel
budget. Three different methodologies produced
matching results, as described below.
This exercise indicated hotels represent on
average 39 percent of total travel spend,
compared with 51 percent for air, 5 percent for
rail and 5 percent for rental car. Looking at each
region separately, the average proportion of hotel
spend ranges from 37 percent in Asia Pacific to
46 percent in Latin America (Figure 14).
1.“Top-down” global market analysis:
39% of total travel spend
CWT analyzed data on the global business travel
market (hotel, air, rail and rental car) for 12
major countries (Australia, Brazil, Canada, China,
France, Germany, India, Italy, Japan, Spain, the
United Kingdom and the United States) to
Figure 14: Hotel spend represents on average 39% of total travel spend
Total travel
spend* (%)
100
Air
Hotel
Rail
Car
1
6
6
7
8
15
5
5
80
40
40
60
37
46
47
46
39
40
20
54
47
North America
Europe, Middle East
& Africa
Asia
Pacific
47%
30%
20%
51
0
Share of global
travel spend
Latin
America
World
3%
*Transient travel (excluding meetings and events)
Sources: Air France, Euromonitor, Datamonitor, Economist Intelligence Unit, International Air Transport Association, International Monetary Fund,
Organisation for Economic Co-operation and Development, Renfe, World Travel & Tourism Council, CWT Travel Management Institute
2. “Bottom-up” U.S. market analysis:
38% of total travel spend
3. Company-level analysis: 28-46%
of total travel spend
For another view of the share of hotels in travel
spend, CWT analyzed consolidated 2008 client
transactions in the largest global market, the
United States. A bottom-up approach was taken,
using transportation data to extrapolate total
spend on hotels. This involved estimating the total
number of room nights spent on business trips
(based on air, rail and rental car bookings, and
survey responses on the use of company/private
car to reach hotels) and the average room rate
(based on CWT hotel booking data).
Finally, CWT analyzed spend at a company level,
using data from booking transactions and credit
card reporting for three global companies.
This exercise indicated hotel spend represents
between 28 and 46 percent of total travel spend
for the three companies analyzed. In other
words, some companies spend nearly as much
on hotels as on air transportation (Figure 16).
Figure 16: Hotel spend accounts for 28-46%
of total travel spend at 3 companies
This analysis indicated hotels represent on
average 38 percent of total travel spend in the
United States (Figure 15).
Figure 15: Hotel spend represents on average
38% of total U.S. travel spend
Other
Rail
Hotel
Air
Based on CWT transaction data and credit card data
23
How to calculate your company’s
transient hotel spend:
three methods using TMC data
1. Hotel spend = 76% of air spend
This calculation is based on the “top-down”
global market analysis described earlier ( i.e.,
39% ÷ 51% as seen in Figure 14, Page 22). It
provides a rough estimate only.
2. Hotel spend = total room nights generated
by transportation x average room rate
This method starts with transaction data on air
trips involving overnight stays to calculate the
total of room nights, which are multiplied by the
average room rate paid by the company
worldwide.
A further 10-40 percent can be added to this
total to include trips made by rail and car,
depending on the company’s travel patterns.
3. Hotel spend = total captured through TMC
bookings matched with corporate credit card
data
This calculation is provided by consolidated data,
through such solutions as CWT Agency+Card
Reporting. This method is the most accurate, as
described in detail on Pages 33-34.
A growing priority for
travel managers
Even though travel managers tend to
underestimate their company’s hotel spend, they
increasingly recognize the benefits offered by
improved hotel spend management. In a CWT
survey conducted in October 2008, 59 percent
of travel managers identified optimizing hotel
spend as a higher priority for 2009, on the same
level as driving air and ground transportation
savings (59 percent), and coming second only
to improving traveler compliance (66 percent, as
seen in Figure 17). Companies that optimize
their hotel spend through a range of best
practices can indeed achieve significant savings,
as explained in the next part of this document.
Figure 17: Surveyed travel managers say optimizing hotel spend is a growing priority
Improving traveler compliance
66%
Optimizing hotel spend
59%
Driving air and ground transportation savings
59%
Optimizing simple bookings
56%
Optimizing the travel policy
56%
Developing key performance indicators
46%
Tackling meetings and events
39%
Further consolidating the travel program
36%
Enhancing the traveler experience
34%
Addressing safety and security needs
20%
Making the travel program more environmentally friendly
18%
Based on a survey of 178 travel managers worldwide, October 2008
25
2. Twenty-one percent savings through best
practices
Companies that adopt best practices in hotel spend management can save 21 percent of
total hotel spend according to CWT research. These savings are found in four main areas:
policy and program, negotiations, traveler compliance and performance tracking.
Savings in four main areas
CWT used client transaction data and case studies
to compare average market performance with
best-in-class performance and quantify the
savings made possible through best practices.
The largest savings come from improvements to
traveler compliance (9 percent), in terms of how
often preferred booking channels and preferred
hotels are used. The next-largest savings
opportunities come from improvements to the
hotel policy and program (8 percent), followed
by negotiations (6 percent) and performance
tracking (1 percent), as shown in Figures 18-19.
Figure 18: Companies can save 21% of total hotel spend by adopting best practices in
hotel spend management
Note: This savings estimate does not take into account year-over-year inflation. CWT calculates a 3-percent overlap between savings derived in the different
areas. For example, savings achieved by booking through the travel management company are partly due to preferred hotels being used more often.
Twenty-one percent savings through best practices
Figure 19: Calculations used to evaluate the savings impact of implementing best practices
Improvement action
Resulting
savings on
total hotel
spend
Hotel
category
Replacing 20% of preferred hotels
with preferred hotels in a lower
category leads18% more travelers to
use a lower-category hotel.
3%
Refer to CWT study Playing by the
Rules: Optimizing Travel Policy and
Compliance (2008).
City caps
Introducing moderate city caps for
destinations covering 50% of hotel
spend lowers the average room rate
paid by travelers by 4.4%.
4%
Average room rates paid relative to
rates negotiated by 5 companies,
some with city caps and some without.
Based on transactions totaling US$3.4
million.
Sources
Advance
booking
Implementing policy and compliance
measures leads travelers to book on
average 4 days earlier.
1%
Based on a 4-day difference between
median and best performance. Each
further day booked in advance leads to
a 0.2% price reduction. Based on an
analysis of rates paid and reservation
dates for US$260 million in
transactions across 11 cities.
Consolidation
Advance&booking
negotiations
Consolidating local to regional or
regional to global hotel programs and
using best practices in negotiations
leads to savings of 6.5%.
6%
Refer to CWT study Global Horizons:
Consolidating a Travel Program
(2007): based on a survey of 50 travel
managers and case studies.
4%
Based on an industry benchmark of
spend at preferred and non-preferred
hotels for 7 companies. Rates are 10%
lower at preferred hotels compared to
other properties, based on a 5%
further volume discount for each
doubling of room nights.
5%
Refer to CWT study Playing by the
Rules: Optimizing Travel Policy and
Compliance (2008): bookings through
preferred channels are on average
18% cheaper than others, based on
262 hotel price samples for 79 hotels
in 26 cities.
1%
Based on a GDS rate audit for 5
companies and a rate squatting audit
for 2 companies in 2008. Companies
pay a 14% higher average rate when
rates are not loaded and 15.5% more
when loaded incorrectly. On average,
5% of transactions involve squatted
rates.
Preferred
hotels
Moving from average to best-in-class
performance on preferred hotels
increases the use of preferred hotels
by 20 points (from 40% to 60%).
Preferred
booking
channels
Moving from average to best-in-class
performance on preferred booking
channels increases TMC bookings by
25 points (from 50% to 75%).
GDS
rate loading
Introducing a series of 3 GDS audits
(including auditing for rate squatting)
and corrective actions reduces the
proportion of unloaded rates to 17%
(down from 40%) and incorrectly
loaded rates to 6% (from 10%).
Overlap
24%
3%
Net savings
21%
Total savings:
=
27
Many organizations have yet to optimize their
hotel spend and can therefore achieve significant
savings. Some examples of the best practices
observed by CWT are provided below, along with
the savings available to companies that adopt
them. More detail is provided on Pages 31-132.
current economic climate, some companies
could take tougher measures and save more.
(For example, one analysis suggested a
company could save approximately 10 percent
of total hotel costs by switching 80 percent of its
room nights to lower categories.)
Hotel category
City caps
The choice of hotel categories varies widely
between companies even within the same
industry, suggesting that many organizations
could switch to lower-category hotels while
remaining in line with industry standards. For
example, the banking and finance sector spends
more at deluxe hotels than the petroleum,
energy and mining sector (on average 40
percent of hotel spend compared to 25 percent
respectively).
Sixty-two percent of companies use rate caps to
contain costs when travelers need to book outside
the preferred hotel program, but there is room for
improvement. Only 47 percent of companies
define their rate limits at a city level (instead of
nationally or regionally) and among those
companies, only 64 percent update their city caps
at least once a year (Figures 20-21).
Companies can achieve significant savings
without drastically downgrading their hotel
program. On average, companies can
realistically switch to a lower category for 20
percent of preferred hotels and in doing so, save
3 percent of total hotel spend. This said, in the
Adopting best practices for city caps means
setting a reasonable per-night spend limit for
main destinations. City caps should be updated
at least once a year to account for market
changes and they should be clearly
communicated to travelers. Companies that
implement these best practices can save on
average 4 percent of hotel spend.
Figure 20: 47% of companies define city caps while a further 15% define rate limits at
a country or regional level
Twenty-one percent savings through best practices
Figure 21: Among companies that use city
caps, 36% update them less than once a
year
Advance booking
Travelers book hotels on average eight to nine
days in advance of their stay. There are wide
variations between companies, however, with
extremes at both ends of the scale. The best
performers have travelers booking on average
11-14 days in advance, while others tend to book
much closer to the date of stay.
The difference between average and best
performance on advance booking is four days. This
is a realistic improvement target for many
companies, offering 1 percent savings (Figure 22).
Figure 22: Best performers have travelers booking on average 4 days earlier than
other companies
Companies (%)
Best performance
= travelers book
on average 13 days
in advance
Median performance
= travelers book on
average 9 days in
advance
Improvement opportunity
= travelers could book on
average 4 days earlier
42%
Early bookers
26%
Late bookers
23%
2%
15+
7%
14-11
10-8
7-4
3-0
Average number of days in advance of stay
Based on CWT transaction data from all regions for companies making 100+ transactions, January – November 2008
29
GDS auditing
It is important to ensure that the rates negotiated
with preferred hotels are correctly loaded into
global distribution systems (GDSs) and that
other “squatter” rates do not take up space
allocated to the hotel program. Many companies
conduct audits on selected properties, but they
tend to do so rarely: once a year for 38 percent
of companies and even less often for a further 9
percent (Figure 23).
Many companies could introduce more regular
GDS audits (ideally several times a year,
especially in the initial three to four months of
program implementation) and follow up with
hoteliers, saving on average 1 percent of hotel
spend.
Figure 23: 47% of companies conduct a GDS audit only once a year or less often, leaving
room for improvement
Seven steps to optimize hotel spend
3. Seven steps to optimize hotel spend
The complexities of the hotel market need not get in the way of effectively managing hotel
spend. As noted in Key Finding 2, some companies perform significantly better than others
in critical areas of the hotel program and achieve significant savings. To implement the
best practices that bring benefits, CWT recommends a seven-step approach.
Figure 24: A seven-step approach to optimize hotel spend
1.
Consolidate
Data
7.
2.
Understand
traveler needs
and behavior
Track
performance
6.
3.
Improve
traveler
compliance
Design
an effective
hotel policy
5.
Negotiate
effectively
4.
Optimize the
preferred
hotel program
31
1. Consolidate data
Travel managers need accurate, comprehensive
data to successfully manage hotel spend. This
is particularly important for more effective
sourcing and a better understanding of traveler
behavior. Gathering and analyzing the right
information is often a complex process, but best
practices can help.
Key challenges for consolidating data
For a complete picture, travel managers require
information on the total amount spent at hotels,
distinguishing between meetings and events
(M&E) spend and transient travel spend. This
separation is necessary as a large part of M&E
spend is non-recurrent (e.g., for major annual
events) and negotiated separately, usually
resulting in higher room rates. Recurring M&E
spend (e.g., for regular team meetings) can be
concentrated on preferred properties to obtain
the negotiated transient room rates. Hoteliers,
however, do not tend to consider M&E volumes
when proposing transient rates (i.e., M&E room
nights are not leveraged when negotiating
transient rates).
A breakdown of room rates and additional
expenses per transaction is also necessary. This
information enables buyers to leverage
maximum spend volumes during negotiations,
check that travelers are being charged the correct
negotiated rate, and monitor their compliance
with the company’s hotel policy.
Many companies, however, do not have all the
necessary data. In fact, 39 percent of surveyed
travel managers believe they capture at most 75
percent of their total hotel spend, as shown in
Figure 25.
Figure 25: 39% of travel managers believe they track less than 75% of their total hotel spend
Seven steps to optimize hotel spend > Consolidate data
Best practices
Getting comprehensive data is no easy task.
Buyers’ preferred source of information, booking
data from the TMC, does not cover transactions
made through other booking channels or ancillary
expenses paid when a traveler is checking out of
a hotel. Companies must therefore use several
sources (e.g., the travel management company,
corporate credit card issuer and hoteliers), which
can make the consolidation process complex.
To manage this complexity, several practices are
recommended:
Focus on two main sources of data: TMC
transactions and corporate credit card
spend. CWT analyzed 10 companies’ spend
and found that when combined, these two
sources can cover up to 100 percent of total
hotel spend (Figures 26-27). For best results,
companies should mandate booking through
the TMC and payment with a corporate card
while implementing measures to increase
compliance (described on Pages 110-122).
The data consolidation process can also be
facilitated by working with a single TMC and
credit card provider worldwide (or regionally
as a first step). Consolidated data is provided
by services such as CWT Agency+Card
Reporting.
Much of the challenge lies in the fact that each
data source can use different codes for the same
information (e.g., some credit card reports use
the merchant code of the hotel while others
simply use the hotel name). In addition, the data
provided by different sources can overlap (e.g.,
when room night spend is captured by both TMC
booking reports and credit card statements). This
means that before the data can be aggregated, it
needs to be “cleansed” to harmonize the codes
and remove duplicate entries.
Figure 26: Companies that combine data from TMC and corporate credit card transactions
can track up to 100% of hotel spend
Breakdown of expenses by ease of tracking
Hotel spend (%)
100
15
15
14
33
80
15
23
58
36
17
0
19
15
27
1
1
14
35
3
1
41
86
79
51
TMC booking
(but not paid by
corporate credit card)
50
Easy
to track
17
E
Payment by corporate
credit card (but booking
outside TMC)
72
2
D
F
G
Not booked through TMC
nor paid by corporate
credit card
20
15
81
41
Hard
to track
17
23
20
2
12
23
21
50
3
13
28
60
40
11
H
I
J
Company
B
L
TMC booking +
payment by
corporate credit card
K Average
33
Figure 27: Combined TMC and credit card transaction data provides companies with a
comprehensive view of hotel spend
Spend coverage
Transaction
details
Hotel profile
Amount
TMC
transaction data
Corporate credit
card reports
Consolidated TMC
& corporate credit
card data
20-80%
20-100%
20-100%
Booking date
Yes
No
Yes
Check-in/check-out dates
Yes
Yes
Yes
Number of room nights
Yes
No
Yes
Room type
Where available
No
Where available
Category
Where available
No
Where available
City/address
Yes
Yes
Yes
Hotel chain
Yes
Yes
Yes
Booked or spent
Booked
Spent
Booked & spent
Room rate only
Yes
No
Yes
Breakdown of charges
(including amenities)
No
Yes (if e-folio
available)
Yes (if e-folio
available)
Total, including extra
charges
No
Yes
Yes
If credit card data is unavailable, use data
from selected hoteliers as a complement
to TMC transaction data. Given the large
number of preferred properties in hotel
programs and the difficulty of consolidating
data from different properties, it is advisable
to focus on a small number of chains, some
of which produce separate reports for
transient and M&E spend. Hotelier data is
more accurate and easier to process than
data from expense management systems,
which often require travelers to enter data
manually (typically a source of inconsistencies)
and are rarely implemented globally
(therefore making consolidation a challenge).
Ask hotels to provide e-folio data and use
it whenever possible. E-folios provide
companies with a detailed breakdown of
spend, including room rate, number of
nights, and extra charges for breakfast,
Internet access, mini-bar and so on. As an
additional benefit, this information can be
fed directly into travelers’ expense reports,
saving them time and reducing errors. For
the moment, e-folios are mainly available at
Seven steps to optimize hotel spend > Consolidate data
selected chain properties in North America,
but deployment is sporadic, mainly due to
hoteliers’ reluctance to invest in the
necessary technology. E-folios may be
offered more widely in the near future,
especially if corporate buyers express strong
demand for them. In the meantime, a
detailed snapshot of spend at a limited
number of hotels can provide travel
managers with a more sophisticated
understanding of their company’s hotel
spend—not only to check how often
travelers obtain the correct negotiated rate
but to see how much they are spending on
amenities.
Work with a partner such as a TMC or a
data aggregator who can process hotel
data efficiently. Interpreting vast volumes
of data requires dedicated database
management software and specialized
skills. Ideally, data is processed for every
transaction rather than by hotel, destination
or region, which would entail a loss of
information. To provide a solid framework,
several key information fields should be
used such as property name, hotel code,
booking date, rate code, number of room
nights, total cost of room nights only, and
total cost of room nights with extra charges
(Figure 28). In addition, algorithms can be
developed to cleanse the data; eliminate
duplicate entries (i.e., those that figure in
both TMC and credit card reports); estimate
data that is missing (e.g., the number of
room nights based on the total cost of stay);
and separate spend related to meetings and
events.
35
Figure 28: Recommended data fields for analyzing hotel spend per transaction
Data field
Hotel
Property name
Spend per hotel & preferred hotel compliance
Hotel identification code
As above
Chain identification code
Spend per chain
Location (country/city)
Spend per destination
Negotiated rate/room type
Application of correct negotiated rate
& year-over-year rate changes
Items included in negotiated rate
(e.g. breakfast and Internet access)
Booking
Stay
Assessment
As above
Booking date
Advance booking performance
GDS rate code used
Correct rate loading
Booking channel
Use of preferred booking channels
Check-in/check-out dates
Number of room nights and travelers
Application of negotiated rates, seasonal rates
& black-out dates
Room type
Correct negotiated rate & stay pattern
Traveler compliance & correct negotiated rate for room type
Payment type (corporate credit card/
personal credit card/direct billing)
Traveler compliance to correct payment method
Payment
Cost
Total cost including all expenses
(ideally including e-folio breakdown)
Total hotel spend & breakdown of spend on amenities
SUMMARY
Travel managers can consolidate data most effectively by:
Distinguishing between transient spend and meetings and events volumes
Focusing on TMC and corporate credit card reports to cover the majority of spend
Using selected hotelier reports to obtain further data
Asking hotels for granular e-folio data
Working with a partner to process data
Seven steps to optimize hotel spend > Understand traveler needs and behavior
2. Understand traveler
needs and behavior
Location ranks far above all other criteria,
including hotel category
When designing a preferred hotel program,
travel managers need to understand why and
how travelers choose where to stay and which
hotels best suit their needs. Some of the CWT
survey findings may come as a surprise. For
example, travelers are not necessarily happier
with higher-category hotels. On the other
hand, they consider a convenient location to
be critical. Furthermore, CWT has identified
four types of corporate hotel guests based on
their varying needs for comfort and practicality.
By better understanding traveler priorities and
choices, companies can optimize savings
without compromising traveler satisfaction
and productivity.
Proximity to business locations is by far the
most important hotel criterion for travelers
according to the CWT survey. Hotel category and
quality of service come next and are considered
“very important,” as shown in Figure 29. Similarly,
security is high on the list, underlining the need
for companies to mitigate travel-related risks for
their employees. Interestingly, environmental
friendliness is considered more important than
a number of items that impact traveler comfort
such as the hotel’s style and the availability of a
restaurant or sports and leisure facilities.
Moreover, many travel managers may be
surprised to learn travelers rank hotel loyalty
programs very low in importance globally,
although North American travelers give them a
slightly higher ranking. Proximity to places of
personal interest are also ranked simply as “nice
to have.” Business concerns clearly come first.
Figure 29: Proximity to business locations ranks highest among hotel features for travelers
Travelers’ ranking of hotel features by importance
Importance
Proximity to business locations
Essential
Hotel category
Quality of service
Security
Important
Internet access
Quality of food
Environmental friendliness
Atmosphere/style
Availability of restaurant/room service
Nice to have
Proximity to places of personal interest
Leisure/sports facilities
Hotel loyalty program
Availability of meeting rooms
Unimportant
Unimportant
Nice to have
Important
Essential
37
Hotel category: not the most important
driver of traveler satisfaction
Although surveyed travelers state that the hotel
category is important to them—it ranks second
after proximity to business locations—it does not
always appear to have a direct impact on how
satisfied they are with their stay. In fact, some
companies using lower category hotels achieve
greater satisfaction scores than those using
higher categories (Figure 30).
Figure 30: Traveler satisfaction is not always driven by hotel category
Traveler satisfaction vs. hotel category
2.5
L
Average satisfaction level
2.0 = satisfied - 3.0 = very satisfied
K
2.25
B
G
D
H
E
J
I
F
2.0
Economy
Standard
First
Average hotel category
Surveyed companies
Based on a survey of travelers at 10 companies (3,901 responses)
Travelers attach more importance to all hotel
criteria the longer they stay. In particular, Internet
access becomes critical (Figure 31) and not
having it is the main source of dissatisfaction
noted in the survey. It is worth noting that
travelers tend to choose higher hotel categories
for longer stays (Figure 32), which should be
considered when designing a hotel program.
Figure 31: The longer the stay, the greater the importance of all hotel criteria, especially
Internet access
Travelers’ ranking of hotel features by importance
Proximity to business locations
Hotel category
Quality of service
1 night
Security
Quality of food
2 nights
Environmental friendliness
Atmosphere/style
Internet access
3 nights
Availability of restaurant/room service
Proximity to places of personal interest
4-7 nights
Leisure/sports facilities
Hotel loyalty program
8+ nights
Availability of meeting rooms
Unimportant
Nice to have
Important
Essential
Source: CWT Travel Management Institute, based on a survey of travelers (4,949 responses)
Figure 32: Travelers choose higher category hotels for longer stays
Deluxe
First
Standard
Economy
39
“No-frills” booking
When it comes to booking tools, travelers want
simple functionalities that work well. On the
whole, they place little importance on extras
such as hotel photos and feedback from other
guests, both of which are common on leisure
booking sites. What they value most is the ability
to book quickly and when it is convenient for
them. Other high-ranking criteria are immediate
confirmation of booking, the ability to change or
cancel a booking, and information on the hotel’s
location. In addition, travelers acknowledge the
importance of being able to access preferred
hotels and book the best rate (Figure 33).
Figure 33: Travelers consider speed and convenience to be the most important booking
features
Booking features ranked by importance to travelers
Importance
Booking speed
Ability to book at any time
Immediate booking confirmation
Ease of changing/cancelling booking
Information on hotel location
Absence of booking fees
Ease of booking preferred hotels
One-stop booking
Ability to obtain best hotel rate
Large choice of hotels
Bill sent directly to the traveler’s company/TMC
Ease of booking at destinations outside the program
Ability to book independent hotels
Quality of advice
Hotel photos
Traveler feedback
Unimportant
Nice to have
Important
Essential
This ranking of booking features mirrors the fact
that most travelers do not have to shop around
to find a hotel. According to the CWT survey, 35
percent already know where they want to
stay, while 32 percent either choose from a
range of hotels proposed to them or confirm a
recommended option (Figure 34). This could
explain why travelers place less importance on
items such as having a wide choice of hotels,
access to independent properties, and the
quality of advice provided during booking.
Figure 34: When travelers select their hotel, 35% already know where they want to stay
Travelers’ involvement in the choice of their hotel
Travelers (%)
50
Strong
Medium
Low
40
30
20
35
21
10
11
13
10
5
0
Traveler
knew where
he/she
wanted to
stay
Traveler
chose
from a
range of
hotels
Traveler
Assistant/
confirmed a
travel
recommended arranger
chose hotel
option
2
Colleague/
TMC
Traveling
client/
counselor
companion
partner at recommended chose hotel
destination
hotel
chose hotel
3
Other
41
In fact, travelers often draw on their personal
experience, selecting a hotel they have already
stayed in (44 percent), as shown in Figure 35.
Reassuringly for travel managers, the next most
popular source of information is their company’s
preferred hotel directory (41 percent). Contrary
to popular belief, few travelers (14 percent) surf
the Internet to find a hotel.
The survey shows that, on the whole, travelers
are also satisfied with the preferred booking
methods, both using their company’s online
booking tool and booking through travel
management company counselors.
Figure 35: When selecting a hotel, travelers rely mainly on personal experience and the
company’s preferred hotel directory
Four main segments of travelers
Not every traveler approaches hotels in the same
way. CWT analyzed survey responses from more
than 4,500 travelers in 10 companies worldwide
and found four distinct types of hotel guests
based on the importance they place on comfort
(hotel category, quality of service, security,
atmosphere and environmental friendliness) and
practicality (Internet access, restaurant, and
leisure/sports facilities), as shown in Figure 36.
“Demanding customers” (32 percent of
surveyed travelers) rank all features high in
importance.
“Comfort seekers” (25 percent) rank
comfort higher than practical features.
“Pragmatic travelers” (9 percent) rank
practicality higher than comfort.
“Easygoing guests” (34 percent) rank all
features relatively low in importance.
Figure 36: Travelers can be segmented according to the importance they place on hotel
comfort and practicality
43
A number of differences between the four types
of travelers can also be observed in their use of
preferred hotels and booking channels.
Travelers who attach the most importance
to practicality (“pragmatic travelers” and
“demanding customers”) are the most
compliant with preferred hotels and
preferred booking channels. They also tend
to be younger, travel more frequently and
more internationally, and have longer than
average stays.
Travelers who are the most concerned
with comfort (“comfort seekers” and
“demanding customers”), on the other
hand, are the most compliant with preferred
hotels.
Travelers who are the least concerned
with hotel features (“easygoing guests”)
are the least likely to use preferred hotels.
This information is illustrated in Figure 37.
Figure 37: The four segments differ in their use of preferred hotels and booking channels
It comes as no surprise that the proportion of
different types of travelers varies between
companies, as shown in Figure 38.
Figure 38: The proportion of different segments varies between companies
Based on a survey of travelers (1,006 responses for company F and 132 responses for company K)
It can be useful for travel managers to conduct
an internal survey to ensure they understand
their travelers’ needs and gather feedback on
travelers’ experiences on an ongoing basis. A
clear view of different traveler segments can help
travel managers adapt their hotel program
accordingly. For example, if a company has a
majority of easygoing guests, they may want to
include lower-category hotels in their programs.
On the other hand, if there is a fairly even
proportion of the four segments, companies may
want to provide a range of hotels at key locations
so travelers who attach less importance to hotel
features can take advantage of lower-cost
properties. This said, a balance must be struck
so that companies can increase compliance
without diluting spend over too many properties,
which would result in lower volume-based
discounts.
45
SUMMARY
Understanding traveler needs and behavior:
Proximity to business locations is the most important criterion for travelers,
who generally place practicality above comfort when choosing hotels.
Hotel category, while important, is not always a direct driver of traveler satisfaction.
All hotel criteria become more important for longer stays.
Travelers are satisfied with “no frills” booking features that work well.
Companies can adapt their program to different segments of travelers, whose
hotel preferences and booking behavior may vary.
Seven steps to optimize hotel spend > Design an effective hotel policy
3. Design an effective
hotel policy
detail for travelers to understand what is required
of them, but not so much that the policy
becomes confusing. The following advice is
worth considering.
Travelers play a key role in optimizing hotel
spend. To that end, they need clear guidelines
on how to book, which hotels to use, and
what to do in typical situations such as
selecting a hotel when a preferred property
is unavailable. Mandates tend to be more
effective than simple recommendations and
are increasingly common.
Travel managers have to be selective when
designing their travel policy, providing enough
1. Mandate the use of preferred hotels
Companies that mandate the use of preferred
hotels tend to have higher levels of compliance
than those that do not, as shown in an analysis
of seven companies (Figure 39). Other factors
such as the use of preferred booking channels
and communicating effectively with travelers also
come into play, as described on Pages 110-122.
Figure 39: Companies that mandate the use of preferred hotels tend to have higher levels of
compliance
Use of preferred hotels as stipulated in the policy at 7 companies
Use of
preferred hotels (%)
Top performers
Bottom performers
100
80
60
40
20
0
Company
77
76
73
67
62
J
L
B
G
I
Mandatory
Mandatory
Mandatory
Mandatory
Mandatory
53
47
F
D
Not specified Recommended
Policy regarding the use of preferred hotels
Based on survey of travelers (4,910 responses)
47
2. Ask travelers to use serviced
apartments for stays exceeding five
nights
Serviced apartments can provide a cost-effective
solution for travelers staying longer than five
nights, when the cost of accommodations and
meal expenses are taken into account. These
furnished apartments tend to provide similar
amenities to hotels while providing a more
relaxed, productive working environment for
travelers.
3. Provide guidelines on what to do
when a preferred property is
unavailable
Travelers cannot always book at preferred
properties, which may be fully booked or simply
not exist at their destination. In these cases, CWT
recommends three main guidelines:
Ask travelers to use a preferred chain so
the company still benefits from preferred
rates, although chain deals tend to provide
lower savings than property deals. This is
discussed further on Pages 82-86.
Set a price limit for travelers to respect if
booking outside preferred properties or
chains. CWT research shows that city caps
can be an effective way to limit spend when
travelers have to book outside the program.
Although the average room rate paid in a city
usually exceeds the negotiated rate(s), the
difference is smaller for companies that use
city caps (16 percent for those that do
compared to 34 percent for those that do
not, as seen in Figure 40).
CWT recommends setting city caps mainly
for cities that are not covered by the hotel
program (i.e., the company has no preferred
properties there) and not cities that are
covered. This is to limit the temptation for
travelers to book non-preferred hotels when
preferred hotels are available. To set these
city caps, it is useful to analyze benchmarking
data provided by the TMC to determine the
average room rate paid by companies for
each relevant hotel category in each city
concerned. These rates can be used as city
caps.
Some companies also set caps for cities that
are covered by the program. To do so, they
identify their average, lowest and highest
negotiated rates in the cities concerned. The
rate cap they set then depends on their
strategy. Companies that wish to penalize
travelers who book too late to obtain a room
at a preferred hotel set the lowest city caps—
sometimes even 10 percent lower than their
lowest negotiated rate. At the other end of
the scale, some companies may wish to set
more generous city caps, especially in cities
where occupancy is high and travelers may
have difficulty obtaining a room at the
negotiated rate.
Although it is best to define spend limits at a
city level, it may be appropriate to use
country caps as well (i.e., city caps for key
destinations and a country cap for all
remaining locations).
Figure 40: Companies using city caps pay lower average room rates
Average room rate paid by companies with city caps vs. other companies (2008)
160
140
120
121
Average
negotiated
rate = 100
117
111
100
Indexed
rate
80
60
118
150
122
130
109
122
116
134
40
20
0
Paris
London
City cap
Chicago
Companies with city cap
Average
Companies without city cap
Based on CWT transaction data (Paris = 6 companies, London = 6 companies, Chicago = 5 companies)
Have travelers follow recommendations
made by the travel management
company (TMC) at the point of sale (i.e.,
through travel counselors or the corporate
online booking tool). The TMC can propose
a variety of suitable properties and rates,
including special promotions and its own
“consortia” rates that can offer a discount off
the best available rate.
In addition, some companies may wish to
specify a limit on the category travelers can select
when booking outside the program.
Currently, few companies provide such
guidelines. Figure 41 shows that each of the
three main rules (use preferred chains, respect a
price limit in each city, and follow
recommendations made by the TMC) is
included in fewer than 40 percent of policies on
average. Twenty-two percent of companies
provide no rules at all regarding bookings outside
of the program. Many travel managers therefore
have an opportunity to improve their policy and
achieve savings.
49
Figure 41: Recommended rules for booking
a hotel when preferred properties are
unavailable are each included in fewer than
40 percent of policies
Based on a survey of travelers (103 responses)
The use of non-preferred hotels
negatively impacts negotiations with
preferred hotels the following year as
volumes are diluted. Even slight “leakage”
from the program can have a surprising
impact on the discount obtained. Based on
different scenarios, CWT estimates that when
room nights are lost to competitor hotels, the
resulting increase in the negotiated rate
requires non-preferred hotels to be 10-15
percent cheaper to compensate.
A cheaper rate at a non-preferred hotel
can translate into a higher total cost of
stay when amenities are taken into account.
As seen on Page 98, extra charges can
increase hotel spend by up to a third if they
are not included in the negotiated rate.
Furthermore, depending on where the hotel
is located, transport costs such as taxis may
be higher. Travelers often do not factor in
these costs when comparing rates and may
choose a non-preferred hotel erroneously
believing it will be cheaper.
4. Mandate booking through the travel
management company
3. Authorize booking at non-preferred
hotels only if the rate is at least 20
percent cheaper
The policy also needs to spell out whether or not
travelers should book outside the program if a
cheaper rate is available. According to the
research, 88 percent of companies allow their
travelers to book a lower rate outside the
program even if a preferred hotel is available.
Among those, however, only 14 percent specify
that the rate must be cheaper by a certain
amount. CWT recommends allowing travelers to
choose a hotel outside the program only when
the price difference is at least 20 percent lower
for two main reasons:
There are several compelling reasons for
mandating booking through the TMC (i.e., using
a corporate online booking tool and/or going
through a travel counselor).
Travelers book preferred hotels more
often. According to the CWT survey, travelers
selected a preferred hotel in 92 percent of
cases when using their corporate online
booking tool and in 89 percent of cases
when booking through a travel counselor
(Figure 42). This compares to an average of
23-62 percent compliant bookings made
through other channels.
Figure 42: Travelers use preferred hotels more often when they book through the TMC
Proportion of preferred hotels booked by booking channel
%
100
8
11
38
80
50
62
67
60
92
40
77
89
62
50
20
38
33
23
0
Corporate online
TMC
booking tool counselor
Phone/fax/
email to hotel
Preferred hotels
In person
Hotel
Website
Other travel
agent
Web booking
agency
Non-preferred hotels
Travelers obtain lower rates, with greater
flexibility and availability. Previous CWT
research1 shows that rates are on average
18-21 percent cheaper when booked
through a TMC counselor or online booking
tool, compared to hotel call centers, hotel
Websites and online travel agencies (Figure
43). There are two main reasons for this.
First, travelers get the correct negotiated rate
at preferred hotels more often. Second, the
TMC can propose the best available rates,
1
including promotional rates and dynamic
public rates that are sometimes lower than
negotiated rates at the time of booking.
Figure 44 shows this is the case for more
than 20 percent of bookings at preferred
hotels. In addition, booking through the TMC
provides competitive room availability and
flexibility in terms of being able to change
or cancel reservations with little or no
penalties (Figure 45).
Playing by the Rules: Optimizing Travel Policy and Compliance, CWT Travel Management Institute (2008)
51
Figure 43: Rates are on average 18-21% cheaper when booked through the TMC
Based on a CWT hotel price benchmark (262 price samples), June 2007
Web booking sites sampled: Expedia.com, Travelocity.com, HRS.com, Hotels.com and Kayak.com
Figure 44: The TMC can offer cheaper prices than the negotiated rate for more than 20 percent
of bookings at preferred hotels
Public best available rate (BAR)
CWT consortia rate
Public promotional rate
Negotiated rate
Based on transaction data, June 2007
Figure 45: Booking through the travel management company provides competitive room
availability and flexibility
* Flexibility: the ability to change or cancel bookings with little or no penalty
Source: CWT Travel Management Institute, based on a hotel price benchmark (330 bookings)
It is important to note that TMCs can obtain
lower rates even at hotels outside a
company’s program. To test this assertion, a
major multinational company asked CWT to
participate in a benchmarking exercise,
comparing rates with the hotel booking specialist
HRS. For this benchmark, the customer chose 10
of the most important hotels used by their
travelers in different cities around the world,
picked three different dates and analyzed rates,
availability and flexibility (i.e., the ability to change
or cancel bookings with little or no penalty). As
shown in Figure 46, the rates proposed by
CWT were on average 5 percent cheaper than
those offered by HRS. In addition, higher scores
were obtained by CWT for hotel availability and
flexibility, as confirmed by CWT research.
53
Figure 46: In a rate benchmarking exercise conducted by a CWT client, CWT prices were on
average 5% cheaper than those proposed by hotel booking specialist HRS and offered greater
availability and flexibility
CWT vs. HRS rate benchmark (3 dates at 10 hotels)
Average room rate
(CWT rate = 100)
Average cancellation
policy
Average hotel
availability (%)
(4= highest flexibility)
3.9
105
100
2.6
93
77
CWT
Hotel
Date of stay
HRS
CWT
HRS
CWT
HRS
CWT rate Cancellation CWT rate Cancellation CWT rate Cancellation CWT rate Cancellation
vs. HRS rate
policy
vs. HRS rate
policy
vs. HRS rate
policy
vs. HRS rate
policy
Feb. 16, 2009
Feb. 18, 2009
CWT HRS
March 3, 2009
CWT HRS
Average
CWT HRS
CWT HRS
A
(Amsterdam)
-28%
4
1
-22%
4
1
-2%
4
0
-17%
4
1
B
(Amsterdam)
0%
4
4
0%
4
4
0%
4
4
0%
4
4
C (Tarrytown
– U.S.)
0%
4
4
0%
4
4
0%
4
4
0%
4
4
D
(La Guardia)
0%
4
4
N/A*
4
N/A
N/A
4
N/A
0%
4
4
E (Canary
Islands)
N/A
N/A
NA
N/A
3
N/A
N/A
3
N/A
N/A
3
N/A
F(Barcelona)
N/A
N/A
NA
0%
3
1
0%
3
1
0%
3
1
G (Paris)
-26%
4
4
-10%
4
1
-35%
4
4
-24%
4
3
H (Tokyo)
+6%
4
0
+6%
4
0
+6%
4
0
+6%
4
0
I (Munich)
0%
4
4
0%
4
4
0%
4
4
0%
4
4
J
(Mexico City)
0%
4
4
N/A
4
N/A
0%
4
4
0%
4
4
Average
-6%
4
3
-4%
4
2
-4%
4
3
-5%
4
3
4 = Cancellations possible on the day of arrival
2 = Unknown/unclear
3 = Cancellations possible up to 24 hrs
before arrival without penalties
1 = Cancellations possible more than 1 day before arrival,
but incurring penalties
0 = No refunds/cancellations
*N/A: Hotel not found or unavailable through one or both booking channels
Source: CWT Travel Management Institute (HRS data obtained from a third party)
Traveler tracking is possible in the event
of an emergency when booking through a
TMC, helping to ensure travelers are well
protected and receive timely assistance
when needed. Being able to identify and
locate travelers quickly is an essential part of
any travel risk management program. This is
compromised when travelers book outside
the travel management company.
book through the preferred channels than on
the Internet, according to surveyed travelers:
20 minutes on average compared to 40
minutes (Figure 47).
Hotel spend is captured in TMC reports,
which tend to be a company’s main source
of spend data, as seen earlier (Page 33).
Travelers save time in the booking
process. On average, it takes half as long to
Figure 47: Travelers book twice as fast through a TMC counselor or corporate online booking
tool than through Web booking sites
55
5. Mandate booking at least two weeks
in advance whenever possible
Companies may wish to mandate booking two
weeks in advance whenever possible to drive
savings. Figure 48 shows the difference in
average room rates paid in 11 cities (US$266
million worth of transactions) less than three
days in advance all the way up to more than two
weeks in advance of the stay. Moreover, twoweek advance bookings bring savings for all hotel
categories.
Figure 48: Booking in advance brings savings
Impact of advance booking on average room rate,
by hotel category
110
Standard
Deluxe
105
First
Indexed rate
(15+ days = 100) 100
95
0
15+
14-8
7-3
2-0
Number of days booked in advance
Based on transaction data from 11 cities
There are two key explanations. First, travelers are
more likely to obtain the negotiated room type
and negotiated rate at a preferred hotel the
further in advance they book. Second, if travelers
pay the public best available rate, they are likely
to pay less if they book earlier. This conclusion is
based on an analysis of prices at 17 hotels, as
shown in Figure 49. Interestingly, advance
booking did not significantly lower the average
room rate paid in most cases and sometimes
even raised the rate slightly. However, in the few
cases where room rates rose at the last minute
(up to two days before check-in), the difference
was more than double. In other words, early
booking enables companies to limit the risk of
last-minute price hikes, and ensure availability.
On average, companies pay less when they book
in advance.
Figure 49: Advance booking enables companies to limit the impact of last-minute price hikes
Impact of advance booking on the average room rate
Average rate is higher
at 6 out of 17 hotels
Average rate is stable
Average rate is cheaper
Indexed rate (15+ days = 100)
Indexed rate
Indexed rate
-120
pts
250
-9 pts
250
+274
pts
250
200
200
200
150
150
150
100
100
100
237
50
100
87
80
80
15+
14-8
7-3
2-0
0
50
100
100
98
99
15+
14-8
7-3
2-0
50
100
126
133
14-8
7-3
0
0
15+
2-0
Days in advance of stay
*Includes one hotel in Moscow where the last minute price was 3.4 times more expensive than the 15+ day advance booking rate
Source: CWT Travel Management institute
Based on 196 GDS rates for 17 hotels for a reservation on October 8, 2008
57
6. Address extra charges
Travelers need clear guidelines on which charges
are reimbursable when they are not included in
the room rate. For example, expenses such as
laundry may be authorized only for longer stays.
Figure 50 provides examples of items often
mentioned in travel policies.
Figure 50: Sample policy regarding extra hotel charges
Reimbursable expenses
Non-reimbursable expenses
Breakfast
Laundry for stays under 5 nights
Business phone calls (although
the use of a corporate calling
card is preferred)
In-room movies
Laundry (within reason for sta ys
exceeding 5 nights)
Spa treatments
Internet access for business
purposes
Use of fitness center
R ecreational activities
R oom-service breakfast
(if breakfast is included in the room
r ate)
Alcoholic beverages from the
mini-bar
7. Mandate payment by corporate
credit card
As seen earlier (Pages 33-34), corporate credit
card data can be invaluable for companies to
accurately evaluate their hotel spend and help
travelers better manage their expenses. At the
same time, surveyed travel managers recognize
that some travelers would prefer to have their
hotel bill sent directly to their company or TMC.
While direct billing can be particularly useful for
travelers who do not have their own corporate
card, it tends to be an expensive solution for
companies due to administrative costs, TMC
processing costs and lost savings. Surveyed
companies believe travelers are less costconscious when they do not settle their hotel
bills themselves and are more likely to incur
penalty fees through last-minute cancellations.
Figure 51 sums up the pros and cons of different payment methods.
Figure 51: Corporate credit cards help companies manage hotel spend: pros and cons of
different payment methods
Payment
method
Pros
Facilitates hotel spend tracking,
especially if a single global credit
card program is in place
Corporate
credit card
Cons
CWT rating
Data consolidation can be
challenging when more than one
corporate credit card is used
Enables e-folio reporting
(when available)
Provides services for travelers
(e.g., insurance, 60-day payment
and a high spend limit)
Can provide incentives for
companies
Data is fed directly into expense
management systems
Personal
credit card
Direct billing
No need to negotiate and roll-out
a corporate card program
Data consolidation is impossible
Useful for occasional travelers
who do not have credit cards
Travelers are less cost-conscious
with regard to last-minute
cancellations or no-shows
Easy for travelers (no expense
report, quick check-out, and no
need for travelers to provide
personal credit card information
as a booking guarantee)
TMC can ensure correct rate is
applied when checking the invoice
Travelers may be reluctant to
provide personal credit card
information as a booking
guarantee
Direct billing is accepted by fewer
and fewer hotels and is a costly,
manual process
Data reconciliation can be
challenging (not enough
information on the invoice to
identify the traveler/cost center
to expense)
59
SUMMARY
An optimal hotel policy covers the following key points:
Mandatory use of preferred hotels
Guidelines on what to do when a preferred hotel is unavailable: use a preferred
chain, book any hotel while respecting a price limit, or follow recommendations
made by TMC counselors or flagged by the online booking tool
Rules regarding the use of non-preferred hotels, which should be authorized only
if they are at least 20 percent cheaper than available preferred hotels
Mandatory booking through the TMC
Mandatory advance booking whenever possible
Guidelines on reimbursable and non-reimbursable extra charges
Mandatory use of corporate credit card
Travel policies will become stricter
however, guidelines are provided rather than strict
rules. Mandates will become more common
moving forward, as shown in Figure 52.
According to the CWT survey of travel managers,
most policies already mention key items. Mostly,
Figure 52: Mandates will become more common in the near future
Do you include or plan to include the following items in your hotel policy?
Book through the travel
management company
58%
Book a preferred
property/chain
38%
Respect a rate cap
37%
Book through the corporate
online booking tool
24%
Book nights of the week when
rates are usually lower whenever
possible
7%
5%
6%
14%
5%
44%
9%
26%
19%
46%
22%
5% 8%
13%
33%
29%
Book a specific number of days
3% 3%
49%
34%
Book a hotel at the same time
as flights whenever possible
Included
and mandatory
36%
20%
29%
78%
Included as a
recommendation
Will be included
in 1-3 years
No plans to
include this item
Source: CWT Travel Management Institute, based on a survey of travel managers (96 responses)
How much stricter will your hotel policy become in 1-3 years regarding the following items?
Book through the travel
management company
Book a preferred
property/chain
Respect a rate cap
38%
29%
Book a specific number of days
Much stricter
19%
Slightly stricter
25%
43%
30%
46%
21%
36%
46%
27%
Book through the corporate
online booking tool
Book a hotel at the same time
as flights whenever possible
26%
20%
34%
38%
38%
No significant change
Source: CWT Travel Management Institute, based on a survey of travel managers (87 responses)
41%
43%
4. Optimize the preferred
hotel program
Knowing which hotels to select for the
program is a challenge, but a methodical
approach helps. This section provides
guidelines on which locations to cover, the
appropriate categories to use, and whether
or not to favor existing suppliers over
competitors.
Eighty-eight percent of surveyed travel managers
say their company has a hotel program. Most of
the remainder have the smallest hotel budgets
(under US$5 million). The main reason they cite
for having a preferred hotel program is to reduce
hotel costs, but ensuring security, satisfaction and
convenience for travelers is also key. Providing a
choice of environmentally friendly properties is
considered less important but nonetheless
relevant for 64 percent (Figure 53).
Figure 53: The top 3 objectives of a hotel program are reduce costs, ensure security and satisfy
travelers
Hotel program objectives
Travel managers (%)
80%
Reduce hotel costs
68%
Ensure traveler security
27%
64%
Ensure traveler satisfaction
Make it easier for travelers
to find a suitable hotel
Encourage the use of
environmentally friendly hotels
19%
48%
6%
45%
Secondary
5%
36%
58%
Primary
1%
7%
36%
Not applicable
Seven steps to optimize hotel spend > Optimize the preferred hotel program
To maximize the benefits of a preferred hotel
program, companies need to cover as many of
their major business destinations as possible and
concentrate spend on the smallest number of
properties at each, while ensuring travelers’
needs are met in terms of suitable locations,
available rooms and amenities. This exercise is
far from easy but can be facilitated by six main
actions: forecasting hotel spend, identifying
properties and locations that represent at least
US$10,000 in spend, considering local market
conditions, selecting appropriate hotel categories,
deciding between existing preferred hotels and
competitors, and considering primary and
secondary preferred properties.
Forecasting hotel spend
The first step in building or reviewing a program
is to identify locations travelers frequent most
and to forecast hotel spend in each. Here it is
important to think in terms of districts rather
than just cities, given that travelers want to stay
at a hotel close to their place of business. Figures
on existing spend serve as a basis but should be
adjusted to account for anticipated changes in
travel patterns. Such forecasts can be challenging
when a high proportion of overnight trips (57
percent on average) are to locations outside
companies’ own sites, as shown in Figure 54.
Figure 54: On average 57% of overnight trips are to locations outside of companies’ own sites
63
Identifying properties and locations that
represent at least US$10,000 in spend
Travel managers should consider including in
their preferred hotel program any property that
represents sufficient spend to make negotiations
worthwhile for both parties. For buyers, the
benefits of negotiating a deal typically outweigh
costs when spend reaches US$10,000 (Figure
55). For hoteliers, the threshold is often 100
room nights, which may represent more than
US$10,000. These figures vary, however,
between cities and properties, and some
hoteliers will be prepared to negotiate rates for
fewer room nights.
Figure 55: It is generally worthwhile for companies to negotiate a deal at any hotel
representing at least US$10,000 in spend
5,000
Savings
outweigh costs
when the
company
spends at least
US$10,000 at
the hotel
4,000
US$
3,000
Savings
2,000
1,000
Typical costs (negotiation and program management)
0
0
10,000
20,000
30,000
40,000
50,000
60,000
Annual spend at a hotel (US$)
Actual costs vary between companies according to the number of hotels in the program, the country where costs are
incurred, etc. Negotiation costs are based on typical costs for a program of 500 hotels. Savings assume typical volume
discounts (i.e., 5%).
Sources: CWT Hotel Solutions Group, CWT Travel Management Institute
Companies therefore need to identify properties
that already represent the relevant spend
volume. They should also analyze total spend at
locations to see if the threshold may be reached
by steering travelers toward fewer properties
(Figure 56). Furthermore, companies may wish
to designate preferred hotels in markets
accounting for less spend, particularly at high-risk
destinations, to guarantee travelers have the right
level of security and comfort.
Figure 56: Companies may be able to concentrate spend on fewer hotels within a city to
reach the US$10,000 threshold
Example: a company in Paris
Before spend concentration at destination
(10 hotels, including 4 above US$10,000 spend threshold)
Hotel*
Company’s office
After spend concentration at destination
(4 hotels above spend threshold)
Client/supplier’s office
*Spend is proportional to bubble size
65
Considering local market conditions
Market conditions can directly impact program
design. In particular, if occupancy levels are high,
more preferred properties may be required to
cover room night needs than in lower-occupancy
markets. The average size of hotels at a
destination also comes into play as more
properties may be needed if their average size is
smaller. For example, one property may be
enough to cover 500 room nights in Tokyo every
year, but four or five may be required in Paris, as
shown in Figure 57.
Figure 57: More preferred hotels may be required in cities with high occupancy rates and
smaller properties
Recommended number of hotels per destination
800
T okyo
Number of hotels
required for 500 room
nights annually
New York
600
Los Angeles
Hong Kong
1
Bangkok
Average size
of hotels 400
(rooms)
2
3
200
Brussels
4-5
London
Amsterdam
Madrid
Copenhagen
Paris
0
65
70
75
80
85
City occupancy rate (%)
Note: More hotels may be needed for various reasons (e.g., for proximity to different business locations)
Sources: CWT Travel Management Institute, Smith Travel Research, June 2008
90
Selecting appropriate hotel categories
The average price difference between hotel
categories can be significant, reaching 21-25
percent, as shown in Figure 58.
Although travelers say that the hotel category is
important, lower categories do not necessarily
mean less satisfaction, as seen earlier (Page 38).
Given that high levels of traveler satisfaction can
be achieved with more modest hotels, some
companies may be able to switch to lower
categories and achieve savings without
negatively impacting their travelers’ experience.
For example, CWT calculated that one company
could realistically save 6 percent of total hotel
spend by switching room nights to lower-price
properties in the same category or one category
below, without moving to less convenient
locations (Figure 59). Many organizations have
cut back on their use of deluxe and first-class
hotels since the beginning of the global
economic downturn, as shown in Figure 60,
which compares the share of categories used by
seven companies during the first and fourth
quarters of 2008.
Figure 58: The average price difference
between hotel categories reaches 21-25%
Based on 1,694,563 room nights for one global company
67
Figure 59: One company could save 6% of its hotel spend by switching to lower-price hotels
in the same category or one category below
Breakdown of room nights before and after category switch
100
Before
After
80
Room
nights
(%)
60
40
72
63
20
22
20
14
7
0
Deluxe
First
1
Standard
1
Economy
6% savings on total hotel spend of US$47M
Figure 60: Companies used a smaller proportion of deluxe and first-class hotels in 2008
%
Share of deluxe and first-class hotels booked by 7 global companies
Q1 2008 vs. Q4 2008
60
Q1 2008
Q4 2008
40
52 50
54
42
20
38 34
31 31
40 39
16
11
11
7
0
I
C
Based on transaction data
AC
M
Company
T
N
H
management company. CWT client data
shows notable differences between sectors
and even between different companies
within the same sectors (Figure 61).
To select the appropriate categories, CWT offers
the following advice:
Benchmark the use of different hotel
categories among peers (i.e., companies
with a similar profile and in the same
industry) with help from the travel
Figure 61: The share of hotel categories used varies between sectors and companies in the
same sectors
Total room nights by hotel category (2008)
7%
12%
17%
18%
25%
22%
40%
69%
65%
61%
70%
81%
22%
17%
11%
18%
0%
1%
1%
0%
60%
52%
e
ing
&
B
n
,e
gy
&
e
ac
m
arm
Ph
m
leu
al
ic
ut
in
er
k
an
0%
ing
nc
a
fin
13%
9%
1%
8%
0%
o
er
go
Economy
ns
um
tio
ns
Co
a
nic
u
A
First
Deluxe
m
m
o
lec
o
m
o
ut
e
tiv
e
rag
e
Av
Te
ro
t
Pe
ds
Standard
Based on transaction data (3,036,799 room nights)
69
Figure 61(continued): The share of hotel categories used varies between sectors and
companies in the same sectors
Total room nights by hotel category (2008)
Banking & finance
30%
74%
57%
22%
15%
40%
47%
55%
58%
65%
71%
52%
47%
41%
43%
2%
2%
6%
5%
7%
S
G
M
W
X
27%
26%
U
8%
Y
Average
Company
Petroleum, energy & mining
16%
25%
29%
25%
62%
68%
7%
0%
9%
0%
6%
1%
14%
0%
9%
1%
Z
AA
J
AB
Average
First
Deluxe
45%
70%
65%
48%
Company
Economy
Based on transaction data (383,172 transactions)
Standard
7%
Consider a multi-tier program. Buyers can
include a range of hotel categories at key
locations to adapt their programs to travelers
with different expectations. For example, it
may be appropriate for employees traveling
in their own country to stay at lower-category
hotels than long-haul travelers who may not
be as familiar with the destination and
typically stay longer. In fact, the majority of
surveyed travelers agree with this principle
(Figure 62). Similarly, higher-category hotels
might be provided at destinations that
typically involve longer stays, bearing in mind
that nearly a quarter of all stays, or 69
percent of room nights, involve at least
three nights (Figures 63-64). Companies
may also consider serviced apartments for
stays of five nights or more.
Figure 62: Both domestic and international travelers believe long-haul travelers should stay
at higher quality hotels
Strongly disagree
Disagree
Agree
Strongly agree
71
Figure 63: Hotel stays of at least three nights account for 69% of room nights
8+ nights
4-7 nights
3 nights
2 nights
1 night
Source: CWT Travel Management Institute, based on a survey of travelers (4,892 responses)
Figure 64: Companies can identify destinations that typically involve longer stays and provide
higher category preferred hotels or serviced apartments
One company’s room nights (%)
27
21
20
19
45
18
18
60
26
21
76
15
17
10
57
19
12
19
30
20
19
21
45
48
48
10
12
Verona
31
18
Turin
21
21
12
6
15
20
14
6
11
33
9
34
53
30
13
Milan
1-4 nights
Rio
Bangalore
de Janeiro
5-8 nights
St. Louis Minneapolis Madrid
9-15 nights
Chicago Washington London
>15 nights
Source: CWT Travel Management Institute, based on transaction data for one company in 12 cities, January-August 2008
significantly fewer first-category or luxury hotels. In
addition, the company has specific hotel directories
with a higher number of lower-category properties
for travelers staying in their own countries.
Different hotel categories may also be selected for
use by different business units. Figure 65, for
example, shows a company that has designed its
program so that lower-margin divisions use
Figure 65: One company has designed its program so that lower-margin divisions use
significantly fewer first-class or luxury hotels
Breakdown of hotel categories booked by business units
Company G (banking & finance sector)
Room
nights (%)
100
18
28
80
31
31
29
1
2
2
15
24
35
47
48
50
43
41
48
49
60
45
60
34
34
34
37
70
82
53
51
45
40
20
0
Division a
40
21
53
40
b
39
c
35
d
35
e
34
f
g
Investment banking
Deluxe
29
25
h
18
6
20
i
17
j
40
12
12
10
10
9
9
k
l
m
n
o
p
Retail banking
First
Standard
Serviced apartment
73
Deciding between existing preferred
hotels and competitors
It is often worth considering competitor properties
as they may suit travelers better and/or offer more
savings. Indeed, 40 percent of companies change
at least 25 percent of their preferred hotels from
one year to the next (Figure 66). Case studies of
two companies showed they maintained on
average 58-77% of their preferred hotels year
over year (Figure 67).
Figure 66: 40% of companies change at least 25% of their preferred hotels every year
Figure 67: Two companies maintained on average 58-77% of their preferred hotels
year over year
Company H
Company B
Average program stability
(preferred hotels retained year over year): 58%
620
(+18%)
525
700
(+13%)
Average program stability: 77%
359
390
(+9%)
96
299
311
49
359
144
525
360
(-8%)
70
6
67
294
217
309
208
2006
2007
Preferred hotels 2006
2008
New hotels 2007
2006
2007
Hotels added to or removed
from the program in 2006
2008
New hotels 2008
Before switching preferred hotels, travel
managers should consider their ability to steer
travelers toward new properties. Fifty-two
percent of travel managers say travelers need at
least three months to adjust to changes, and
one case study shows that travelers continued
to book a particular hotel one year after it had
been removed from the program (Figure 68).
Companies should implement measures to
improve compliance if necessary. More
importantly, companies should consider the
long-term impact of any changes, as strong
relationships with hoteliers can help them
negotiate better rates.
Figure 68: Travelers at one company
continued to book a significant number of
rooms at a hotel one year after it was
removed
from
the
program
and
compromised savings
Figure 69 suggests companies that retain a
large proportion of preferred hotels from year
to year (at least 80 percent) tend to be more
effective at limiting rate increases.
75
Figure 69: Companies that retain at least 80% of preferred hotels from year to year tend to
be more effective at limiting rate increases
Change in average room rate (ARR) 2007-2008 according to program stability
(7 companies' room nights in Paris)
Average change: +6%
Average change: +19%
100
16%
16%
25%
-14%
32%
-10%
15%
89
91
93
B
G
Q
Change (%)
80
Program
stability*
(%)
60
40
64
20
81
74
39
0
P
AF
O
T
Company
* Program stability: hotels remaining in the program year over year (2006-08 average)
When determining whether to retain current
suppliers or select new ones, travel buyers
should also consider the following:
Current preferred properties that are
frequently used and clearly meet travelers’
needs.
Non-preferred hotels that are frequently
used, particularly if they meet the
US$10,000 spend threshold. Some
companies design their programs around
travelers’ current choices, but most try to
strike a balance between the hotels travelers
appear to prefer and those that offer greater
savings.
Hotels suggested by travelers or local
employees, which should be recorded
throughout the year.
New entrants on the market or existing
properties that have developed their
offering through, for example, extensions or
refurbishment.
Considering primary and secondary
preferred properties
It can be useful to identify secondary preferred
properties that will only be proposed to travelers
by TMC counselors or the online booking tool if
primary hotels are unavailable. Such a system
enables companies to maximize volumes at key
hotels while ensuring travelers obtain preferred
rates as often as possible.
Ensuring properties meet security
standards
Ensuring travelers’ safety and security has
become a top priority for travel managers, who
are increasingly aware of the need to mitigate
the risks associated with business travel. One key
component of any risk management program is
checking that preferred suppliers meet the
requisite security standards. To this end, travel
managers should ideally work with security
specialists when designing their hotel program,
particularly for high-risk destinations.
Ongoing review
A preferred hotel program needs to be reviewed
regularly to ensure it continues to meet needs.
Once a year is a basic minimum, but some
companies review their programs more often.
Extending coverage to meet demand and
concentrating spend on fewer properties
to maximize volume discounts, are the main
trends in terms of program evolution, as shown
in Figure 70.
Figure 70: Many companies plan to increase program coverage and/or concentrate spend on
fewer properties
Increase
Decrease
77
SUMMARY
Key points for optimizing a hotel program:
Buyers should consider properties and locations that represent at least US$10,000 in
spend.
Travel patterns and local market conditions impact the number of hotels required to meet
travelers’ needs.
Significant savings are possible by providing different hotel categories for different
populations of travelers.
It can be worth considering competitor hotels, although a stable preferred hotel program
promotes compliance and enhances negotiations with hoteliers.
Companies can identify primary and secondary preferred properties, with the aim of
maximizing bookings at key hotels.
Few travel managers make environmental friendliness a key criterion for preferred hotels,
even though it is important to travelers. Security should also be considered carefully.
The “green” hotel program: myth or
reality?
Many travel managers are considering the
environmental friendliness of their preferred
hotels as awareness grows regarding carbon
dioxide emissions resulting from business travel.
Few, however, make it a primary concern.
According to the CWT survey, only 6 percent say
promoting the use of environmentally friendly
hotels is a primary objective of their hotel
programs, although 58 percent say it is a
secondary objective. (See Figure 53 on Page
62.) Similarly, only 9 percent of travel managers
always take hotels’ “green” credentials into
account when selecting preferred hotels, while
28 percent do so usually and a further 45
percent occasionally.
This is one area where travel managers’
objectives are not in keeping with travelers’
expectations. As seen on Page 39,
environmental friendliness is considered an
important feature for travelers when deciding
where to stay.
This discrepancy reflects the difficulty companies
have in evaluating hoteliers’ environmental
initiatives. Some properties and chains have
undergone “green” certification, but a single,
internationally recognized standard is still lacking.
To fill the gap, some companies are integrating
environmental questions into their requests for
proposal. Such questions may include:
Do you participate in a carbon offsetting
program?
Is your property located within walking
distance of our offices or easily reached by
public transportation?
Do you have energy-efficient and/or waterefficient fixtures in your rooms?
Do you have a water conservation program
for linens, food service, landscaping, etc.?
Does your property recycle materials such as
paper, cans, glass and plastic?
Do you use local and/or organic food?
The answers can provide a useful indication of
how environmentally committed a hotel is.
Ideally each property would provide figures on
the average carbon footprint per room night. As
a guideline, CWT considers that a room night
generates on average 28 kilograms (61.7
pounds) of carbon, roughly the equivalent of a
150-kilometer (93-mile) car trip. (See Figure 71
for the average carbon emissions for long-haul
and medium-haul trips.) Although hotels
represent only a fraction of corporate travelers’
carbon footprint, they cannot be neglected by
companies
wishing
to
manage
the
environmental impact of their travel.
Are your employees trained in environmentally
friendly practices?
Figure 71: Hotels represent on average 3-18% of carbon emissions per business trip
Assumptions:
Car/taxi
Hotel
Air transportation
Air: Paris-Los Angeles round trip
(long-haul) or Paris-Rome round trip
(medium-haul)
Hotel: two nights (28 kg CO2 per room
night based on CWT estimates)
Car/taxi: office-airport-hotel round
trip in a mid-size car
79
5. Negotiate effectively
Negotiations
may
seem
particularly
challenging when a preferred hotel program
can include hundreds of properties. To set the
right objectives and obtain competitive deals,
travel managers can implement a number of
best practices involving the type of deal
(property or chain-wide, flat-rate or dynamic
pricing, with or without last-room availability),
the negotiating approach and hotel selection
criteria.
Property-level negotiations generally bring
the largest savings. They should be
considered for any individual hotel (i.e., an
independent hotel or a property within a
chain) that accounts for at least US$10,000
in spend or 100 room nights, the typical
threshold hotels set for this kind of deal. A
large number of properties can fall into this
category. As an indication, a third of surveyed
companies sign preferred property deals with
more than 100 hotels, while 2 percent sign
more than 900 such deals (Figure 72). In
fact, some large CWT clients have propertylevel deals with several thousand hotels.
Property or chain-wide deals?
Most companies combine two main types of
deals: property-level deals for hotels that account
for their largest spend and chain-wide
agreements for other properties.
Figure 72: 31% of companies have more than 100 preferred property deals
Number of preferred properties in hotel programs
Number of
hotels
100
80
Companies
(%)
60
40
20
Number of
hotels
Average hotel
spend (US$M)
7
>900
117
Average hotel
spend (US$M)
31
>100
28
18
601-900
43
12
51-100
8
30
201-600
26
25
21-50
7
45
101-200
12
32
1-20
2
0
Seven steps to optimize hotel spend > Negotiate effectively
percent of its hotel spend, with each property
representing at least US$25,000.
To make the best use of resources, companies
can take a two-tiered approach to property-level
negotiations:
“Light” property-level negotiations occur
mainly via email exchanges and focus on the
most basic negotiation levers. This approach
is recommended for hotels that do not merit
full-scale negotiations but nonetheless reach
the US$10,000 threshold for property deals.
As seen in Figure 73, 9 percent of hotels
represent 9 percent of spend, each
accounting for US$10,000-US$25,000.
Full-scale property-level negotiations
involve support from local teams, face-toface talks with hoteliers, and a wide range of
negotiation levers (discussed on Pages 95104). This approach should be taken for the
small proportion of hotels that account for
the company’s largest spend. In the example
shown in Figure 73, 11 percent of the hotels
used by one company account for 82
Figure 73: Negotiation tactics vary with the level of spend at each property
Negotiation approaches according to hotel spend
(Company AF)
“Full” propertylevel negotiations
11% of hotels
82% of spend
Average room
rate
Sample hotel:
3,257 room nights
at an ARR of US$201
(total spend: US$654,657)
US$1,000
Chain agreements
or no negotiations
80% of hotels
9% of spend
US$100
5
$2
,0
00
0
,00
0
$1
US
US
“Light” property-level
negotiations
nd
nd
e
sp
e
sp
9% of hotels
9% of spend
10
100
1,000
e
e
1
lin
lin
US$10
10,000
Number of room nights
If a hotel belongs to a chain, property-level
negotiations may start with a central contact at
the chain who can propose rates for the targeted
properties. If the buyer believes a better deal can
be obtained, negotiations can continue with each
property directly.
81
Chain-wide agreements, as the name
suggests, offer companies a uniform
percentage discount off the best available
rate offered by all hotels within a chain
worldwide. They are often used as a
complement to property-level agreements.
Seventy-six percent of surveyed companies
have at least one chain-wide deal in place,
while 53 percent of companies plan to
increase the proportion of hotel spend
covered by such agreements over the next
few years (Figures 74-75).
Figure 74: 76% of companies have at least one chain-wide deal
Figure 75: 53% of companies plan to increase the proportion of spend covered by chainwide deals
83
Chain-wide deals tend to offer smaller discounts
than individually negotiated rates, but they
enable travel managers to extend the benefits
of a preferred hotel program to destinations
where spend volumes are too low for propertylevel negotiations, and to do so with minimal
resources.
Companies with highly dispersed travel
patterns will therefore find chain-wide deals
particularly useful. In the examples shown in
Figure 76, Company AG is able to cover most of
its spend through individual property deals.
Company B, on the other hand, has spend
spread out over many more locations and has
therefore negotiated agreements with four
chains in the United States, in addition to
property-level deals with 140 hotels. Thanks to
those chain deals, an additional 44 percent of
room nights can be discounted. An analysis of
the company’s spend in six cities shows that
chain hotels account for up to 35 percent of
room nights at those destinations. Further
analysis of spend at two destinations shows that
the average room rate paid at preferred chains is
6 percent higher than that paid at individual
preferred properties (Figures 77-78).
Figure 76: Chain-wide deals are particularly useful for companies with highly dispersed
travel patterns
Company AG
Company B
65% of spend = 11 locations
65% of spend = 60 locations
Mostly preferred property agreements
30% of the company’s U.S. hotel spend
Preferred property agreements & chain-wide deals
1% of the company’s U.S. hotel spend
Figure 77: One company spends up to 35% of room nights at preferred chains, based on an
analysis of spend in six cities
Breakdown of nights spent at preferred properties/chains and other hotels
by a company’s travelers in 6 cities
(Company B)
100
16
20
80
40
41
43
64
Room
nights
(%)
60
49
24
Preferred properties
76
31
40
20
Other
57
22
35
31
29
14
8
0
Chicago
Paris
Preferred chains
(excluding preferred
properties within the chain)
New York
London
Princeton
Madrid
Based on credit card data for one company’s hotel spend in 6 cities in April 2008
Figure 78: The ARR paid by the same company at its preferred chain in three cities was
on average 6 percent higher than at preferred properties
Based on credit card data for one company’s hotel spend in 3 cities in April 2008
85
There is, however, a risk associated with chainwide deals. In many cities where a preferred
property is also available, travelers may be
tempted to use the preferred chain and therefore
dilute the volumes allocated to individual
preferred properties. The hotel policy should
therefore underline the procedure to follow
when booking (i.e., choose preferred properties
before preferred chains when both are
available).
Flat-rate or dynamic pricing deal?
Dynamic pricing agreements have long been a
subject of debate among travel management
professionals, mainly due to a lack of data to
demonstrate the savings they can bring
compared with negotiated flat rates. CWT
therefore conducted in-depth case studies to
discover just how well dynamic pricing deals can
perform.
Dynamic pricing agreements provide a fixed
percentage discount off a hotel’s fluctuating best
available rate (BAR). While companies
commonly accept dynamic pricing in chain-wide
deals, they tend to prefer flat rates whenever
they have the requisite volume for a propertylevel agreement.
According to the CWT survey, only 24 percent of
companies have signed property-level deals
based on dynamic pricing, and among those
companies, 90 percent have done so with fewer
than 10 hotels, as shown in Figure 79. Among
companies that have signed dynamic pricing
agreements, 39 percent say they did so only
because the hotel(s) would not negotiate a flat
rate. Companies that have refused dynamic
pricing proposals cite several reasons, including
the need to monitor prices, a fear that the room
rate would increase, potential resistance from
travelers who might not accept fluctuating prices,
difficulty in budgeting hotel costs, and a lack of
clear-cut value brought by dynamic pricing
(Figure 80).
Figure 79: 24% of companies have at least one dynamic pricing agreement with a preferred
property
Do you have dynamic pricing
agreements with any of your
preferred properties?
If so, how many agreements do
you have?
Companies (%)
100
Companies (%)
30
Yes
24
80
20
60
40
No
76
10
20
28
10
1
2
24
18
10
10
3
4-5
6-9
10+
0
0
Number of agreements
Figure 80: Travel managers cite multiple reasons for refusing dynamic pricing deals
Companies without a dynamic pricing agreement
Did any hotels offer you a
dynamic pricing agreement?
%
%
100
80
80
39
Yes
Why did you refuse?
(more than one answer possible)
60
40
60
68
40
61
20
0
61
61
57
57
20
No
11
0
We do not
have the
means to
monitor
prices
constantly
The average Travelers The value of Hotel spend
room rate
would not
dynamic
would have
would have have liked it pricing
been difficult
increased
agreements to budget
is unclear
Other
87
Despite this reticence, 40 percent of companies
expect to increase the number of dynamic
pricing deals in their portfolio, compared with 56
percent who say it should remain roughly the
same, and only 4 percent who expect a
reduction.
According to CWT analyses, dynamic pricing
agreements can perform well under the right
conditions. Notably, one company that had a
dynamic pricing deal with 12 properties in a
chain had, in the third year, an annual increase in
the average rate paid that was 8 points lower
than the corporate market average. In previous
years, the company’s ARR had increased at the
same rate as the market or one point less (Figure
81). Moreover, an analysis of rates paid at one
hotel in New York shows that the company
outperformed other corporations that had flatrate agreements (Figure 82). Working closely
with hoteliers to monitor rates helped the
company achieve these results. In contrast,
another company using dynamic pricing saw its
average rate rise higher than the market, mainly
due to losses at three properties that cancelled
out savings achieved at six other hotels.
Performance at two of those three hotels was
particularly weak compared to previously
excellent negotiated flat rates (Figures 83-84).
Figure 81: One company’s ARR evolved favorably compared to the market average thanks to
a dynamic pricing deal
Evolution of average room rate indexed to 2005 rate at 12 U.S. hotels within a chain
Company AF switched
to a dynamic pricing
agreement
100 100
111 111
117 116
121 113
2005
2006
2007
2008
(Jan.-Aug.)
All CWT clients including
those with flat-rate deals
Indexed rate increase
between 2005 and 2008:
- Company AF: +13%
- All clients: +21%
Company AF
Based on transaction data (66,540 room nights for company AF and 268,258 room nights for all CWT clients)
Figure 82: An analysis of rates paid at one hotel in New York shows the company
outperformed other corporations that had flat-rate agreements
Evolution of average room rate indexed to 2005 rate at a hotel in New York
150
Company AF switched
to a dynamic pricing
agreement
122
126
120
125
130
121
109 107 106
100
100 100 100
Indexed rate
(2005 rate = 100)
50
0
2005
All clients
2006
2007
5 clients with flat rate deals
2008
Company AF
Based on transaction data (121,000 room nights)
89
Figure 83: Another company’s ARR rose more than the corporate market after switching to
dynamic pricing
Evolution of average room rate indexed to 2005 rate
at 9 U.S. hotels within a chain
Company AW switched
to a dynamic pricing agreement
All CWT clients, including
those with flat-rate deals
Company AW
100
100
104
January - July 2007
108
Indexed rate increase
2007-2008:
- Company AW: +8%
- All clients: +4%
January - July 2008
Figure 84: For the same company, losses at three properties cancelled out savings achieved
at five other hotels
Average room rates indexed to 2007 (2007 = 100)
(January – July 2007 vs. January – July 2008)
All clients
125
125
Company AW
114 110
99 97 98 99
103
111
105
105 107101 101103
97 96
121
105
104
ra
ge
Av
e
t
Se
at
tl
e
Ai
rp
or
Ci
ty
x
Sa
lt
La
ke
t
oe
ni
rp
Ai
Hotel locations
Ph
or
k
O
nt
ar
io
k
ar
Ne
w
Yo
r
Ne
w
ng
Lo
O
ak
Be
ac
h
da
le
t
or
Ai
ga
n
Lo
At
lan
ta
Ai
rp
rp
or
t
Average rate
108
economic downturn, and companies that are
entitled to a discount off the BAR will
therefore have very attractive rates. On the
other hand, rates can rise more than
expected when demand is high, unless
companies are able to negotiate a rate cap
and/or a limit on the frequency of rate
changes.
These case studies show that dynamic pricing
deals can provide a reasonable alternative to
fixed rates if the following conditions are met:
Hoteliers must provide regular reporting
and agree to renegotiate if the company’s
rates evolve less favorably than the
corporate market average. A strong
partnership with hoteliers is especially
important during an initial trial period when
major problems can be ironed out. The travel
management company can also provide
benchmark rate information to help evaluate
performance.
Dynamic pricing seems more attractive during an
economic downturn, when rates may drop
further than expected at the time of annual
negotiations. At other times, companies tend to
prefer the predictability of flat-rate deals.
Companies must accept the risks
associated with fluctuating prices. Hotels
may lower their best available rates
significantly when demand falls, as in an
Hoteliers and dynamic pricing: for or against?
Some hoteliers are strong supporters of dynamic
pricing, which they describe as a win-win
proposition. They argue it enables them to
maximize occupancy, improve revenues and
offer competitive rates while simplifying the RFP
and negotiation process for corporate clients.
Their public best available rates may fluctuate
often, even on a daily basis. This requires
sophisticated yield management systems that
have been out of reach for many independent
hoteliers in the past but are now more
accessible.
Others say they prefer to keep price fluctuations
to a minimum, using a small number of seasonal
rates. They underline that flat rates help
corporate buyers to budget and simplify
communications to travelers regarding the rates
they should be paying. In addition, some lowcost hoteliers say fluctuating prices are at odds
with their brand positioning and may harm their
relationship with corporate clients and travelers.
91
Last-room availability
A last-room availability (LRA) clause stipulates
that the hotel must offer the negotiated rate to
travelers even when only one room of the
negotiated type is available at the property. This
type of agreement is intended to protect
companies from paying increased rates during
periods of high demand, although hoteliers may
specify “black-out” dates when the negotiated
rate is unavailable. Approximately half of all
hotels offering LRA impose black-outs, which
involve 30-40 nights on average.
Rates negotiated with LRA are slightly higher than
non-LRA rates—typically by about 5-10 percent—
but they tend to lower the average rate paid over
the year because they enable companies to
obtain the negotiated rate more often, as shown
in Figures 85-86.
Figure 85: An LRA clause enables companies to receive the negotiated rate more often
Percentage of 7 companies’ room nights billed at the correct negotiated rate
at a preferred property in London in 2007
Without LRA
%
100
With LRA
8
11
92
89
5
2
95
98
100
AQ
AF
H
80
50
60
78
40
50
20
22
0
AL
AP
E
AB
Company
Room rate below or equal to negotiated rate
Room rate above negotiated rate
Based on transaction data for 7 companies at one hotel in London in 2007 (2,211 room nights)
Figure 86: Companies pay a lower average room rate with an LRA agreement, even if the
negotiated rate tends to be higher than non-LRA rates
Average room rates paid by 2 companies with similar volumes
at the same hotel in Paris in 2007
Company AL (non-LRA)
Company H (LRA)
Average room rate: US$215
(+8.3% vs. negotiated rate)
Average room rate: US$200
(-2.8% vs. negotiated rate)
274
215
Average
room rate
(US$)
200
174
199
249
ARR < negotiated rate
178
ARR = negotiated rate
206
ARR > negotiated rate
Based on 2007 transaction data for two companies with similar room night volumes
93
LRA is common in corporate contracts, although
more difficult to obtain in recent years (Figure
87). This trend may be reversed as hotels
negotiate harder to maintain corporate business
during the economic downturn.
Figure 87: LRA has become more difficult to obtain in recent years
Proportion of preferred hotel agreements offering LRA for 3 companies
2006 vs. 2008
%
100
6
8
9
18
13
28
80
Non-LRA
LRA
60
40
94
92
91
82
87
72
2006
2008
2006
2008
2006
2008
20
0
Company B
Based on case studies of 3 companies
Company AJ
Company H
How best to negotiate?
approach used by key hotels, and the
evolving offering. For example, the buyer
should know whether hotel rooms are in
short supply, which suitable hotels are on
offer, and how rates are evolving. This kind
of knowledge is essential for selecting the
right properties, setting the right
negotiation targets, and knowing when to
accept or reject a proposal. For example, in
a buyers’ market, it may be possible to obtain
not only substantial rate decreases but
complementary amenities. Typical ways in
which local market dynamics can impact
rates and negotiating targets are shown in
Figure 88.
The rates companies obtain are strongly linked
to the room night volumes they present to
hoteliers, but other factors, ranging from spend
on amenities to stay patterns, can be leveraged
in negotiations.
CWT recommends the following best practices:
Know the local market. Buyers get the best
deals when they have a keen knowledge of
the hotel market in a particular city, including
general price trends, the negotiating
Figure 88: Local market knowledge helps buyers set the right negotiating targets
Evolution of negotiated rates/occupancy in key gateway cities
December 2008 vs. December 2007
85%
Moderate rate
increases are likely
Hong Kong
- Refuse significant rate increases
- A held rate is a good result
Dubai
London
Paris
Cairo
75%
Berlin
Toronto
Rome
-10
-5
Madrid
65%
0
60%
Beijing
- A limited rate increase is a good result
70%
Buenos Aires
Cape Town
Change in occupancy
Dec. 08 vs. Dec. 07 (%)
80%
Sydney
Los Angeles
-15
Major rate
increases are likely
New York
5
Rio de Janeiro
Mexico
10
55%
Rate decreases
are likely
- Refuse rate increases
- A held or decreased rate is a good result
15
Moderate rate
increases are expected
50%
Occupancy
(December 2008)
- A held rate is a good result
Sources: Smith Travel Research & The Bench, CWT Hotel Solutions Group, CWT Travel Management Institute
95
Benchmark rates. Companies commonly
make year-over-year rate comparisons to
evaluate deals offered by existing preferred
hotels. In addition, travel management
companies can provide information on
average rates negotiated and paid by clients
with similar volumes at different properties
in the relevant markets.
Consolidate room night volumes.
Companies with larger volumes of room
nights can expect to receive better discounts.
This is illustrated in Figure 89, where a
company with twice the room nights of
another receives an additional 6 percent
discount at a hotel in Madrid and an
additional 3 percent at another property in
New York. In cities where occupancy is falling,
discounts can rise to almost 10 percent
whenever volumes are doubled. In markets
where demand remains high, the same
increase in volume may produce additional
discounts of only 2-3 percent. (Figure 90).
Figure 89: Companies obtain better discounts when they have larger room night volumes
at a property
Negotiated room rate by volume
A hotel in Madrid
A hotel in New York
300
400
-3%
300
200
-6%
Negotiated
room rate (US$)
200
100
0
Doubling volume leads to
a further discount of 6%
0
1,000
2,000
Annual room nights
Based on negotiated rates for 2007
3,000
Doubling volume leads to
a further discount of 3%
100
0
0
1,000
2,000
3,000
Annual room nights
Figure 90: Volume-based discounts are impacted by market conditions
Volume discount by room yield growth category
Decrease
in RevPAR*
10
Moderate increase
in RevPAR
High increase
in RevPAR
Average:
7.6%
8
Discount 6
for doubled
volumes
(%)
4
Average: 3.1%
Average: 2.6%
2
0
Berlin
Tokyo
Madrid
Chicago
Paris
Sydney
New York
London
Shanghai
*RevPAR: Revenue per available room
Based on negotiated rates for 2007
97
Companies can consolidate volumes in two
main ways: by aggregating business from
different countries or regions, and by
rationalizing the number of preferred
properties used by travelers at each destination.
As shown in previous CWT research2, local to
regional consolidation can lead to a 60 percent
increase in the room nights allocated to preferred
hotels in the program, while regional to global
consolidation can add a further 30 percent.
can add up to 33 percent to the total cost of
stay, according to a CWT analysis of
corporate credit card data (Figure 91). It is
clearly worthwhile for companies to
negotiate free amenities within their room
rate wherever possible. Case studies show
that companies obtain free breakfast and
Internet access at up to 50 percent of their
preferred properties, saving 2.6 percent of
total hotel spend.
Include amenities in negotiations. Services
such as meals, parking and Internet access
Figure 91: Amenity charges can add up to 33 percent to the total cost of stay
Extra charges as a percentage of the average room rate when incurred
%
140
120
8
6
33
15
100
80
60
4
Potential cost of all extra
charges as a percentage of
the room rate
100
100
40
20
0
Room
Restaurant/
Room service
Parking
Internet
Based on credit card spend data for one company in the U.S. in April 2008
2
Global Horizons: Consolidating a Travel Program, CWT Travel Management Institute (2007)
Other
Total
companies whose travelers often stay longer
than a few nights, for two reasons. First,
longer stays may include lower occupancy
nights such as weekends. In addition, longer
stays reduce the average cost per guest, for
example in terms of check-in/check-out
processes. CWT analyses show that some
companies have significantly longer stays on
average (Figure 92) and can therefore
leverage this fact in negotiations.
Ask for a permanent room allotment.
Some hotels will agree to hold a specific
number of rooms for the company on a
permanent basis, releasing any that are not
required 24 or 48 hours before the check-in
date without charging cancellation fees. This
service is usually provided free of charge and
is worth negotiating when a company has
very large volumes and when room
availability can be problematic.
Leverage attractive stay patterns. Hoteliers
say they are willing to grant better rates to
Figure 92: Some companies can leverage longer than average stays in negotiations
Breakdown of hotel bookings by length of stay
7
8
9
15
12
8
17
14
30
24
7
7
6
7
6
9
13
12
10
26
7
6
9
22
5
6
10
22
4
5
9
23
4
7
8
17
3
4
7
6
19
13
3 nights
22
2 nights
52
1 night
8
5 nights
and more
4 nights
24
23
56
57
H
V
AJ
AR
AS
All clients
2.2
1.9
1.9
1.8
1.8
2.3
23
19
45
51
40
47
52
Q
AB
AO
AH
F
59
64
67
29
AF
Company
3.0
2.4
2.5
2.2
2.1
2.1
Average number of nights
Based on transaction data, 2008
99
Leverage city caps. Experience suggests that
hoteliers may take a company’s city caps into
account during negotiations and try to align
their rates so that they can be included in the
program. This is illustrated in Figure 93,
which shows the room rates obtained for
comparable volumes at six hotels by
companies with and without city caps.
Figure 93: Hoteliers may lower their negotiated rate to align with a company’s city cap
Note: The analysis includes company T, company F, company I and company H. Each comparison is for two companies with similar volumes of
room nights.
Conduct multiple negotiation rounds.
Companies often find it worthwhile to
negotiate beyond the hotel’s initial response,
regardless of whether the hotel is an
incumbent preferred property or a
competitor. As an example, Figure 94 shows
how one company obtained a further 6
percent discount in the third round of
negotiations. Conducting several rounds of
discussions as necessary can reduce rates
significantly. The two companies shown in
Figure 95, for example, lowered their average
negotiated rate by a further 3-4 percent in
this way.
Figure 94: One company obtained an additional 6% discount after three rounds of
negotiations
Difference between initial offer and final rate negotiated
by Company C at a preferred property in Paris
22
-8%
-6%
15
US$
257
220
Room rate
without negotiations
Initial offer
(RFP response)
Second-round
negotiations
Third-round
negotiations
6% further
discount gained
in third-round
negotiations
Negotiated rate
Figure 95: Hoteliers may cut rates significantly after several rounds of negotiations
Difference between initial offer and final negotiated rate
%
Company M
0
Company H
-1.6
-1
-2
-3.8
-3.3
-2.9
-3.6
-4.6
-3
-4
-5
-6
Hotels in program in 2007
Hotels new to program in 2008
All hotels
-7
101
Consider renegotiating flat rates during
the year if market conditions mean that
better rates may be obtained. For example,
one company asked its top 100 properties
to propose new preferred rates in March
2009 to take into account the global
decrease in rates since the beginning of the
year. Figures 96-97 show how 64 of the
properties agreed to lower their rates by an
average of 8 percent. Some hotels
proposed substantially larger rate reductions
of up to 30 percent.
Figure 96: 64% of properties approached by a company in March 2009 agreed to lower their
previously negotiated rates
Properties’ response to a request to renegotiate rates in March 2009
(Company I’s top 100 properties)
Number
of properties
100
16
80
20
60
100
84
40
64
64% of hotels
renegotiated
20
0
All hotels
approached
(company's top
100)
No response
Response
Refused to
renegotiate
Agreed to
renegotiate
Rates dropped
by 8% on average
(US$600,000 savings)
Figure 97: Hotels that agreed to lower their negotiated rates in March 2009 did so by 8
percent on average
103
companies are missing important savings
opportunities by failing to use the best practices
described in this section. For example, 18
percent never leverage spend on hotel
amenities, as shown in Figure 98.
Buyers should use the full range of best practices
when negotiating with their top-spend properties,
but not necessarily with hotels that are
earmarked for “light” negotiations. According to
the research, a significant proportion of
Figure 98: Some best practices are rarely implemented by companies in hotel negotiations
Best practices used during hotel negotiations for better terms and conditions
Room nights/spend with hotel last year
72%
Year-over-year rate comparison
70%
Potential room nights/spend at the
property/destination
34%
Other local market conditions
34%
Additional spend on amenities
Average length of stay
Under-utilized
best practices
8%
Advance booking behavior
7%
38%
35%
41%
41%
25%
50%
22%
Usually
Occasionally
2%
1%
2%
4%
4%
22%
40%
Always
13%
49%
11%
Arrival pattern
(day of week)
12%
52%
30%
14%
16%
41%
34%
Company's track record in meeting
previous commitments
7%
32%
42%
Length and quality of relationship with hotel
3% 1%
26%
59%
Competitor hotel rate benchmark
1% 1%
26%
18%
13%
26%
21%
Never
How to make the final selection?
When making a final selection among hoteliers’
proposals, travel managers need to consider a
number of factors:
Total cost of stay. For a fair comparison, the
total cost per room night should be
considered, including room rate, amenities
(some of which may be included in the
negotiated rate), and the typical cost of
transport between the hotel and the main
business destinations. Hotels that are more
conveniently located not only suit travelers
better but may cost less when taxi charges
are taken into account, as shown in Figure
99. In addition, buyers should factor in the
benefit of last-room availability agreements.
Figure 99: The cost of transport can be significant and impact the choice of hotel
Cost of stay including taxi fares – 2008
(Traveler from Company H visiting the company’s office in Paris)
The most
expensive hotel is cheapest when
taxi fares are taken into account
US$
300
Hotel C
250
Company H
56
200
Hotel A
53
150
100
199
177
221
50
0
Hotel B
Hotel A
Hotel B
Room rate + breakfast
Hotel C
Taxi fare
105
Hoteliers’ performance. A hotelier’s track
record is important, as performance varies
widely in terms of correct rate loading into
global distribution systems (GDSs) and the
application of LRA. When a new preferred
hotel is under consideration, the buyer’s
travel management company can share the
experience of other clients of the hotel.
Traveler behavior. The benefits of making
changes to the program should always be
considered in light of traveler behavior and
the ability to steer travelers toward other
hotels. Some “new” properties might already
be popular with travelers and represent a low
risk in terms of compliance, whereas others
might be a less certain choice. For changes to
bring the expected benefits, companies
should be prepared to implement measures
to improve compliance.
Green criteria. Although hoteliers’ green
credentials can be hard to evaluate
objectively, companies are increasingly
interested in working with environmentally
friendly properties. When two properties
propose very similar conditions, green
benefits can make a difference, particularly
since travelers say environmental friendliness
is an important consideration.
Which timeframe and organization?
Effective negotiations require careful planning
and support from the right teams. The following
points are worth considering:
Plan in advance. Hotel contracts generally
run for a calendar year. Negotiations therefore
take place mainly toward the end of each year,
with an intense period of auditing and
discussions during the first few months of
program implementation. The time taken
varies, but a general idea is shown in Figure
100. The most important point to note is that
requests for proposals must go out sufficiently
early for hoteliers and buyers to evaluate
proposals and carry out several rounds of
negotiations if necessary. At the same time,
negotiating too early can deprive companies
of valuable benchmark information.
This timeline is typical of companies that are
updating existing hotel programs. When a
program has to be designed from scratch or
completely overhauled, at least two years are
required to achieve average performance. For
best-in-class performance, a further two years
should be allowed with the support of hotel
sourcing and program optimization specialists.
Figure 100: A typical timeline for designing and managing a hotel program
Tasks
April
May
June
July
Preliminary
planning
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.
Feb.
March
First semester
reporting dashboard
Data consolidation
and analysis
Initial selection of
hotels for RFP
RFP release
Negotiations
Final selection of hotels
& fine-tuning
of program locally
Publication of
preferred hotel directory
Program
implementation and
auditing
Team activity
Input from the company's local staff
107
Ensure your travel management team has
the right resources. Most companies find it
useful to involve local teams at different
stages of the hotel program such as
identifying candidate hotels for the RFP,
setting rate objectives and negotiating directly
with properties if required (Figure 101).
Travel managers who handle global
programs generally call on one or two fulltime equivalents (FTEs) centrally and 0.5-2.5
FTEs at a local level.
Figure 101: Most companies involve local staff at different stages of the hotel program
Work closely with a travel management
company. TMCs can make the RFP process
more efficient, notably by automating
hoteliers’ responses (e.g., via Web-based
tools) and processing the information
centrally. Moreover, the TMC can provide
support at every stage of the negotiation
process, from contributing expertise on local
markets and setting objectives to discussing
terms with hoteliers and evaluating different
proposals.
SUMMARY
Key points for effective negotiations:
Property-level negotiations are generally worthwhile for any hotel representing
at least US$10,000 in spend. Under this threshold, companies can consider
chain-wide deals.
Although companies tend to prefer flat-rate deals with preferred properties,
dynamic pricing agreements can bring savings if they are well monitored,
especially in an economic downturn. On the whole, however, companies tend
to prefer the predictability of flat-rate deals.
Companies that negotiate last-room availability tend to pay lower average room
rates over the year, even if the negotiated rate tends to be slightly higher.
To negotiate most effectively, buyers should know the local market, consolidate
room night volumes, benchmark rates, include amenities in negotiations,
leverage city caps and attractive stay patterns, and conduct several rounds of
negotiations as needed. Companies can also renegotiate during the year if
internal or market conditions change to the extent that better rates are likely.
For best results, companies should plan sufficiently in advance, ensure they have
the right resources, and work closely with their travel management company.
109
6. Improve traveler
compliance
Low compliance with preferred hotels
and preferred booking channels
Compliance with the hotel program is generally
low. CWT analyses of nine companies’ booking
transactions show that only 26-57 percent of
bookings involve preferred hotels, while as few
as 20 percent of transactions are made through
preferred booking channels (i.e., corporate
online booking tool or travel management
company counselors), as shown in Figures 102103. The fact that one company’s travelers used
preferred booking channels for 94 percent of
bookings indicates that high compliance levels
are possible. Nonetheless, companies cannot
expect 100 percent use of preferred hotels as
no preferred hotel program can cover all
destinations.
The full benefits of a well-designed hotel
program can be reaped only if travelers
respect their travel policy. Unfortunately,
compliance is often low when it comes to
using preferred hotels and preferred booking
channels. To improve compliance, travel
managers can implement a number of best
practices, ranging from implementing policy
mandates to ensuring follow-up with
travelers who book out of policy.
Figure 102: The use of preferred hotels varies between 26% and 57% in a sample of
9 companies
%
Bookings at preferred properties as a proportion of all hotel bookings worldwide
100
43
50
52
55
56
59
66
67
74
57
50
48
45
44
41
33
33
26
AC
AD
N
H
I
C
M
T
AE
80
60
40
20
0
Company
Preferred
properties
Other
hotels
Program coverage*
*Program coverage: the percentage of transactions that could be made at preferred hotels if available (i.e., the program offers at least one
preferred property in the relevant city)
Based on transaction data and credit card spend data for 2007
Seven steps to optimize hotel spend > Improve traveler compliance
Figure 103: The use of preferred booking channels varies between 20% and 94% in a sample
of 10 companies
%
Booking channel used
100
80
51
60
42
80
38
33
27
25
2
10
16
14
6
8
10
26
9
94%
10
40
48
67
71
76
65
53
20
86
58
39
15 20%
0
10
5
L
B
J
I
K
E
G
H
F
D
Company
Corporate online booking tool
TMC counselors
Other booking channels
111
Understanding why travelers book out of policy is
key to improving compliance and identifying any
required adjustments to the program. According
to the CWT survey, travel managers and travelers
explain non-compliance in different ways. Travel
managers say the main reason for noncompliance with preferred hotels is travelers’
personal preference. Surveyed travelers, on the
other hand, cite mainly practical reasons such
as no preferred hotel being available at the
relevant location or the hotel not meeting
travelers’ needs (Figure 104). In the latter case,
the main reason given is the distance from the
place of business (Figure 105).
Figure 104: Travel managers and travelers cite different reasons for booking outside the
preferred hotel program
Importance
+
-
Travel managers' view
Travelers' view
Traveler’s personal
preference
No preferred hotel at
the location
Cheaper hotels outside
the program
Did not meet
traveler’s needs
Traveler’s lack of
awareness
No rooms available
Did not meet
traveler’s needs
Did not choose the
hotel
Compliance not a high
management priority
Preferred hotel directory
serves as a guide only
Lack of reporting tools
to track non-compliance
Cheaper hotels outside
the program
TMC not strictly
enforcing the policy
Rooms available only
above authorized category
Preferred hotel data
incorrectly loaded into GDS
Based on surveys of travelers (5,016 responses) and travel managers (101 responses)
Other
Figure 105: Distance from the traveler’s place of business is the main reason a preferred hotel
did not meet the traveler’s needs
113
The survey also indicates that travelers who
book non-preferred hotels are more priceconscious than other travelers and stay at
lower-category hotels (Figure 106). Moreover,
they are more likely to be domestic travelers,
supporting the point made earlier (Page 71) that
short-haul travelers are happy to stay in lowercategory hotels than long-haul travelers. Travel
managers may wish to adjust their programs to
include a greater number of lower-category
hotels if necessary.
Figure 106: Travelers who book non-preferred
hotels tend to stay at lower- category properties
When travelers book outside the preferred
channels, they rarely use Web booking sites or
hotels’ branded Websites, contrary to popular
belief. Instead, they prefer to contact hotels
directly by phone, email or fax (Figure 107).
Figure 107: When travelers book outside preferred channels, they rarely use Web booking
sites or hotels’ branded Websites
Preferred booking channels
Sources: CWT Travel Management Institute, CWT Hotel Solutions Group
Non-preferred booking channels
Actions to improve compliance
In addition to monitoring traveler behavior
through relevant data, a number of actions can
help improve compliance:
Implement clear policy mandates. As seen
on Pages 47-61, a clear policy is the
cornerstone of effectively managed hotel
spend. Travel managers must provide
enough instructions so travelers know
what to do in most booking situations,
without burdening them with too much,
potentially confusing information. Whenever
possible, mandates, rather than simple
recommendations, can make a significant
difference to how often travelers use
preferred hotels and preferred booking
channels.
Ensure the travel policy and preferred
hotel directory are up-to-date and easily
accessible to travelers and travel
arrangers. Travelers who say they can easily
access their company’s hotel directory select
preferred hotels more often than those who
say they do not have easy access. Yet
awareness of the preferred hotels is low
compared to the travel policy: only 52
percent of travelers say they know how to
access an up-to-date hotel directory,
compared to 74 percent who can easily
access an up-to-date travel policy (Figures
108-109).
Figure 109: Only 52% of travelers say they
can easily access their company’s directory of
preferred hotels, while 74% say they have
easy access to their travel policy
Figure 108: Travelers who have easy access
to their company’s hotel directory tend to
book preferred hotels more often
Don’t know
Don’t know
Non-preferred hotel
Company does not
have a preferred
hotel directory
Preferred hotel
No
Yes
115
Explain the stakes. Price-conscious travelers
are often unaware of the full impact of
booking outside the program and do so
because they believe they can save their
companies money. For example, when
comparing room rates, they may not take
into account the cost of amenities, which
may be included in a negotiated rate. In
addition, they typically do not realize that
booking non-preferred hotels can reduce the
discounts negotiated by their company and
dilute savings in the longer term.
Communicating the strategy behind the
hotel program and sharing information on
savings can be an effective way to increase
compliance. Travelers tend to be particularly
receptive to such information when they are
under pressure to cut costs.
Ensure that the hotel program and policy
are communicated to a wide audience. As
a large proportion of hotel bookings are
made by travel arrangers on behalf of
travelers (41 percent according to the CWT
research), it is important to communicate to
a wide audience within the company. This
includes specific communications for
employees who may make local bookings
for visiting colleagues. CWT research shows
that the use of preferred booking channels is
significantly lower in such cases: 64 percent
of bookings made on behalf of visitors,
compared to 82 percent of other bookings
(Figure 110).
Figure 110: Booking channel compliance is lower when employees book local hotels on
behalf of visitors
Non-preferred
booking channels
Preferred booking
channels (online
booking tool or
TMC counselor)
Based on a survey of travelers and travel arrangers (303 responses)
be improved to encourage travelers to
choose preferred hotels (e.g., by flagging or
filtering out non-compliant properties).
Furthermore, 36 percent would like to make
the hotel section of their OBT more userfriendly (e.g., by showing preferred hotels
and frequently visited sites on a map).
Check that the online booking tool (OBT)
is well configured. Fifty-five percent of
surveyed travel managers report that their
organization has an OBT. Among them, more
than two-thirds are satisfied with OBT
features, but there is room for improvement
(Figure 111). For example, 23 percent of
travel managers say their OBT set-up could
Figure 111: Most travel managers are satisfied with key OBT features, but there is room for
improvement
Travel managers’ satisfaction with their online booking tool
User-friendliness of
hotel section
8
Accuracy of rates
8
Comprehensiveness of
hotel information
4
Ability to steer travelers
toward preferred hotels
8
28
25
56
8
61
6
11
64
21
13
64
15
%
0
Very dissatisfied
20
40
Dissatisfied
60
80
Satisfied
100
Very satisfied
117
Figure 112 shows how an OBT can be
configured so the company’s primary preferred
hotels appear at the top of the list when travelers
make a search. If those hotels do not suit their
needs, travelers can click on “more hotels” to
view secondary preferred hotels or chains and
the best available rates at other hotels in the
TMC database (including properties that are not
available via GDSs). The OBT can also provide
information on any cancellation penalties and
complementary amenities, as well as remind
travelers of rate caps, authorized categories and
other policy points. When customizing the OBT
set-up, it is important to strike the right balance
so that travelers are encouraged to comply with
the preferred hotel program while enabling them
to book at other hotels if necessary.
Figure 112: Companies can make hotel booking easier for travelers by providing maps of
preferred hotels near frequently visited sites
Empower TMC counselors to enforce
compliance at the time of booking.
Depending on the level of involvement
defined by the client company, travel
counselors at the point of sale can
recommend compliant options, engage in a
pre-trip approval process, take a noncompliant booking and file a non-compliance
report, or refuse to make a non-compliant
booking. They can also ask travelers to make
their booking online if the company’s policy
requires it. Today, many companies could
benefit from granting more authority to
traveler counselors. Fifty-seven percent ask
the TMC simply to provide a policy reminder,
compared to only 22 percent who require
them to notify management of noncompliant requests or ask for authorization,
and 5 percent who allow them to refuse
non-compliant bookings (Figure 113).
Figure 113: 84% of travel managers empower the TMC to promote compliance during the
booking process
119
Require travelers to book their hotel at
the same time as transportation
whenever possible. Most air travel (which
is used for 70 percent of trips) is booked
through an online booking tool or TMC
counselor. Requiring travelers to book rooms
at the same time can therefore be an
effective way to increase the use of preferred
booking channels, which in turn tends to
increase the use of preferred hotels.
Ensure follow-up with non-compliant
travelers. Only a minority of travelers say
they have to justify non-compliance: 12
percent of those booking outside the
preferred channels and 48 percent of those
booking a non-preferred hotel (Figure 114).
Yet a large majority of travelers say
companies are right to ask them to stay at
preferred hotels and use preferred booking
channels (84 percent and 89 percent
respectively, as shown in Figure 115). Most
travel managers say non-compliance
generates a response (e.g., an email
reminder to travelers) and some invoke
tough measures such as withholding
reimbursement of expenses or invoking
disciplinary action (Figure 116).
Figure 114: Most travelers say they do not have to justify non-compliance
No
Unlikely
Probably
Yes
Based on a survey of travelers (1,884 responses / 580 responses)
Figure 115: Travelers acknowledge companies are right to ask them to use preferred hotels
and preferred booking channels
Figure 116: 69% of travel managers follow up on non-compliance
Most likely measures taken when a traveler breaches policy without reasonable justification
No
measures
31
No measures are taken
Traveler is flagged in an exception report and asked
to respect policy by the travel management team
22
Traveler is flagged in an exception report and asked
to respect policy by his/her manager
19
Traveler is flagged in an exception report without
further action
18
Mild
measures
7
Travel expenses are not reimbursed
Harsh
measures
3
Disciplinary measures are taken
0
10
20
Travel managers (%)
30
40
121
Investigate the reasons for noncompliance. It is important for travel
managers to find out (e.g., through traveler
surveys) if travelers are booking hotels
outside the program for legitimate reasons
and investigate whether the program should
be adjusted to better meet travelers’ needs.
SUMMARY
Improving traveler compliance:
Although no hotel program can cover all traveler needs, there is plenty of room
to improve compliance with preferred hotels and booking channels.
Travel managers believe travelers’ personal preference is the main reason for
non-compliance, while travelers cite mainly practical reasons, such as distance
from the place of business, that indicate adjustments to the program may be
required.
Best practices for improving compliance include implementing policy mandates,
keeping the policy and program up-to-date and easily accessible to travelers,
communicating to a wide audience (both travelers and travel arrangers),
configuring the online booking tool optimally, enforcing compliance at the time
of booking, asking travelers to book hotels at the same time as transportation,
empowering TMC counselors at the point of sale, ensuring follow-up with noncompliant travelers, and reviewing the hotel program regularly.
Seven steps to optimize hotel spend > Track performance
7. Track performance
Tracking hotelier performance
A well-negotiated program loses its value if
hoteliers do not deliver what they promise,
particularly in terms of room rates. Surveyed
traveler managers are only too aware of this fact.
While they rank “ability to meet commitments”
as the most important feature of their
relationship with hoteliers, they also say it is the
feature with which they are least satisfied
(Figure 117).
Generally speaking, performance tracking is
underdeveloped in the business travel
industry, which partly explains why hotelier
performance and traveler compliance often
fall below expectations. Best practices include
GDS rate audits, LRA audits, compliance
monitoring, and the use of key performance
indicators.
Figure 117: Hoteliers’ effectiveness in meeting commitments ranks low in terms of travel
manager satisfaction
Hotelier performance rated by travel managers
2.5
Closeness of working
relationship
Expertise/
knowledge
Effectiveness at delivering
the agreed level of service
Importance
Unimportant:
0
Nice to have:
1
Important:
2
Essential :
3
Satisfaction
Very dissatisfied:
0
Dissatisfied:
1
Satisfied:
2
Very satisfied:
3
Satisfaction 2.0
Responsiveness
and flexibility
Effectiveness of negotiations
Ability to meet commitments
Quality of reporting
1.5
2.0
2.5
3.0
Importance
Lowest satisfaction scores
123
percent higher. This result is common and
such GDS rate loading errors can add
approximately 5 percent to overall hotel
program costs. When monitored and
discussed with hoteliers, however, results can
improve dramatically. In this analysis, regular
rate audits gradually raised the percentage of
correctly loaded rates to 77 percent. Ideally,
an audit should take place at the beginning
of the year to ensure the new terms and
conditions are applied, and be repeated
several times until most errors have been
eliminated (Figures 118-119).
To ensure that the agreed conditions are being
met, companies should monitor hotelier
performance throughout the year and identify
any improvements that need to be made. In
particular, it is worth focusing on three main
areas:
Rate loading in global distribution
systems (GDSs). An initial CWT audit of five
companies’ programs revealed that only 50
percent of negotiated rates were loaded
correctly, while a further 10 percent were
loaded incorrectly and were on average 15
Figure 118: In an initial audit of 5 companies’ programs, only 50% of negotiated rates were
loaded correctly into the GDS
GDS audits for 5 companies, 2008
(Companies X, AE, G, D & AK)
Loaded
rates (%)
100
80
75
60
83
77
67
60
50
40
20
0
1st audit
2nd audit
3rd audit
Rates loaded
Rates loaded correctly
Figure 119: An analysis of one company’s program shows poor GDS rate loading can add
more than 5% to hotel program costs
125
made via a GDS showed three squatter
hotels for every preferred hotel. Furthermore,
squatter hotels accounted for 4-5 percent
of their 9,000 bookings. Further analysis
revealed that a large share of those
transactions involved a small number of
squatters: in one case, nearly half of the
rogue transactions involved 7 out of 50
squatter hotels. In the same example,
squatter rates were on average 21 percent
higher than the average rate paid at preferred
properties in the same city, as shown in
Figure 120. It can pay therefore to identify
rate squatters and work with hoteliers to
resolve such problems.
GDS rate squatting. Regular GDS audits can
also help companies manage the problem of
rate squatting, which occurs when GDS
codes intended for a company’s preferred
hotels are used by non-preferred properties.
Rate squatting occurs, for example, when a
hotel uploads rates after an agreement has
expired or when a chain uses a preferred
provider code for individual properties that
are not included in its contract with the
company.
TMCs use robot technology to scan GDSs
and flag squatter rates. In this way, a CWT
study of two global companies’ transactions
Figure 120: One company paid on average 21% higher rates at squatter hotels vs. the average
rate paid at preferred hotels
Difference between average rates paid at the top 7 squatter hotels and preferred hotels
(Company G - November 2008)
Hotel
City
City covered
by program
ARR paid at ARR paid at
Number of
preferred
squatter hotels
transactions
hotels (US$)
(US$)
Price
difference
(%)
A
Krakow
No
5
182
-
-
B
London
Yes
15
342
238
44%
C
Milan
Yes
9
244
249
-2%
D
Milan
Yes
6
170
249
-32%
E
Oslo
Yes
14
339
253
34%
F
RivasVaciamadrid
No
8
104
-
-
G
Zurich
Yes
6
259
214
22%
293
243
21%
Average room
rate (weighted by
number of
transactions)
* In cities covered by the program
the same city (1,605 transactions) showed
that one hotelier offered travelers the
negotiated rate (or less) for as many as 96
percent of room nights, while another did so
for only 53 percent (Figure 121). Regular
auditing can help companies ensure
hoteliers respect their LRA commitments, as
well as identify problems such as low
compliance (i.e., the traveler asks for a more
upscale room type than authorized in the
policy). An example of LRA audit results is
described on pages 128-129.
Last-room availability (LRA). To obtain an
LRA clause in their rate agreements,
companies generally pay a premium of 5-10
percent compared to non-LRA rates. This
premium pays off, as companies obtain
rooms at their negotiated rate more often
and subsequently pay a lower average room
rate over the year, as explained on Pages 9294. Nevertheless, some hoteliers perform
better than others on their LRA
commitments. A CWT analysis of one
company’s rates at seven preferred hotels in
Figure 121: An LRA audit reveals that a company received its negotiated rate or lower for
53-96% of room nights at a selection of 7 hotels
Percentage of room nights billed at correct negotiated rate for 7
hotels in Paris with which a company has an LRA agreement
%
(Company H)
100
20
80
16
10
47
8
8
4
41
24
60
62
55
80
84
11
96%
40
53%
20
56
51
42
29
30
16
6
0
A
B
C
D
E
F
G
Hotel
Room rate < negotiated rate
Room rate = negotiated rate
Room rate > negotiated rate
Based on transaction data (1,605 nights at 7 hotels)
127
Rate audits pay
A rate audit conducted by CWT for one company
revealed that it was paying more than the
negotiated rate for 34 percent of its room nights
at a preferred property even though it had
negotiated a last-room availability agreement
without black-out dates.
Twenty-four percent of its room nights were
more expensive than the negotiated rate despite
having been booked using the correct GDS code.
Out of these room nights, 37 percent were
standard rooms while 63 percent were cases of
travelers paying for deluxe rooms instead of
standard negotiated rooms (Figure 122).
Although it is possible that no standard rooms
were available at the time of booking or that
travelers asked for an upgrade, deluxe rooms
may have squatted the GDS code intended for
the negotiated rooms. Such findings should be
investigated further with the hotelier to ensure
errors are corrected.
Figure 122: Audits showed that one company paid more than its negotiated rate for 34% of
its room nights at a preferred property
Results of LRA audit
(Company N at a hotel in Paris)
Hotels that provide LRA
Room nights booked under
the company’ s code
Room nights booked under
another code
Paid rate
> negotiated rate
Paid rate
< negotiated rate
Paid rate
> negotiated rate
Paid rate
< negotiated rate
24%
of room nights
55%
of room nights
10%
of room nights
11%
of room nights
34%
of room nights
Breakdown of incorrect rates
Reason
Room nights
booked
using correct
GDS code
but more
expensive
than the
negotiated
rate
(24% of
room nights)
Standard
rooms
(37% of room
nights)
Deluxe rooms
(63% of room
nights)
Rate or tax incorrectly
loaded into GDS
Recommendation
Discuss with the
hotelier
Continue LRA audits
Traveler asked for a
upgrade
Hotel closed its standard rate
Unavailability of
standard rooms
Other reasons
(breaching the LRA contract)
Enforce the travel
policy and discuss
results with the hotelier
Extend the program
to ensure maximum
availability
Continue LRA audits
Based on 14,962 room nights
129
Tracking traveler compliance
Companies need to track compliance to ensure
the program and preferred booking channels
meet travelers’ requirements, as low compliance
may indicate a problem. They should also
identify cases of non-compliance that could be
avoided and, where necessary, implement
measures to change behavior within the
organization. Ensuring travelers respect the travel
policy is essential for reaping maximum benefits
from the hotel program.
Moreover, companies that track compliance with
the preferred hotel program tend to measure
simply the percentage of hotel bookings
involving a preferred property or chain. This
information provides a useful indication of
traveler compliance. It does not indicate,
however, whether travelers have booked the
authorized room type. Similarly, this data fails
to account for situations in which travelers
booked at non-preferred hotels while following
the rules laid out in the travel policy (e.g.,
respecting a city cap).
This said, only 47 percent of surveyed travel
managers say they measure travelers’ use of
preferred hotels. Even fewer (32 percent)
measure the use of preferred booking channels,
as shown in Figure 123.
To measure compliance effectively, companies
should track the following performance
indicators:
Figure 123: Only 47% of surveyed travel
managers measure compliance with
preferred hotels and 32% with preferred
booking channels
No
Yes
Based on a survey of travel managers (86 and 97 resopnses)
Room nights booked
properties and chains.
at
preferred
Use of appropriate room types. This can
be difficult to determine from the room rate,
as hoteliers do not always apply the
negotiated rate. In other words, a more
expensive rate does not necessarily imply
that the traveler has booked an upgraded
room.
Compliance with city caps when nonpreferred hotels are used (i.e., room rates
respecting a specific price limit).
Other rules such as not booking deluxe
hotels.
As discussed on Pages 32-36, it is challenging to
obtain comprehensive data. Nevertheless, travel
managers can work with hotel sourcing and
program optimization specialists to produce
reporting dashboards that serve as an essential
indication of how well the travel policy is
respected and which areas need to be improved.
Key performance indicators and
reporting dashboards
One of the challenges of data management is
making sense of the mass of figures companies
can receive from their different suppliers in a
timely manner. Travel managers need to identify
key performance indicators (KPIs) and ensure
they are tracked regularly. To this end, a KPI
dashboard can provide a user-friendly overview
and highlight areas that require attention.
Figure 124 shows a list of indicators companies
find useful for tracking overall performance, hotel
program design and sourcing, traveler
compliance and hotelier performance.
Many companies ask their travel management
company to produce reporting dashboards on
these key indicators on a quarterly basis. Some
items, such as GDS rate loading, may require a
different schedule.
Figure 124: Sample reporting dashboard for hotel spend
Key performance indicator
Overall
Program
design and
sourcing
Traveler
compliance
Scope
Freqency
Destination during the year
Evolution of company’s ARR compared
to market average
Company
Top
Once
Program coverage
(% spend covered by preferred hotels)
Company
All
Once
Evolution of average negotiated rate compared
to market average)
Company
Top
Once
Hotels offering LRA (%)
Company
All
Once
Rates correctly loaded into the GDS (%)
Company
All
Use of preferred properties
(% room nights)
Business unit
All
Twice
Use of preferred chains
(% of total room nights)
Business unit
All
Twice
Use of city caps
(% room nights at or below cap)
Business unit
Top
Twice
Use of preferred booking channels
(% room nights)
Business unit
All
Twice
Advance booking (average number of days
booked in advance of stay)
Business unit
All
Twice
Hotel category (% room nights booked in
authorized categories)
Business unit
All
Once
Company
Top
Once
Hotelier
Application of correct negotiated rate
performance (% room nights at or below rate)
for LRA and non-LRA hotels
Four times
131
SUMMARY
Tracking performance:
Companies should monitor hoteliers’ performance systematically to ensure rates
are loaded correctly into GDSs and negotiated rates are available to travelers.
Regular tracking is essential for ensuring the hotel program meets travelers’ needs
and improving compliance.
Key performance indicators and reporting dashboards help travel managers to
optimize their programs.
Conclusion
Hotel spend will be increasingly managed by companies as they seek further savings from their travel
program. Best performers will build on a keen understanding of the hotel market and traveler
behavior, bringing improvements in key areas such as data consolidation, travel policy, the preferred
hotel program, negotiations, traveler compliance and performance tracking.
Realizing they can spend nearly as much on hotels as on air transportation may encourage companies
to allocate greater resources to hotel sourcing and expect a higher return on their hotel program. They
will be helped by a buyer’s market in many major cities, as a weak economy lowers occupancy and
encourages hoteliers to bargain hard for corporate business.
Going forward, companies can expect significantly better conditions in terms of rates and
complementary amenities. Moreover, travel managers will find it easier to secure sufficient room
availability for their travelers in some high-demand markets. At the same time, companies should
continue to ask hoteliers to help make travel more sustainable, and work with security experts to
ensure the hotels they choose provide the right level of security for travelers.
Corporate buyers can take full advantage of these opportunities to create more value by working
with specialists in hotel sourcing and program optimization. As this report has shown, optimizing
hotel spend offers many companies plenty of room for savings.
133
Appendices
Glossary
The following is a list of key terms and
abbreviations used in this document:
Average room rate (ARR): the average of all
room rates paid by a company or companies
over one year
Best available rate (BAR): the lowest room rate
offered by a specific hotelier for each available
room type on any given day
Black-out dates: specific days on which a
negotiated rate does not apply
Chain-wide agreement: a fixed percentage
discount off the BAR that applies at all hotels
belonging to a chain
City cap: a spend limit set by companies for
hotel stays in specific cities
Dynamic pricing: public rates that fluctuate,
even daily, with supply and demand. A dynamic
pricing agreement offers a fixed percentage
discount off the fluctuating rate
E-folio: an electronically transmitted, itemized
hotel invoice
Global distribution system (GDS): a worldwide
system used to book travel services, also known
as a computerized reservation system (CRS)
Hotel category: an indication of hotel quality
(e.g., deluxe, first, standard or economy)
Hotel program: a directory of preferred hotels
with which a company has usually negotiated flat
rates or a fixed discount off the public rate
Last-room availability: an agreement that
guarantees a company’s travelers will be offered
the negotiated rate even if only one room of the
negotiated type is available, except during blackout dates if applicable
Negotiated flat rate: a preferential fixed rate
offered to a company that usually applies for one
calendar year
Preferred hotel: a property (independent or
belonging to a chain) with which a company has
negotiated flat rates or a discount
RevPAR: revenue per available room (or room
yield), which is the most important indicator of
hotel performance, taking into account room
rates and occupancy
Serviced appartment: furnished appartment
accommodation offering hotel-style amenities
such as breakfast and dry cleaning.
List of companies researched in case studies
Company
Sector
Headquarters
A ................................
B ................................
C ................................
D................................
E.................................
F.................................
G................................
H................................
I ..................................
J .................................
K ................................
L.................................
M ...............................
N................................
O................................
P ................................
Q................................
R ................................
S.................................
T.................................
U................................
V ................................
W ...............................
X.................................
Y.................................
Z.................................
AA..............................
AB..............................
AC..............................
AD .............................
AE..............................
AF ..............................
AG .............................
AH .............................
AI ...............................
AJ...............................
AK..............................
AL ..............................
AM ............................
AN .............................
AO .............................
AP..............................
AQ .............................
AR..............................
AS..............................
AT ..............................
AU .............................
AV ..............................
AW ............................
AX..............................
IT/technology/telecommunications
Pharmaceuticals
Heavy industry/manufacturing
Utilities
Healthcare
Banking/insurance/financial services
Energy/chemicals
Biotechnology
Pharmaceuticals
Food/beverages
Energy/chemicals
Energy/chemicals
Energy/chemicals
Energy/chemicals
Professional services
Energy/chemicals
Food/beverages
Energy/chemicals
Government/not-for-profit
Consumer goods
Energy/chemicals
Other
Consumer goods
Food/beverages
North America
North America
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
North America
North America
Europe
Europe
North America
Europe
North America
North America
North America
Europe
North America
North America
Europe
Europe
North America
Asia Pacific
Europe
Europe
Europe
Europe
Europe
North America
North America
North America
North America
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
North America
Europe
North America
Europe
135
For more information about how CWT
experts can help your company successfully
optimize hotel spend, please contact your
CWT sales or program manager or email us
at tmi@carlsonwagonlit.fr
All research published by the CWT Travel Management Institute
is available on
www.carlsonwagonlit.com
136
Printed on PEFC-certified paper produced from sustainably managed forests.
Copyright © 2009 CWT

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