Since the beginning of the year, the volume of reservations and hotel nights has been growing overall, in France, in Europe and in almost all regions around the world at a more or less steady rate. Does the return to a positive phase in the hotel cycle leave room for sales and marketing directors to be bolder and accompany the increase in occupancy rate with a steady increase in rack rates, negotiated rates and thus the average daily rate?
For the months to come, several uncertainties persist in the financial world that tend to make us prudent: can Ireland’s precarious situation be contagious? Will the Euro experience speculative attacks? Will the economic recovery in France really take off? Experience has unfortunately showed that crises are brutal and we had to remain constantly alert. Although the cycle has returned to a favorable position and the calendar for 2011 in France is propitious to an increase in hotel demand, “we remain in a healthy state of fear to not get caught unawares,” resumes Yves Lacheret.Aside from a slight slacking off during the summer period, the volume of reservations through GDS as well as via Internet has followed an uptrend: according to observations made by Pegasus Solutions, the booking engine of many sites and observer of electronic sales, the volume of transactions via GDS grew by 20% in October 2010 over 2009, on both the American continent and throughout the rest of the world. The growth trend is first supported by corporate clientele, which are the first to find their way back to hotels out of necessity: seminars, renewed commercial contacts, trade fairs… in this same month of October, the increase in prices is real, around 6% on the American continent and even more in the rest of the world.“Yes, clearly we have recovered maneuvering margins because the sales volume increased since the second quarter 2010, but more than a global rate increase, we have returned to a more normal situation, a mostly moderate increase brought on by the halt of promotional operations,” analyzes Alan O’Dea Revenue Manager Europe for the Mövenpick group. Those responsible for rate policies seem to be mostly prudent by testing the market’s reactions.While the trend is good, it naturally masks disparities, both within the French territory and throughout Europe. “The market in Paris and the Paris region is dynamic and allows us to be relatively aggressive with rates,” analyzes Emmanuel Ebray, sales manager Choice International Western Europe. “But in more provincial towns, a much more moderate local reality must be taken into consideration.”“The first and second quarter 2010 were difficult in the Netherlands,” explains Jeanette Horst, Revenue Manager Benelux for Park Plaza. The months of April and May could have been good, but we were penalized by Iceland’s volcano, which led to cancellations and certain postponements to the second part of the year. June was also difficult because years when the FiFA World Cup is held are always marked by fewer business meetings. In Holland, improvement could be felt from the month of August, thanks in particular to the major boating event “Sail Amsterdam” and renewed congress activity in September, a market that has an increasing numbers of participants. Thus, from August, we decided to limit our promotions as clients were willing to pay more.”The corporate market is one of the most reactive in terms of volume of nights, for both upturns and downturns, but rates follow a more formal procedure that cannot upset an established negotiations calendar. “The rate structure is not the same,” confirms Jacques Masson, director Revenue management at Louvre Hôtels – Golden Tulip. “On this market, the rack rate is different from the price asked with an orientation downward with respect to excellent years. We want to show our clients the effort we are making to adapt to their budgetary needs. On the other hand, our sales people have been told to limit discount rates.” The end of the year is the time for renegotiating Corporate contracts and the degree of audacity is different depending on the weight on local markets. “I push for double-digit rate increases on contracts for 2011,” explains Eric Viale, director Sales and Marketing InterContinental Paris Le Grand, a very popular property in the heart of Paris. But not all are so "audacious". “Our corporate correspondents have integrated the notion of the hotel cycle, just as like in any economic sector. Each takes turns taking advantage of its position in the cycle in order to get more out of it. There is no real tension in the negotiations, especially since the lack of long-term visibility makes it impossible to “hit hard”. I would talk more about balancing than increasing,” justifies Alan O’Dea.Hoteliers are not alone in the face of their Corporate clients. The crisis of 2009 and the systematic quest to reduce costs changed the hand. “There is a general context of rigorous corporate purchase management run by Procurement divisions that have gained importance and are being assisted by Travel management companies or by consultants specialized in business negotiations,” observes Yves Lacheret, director Marketing & Hotel Distribution Accor France. “It is a major trend accentuated by the crisis and that will not disappear.” Key accounts use these aids to keep their preferred rates, and sometimes to claim discounts on 2011. All these elements affect how rates evolve even during a recovery.One of the elements that pleads in favor of faster price inflation is maintenance of the level of the offer, in most major countries it is very stable. In France, especially, and more generally in Europe, with a few exceptions, the hotel industry benefits from the fact that the lodgings capacity has grown only slightly. The supply is controlled unlike regions where it exploded as it did in the Middle East. According to the annual study by MKG Hospitality, on January 1, 2010, the hotel supply in the 27 countries of the European Union had increased by only 1%.With a better situation than in 2009, Revenue managers attempt to convince Corporate buyers to adopt dynamic pricing, a technique that allows for a constant reduction on a changing price throughout the year according to demand. “Dynamic pricing still has trouble making its way due to the reticence of corporate buyers who want to be able to budget a clear figure for their expenditures,” recognizes Alan O’Dea. “Those who accept this practice realize, nonetheless, that they come out on top with a constant volume in terms of availability. But to date, this represents less than 10% of the volume of reservations. It is up to us to gradually convince and implement more efficient tools that will help this demonstration. Today, it is not normal to make a very dynamic price list in terms of public prices cohabit with Leisure a very static price list when we approach Key Accounts.” It is necessary to show a certain amount of flexibility and adapt the contracts to conditions accepted by corporations. “We must divide our contracts into two parts when it comes to high volumes,” explains Yves Lacheret of Accor Hôtellerie France. “For priority destinations where volumes are high, corporations are reticent about accepting dynamic pricing, which is difficult to budget precisely, but for secondary destinations, this policy is more widely accepted.”This is far from being confrontational and more like a quest for pedagogy. Negotiations with Corporate Key Accounts clients remain difficult when the destination experiences strong competition. “The competition is hard in Amsterdam and clients don’t hesitate to turn to the competition to save a few euros,” continues Jeanette Horst. “We will consider ourselves satisfied with growth of rates by 3 to 4% on this segment.”Leisure clientele book mostly via Internet, which is synonymous with real time availability and best rates. The increase in volume is more moderate but well oriented: +10% on average on the primary online tourism booking websites. According to observations by Pegasus Solutions, the volume of requests via websites has grown by 25%, however: a sign that finding the best rates remains a major concern for Leisure clients. Economic perspectives are decisive for the morale of Leisure travelers who are waiting for the skies to clear a bit more before making reservations in the mid term. Observers nonetheless note that the slightest improvement results in more sales, which confirms the "resilient" character of the tourism industry. After regaining strength and reassuring to sales managers at hotel groups, the end of the year will calm enthusiasm with the arrival of months that are traditionally weaker for the corporate market. Will leisure clientele be able to compensate -even partially- for this slump in business? This is one of the questions for the end of 2010. Europe is taking advantage of a positive image as a winter tourist destination, combining the appeal of different segments such as Christmas shopping, festive celebrations in many capitals and major cities, winter sports … and yet prudence is opportune and Revenue managers tend to preach moderation and loyalty, like Jacques Masson, of Louvre Hôtels – Golden Tulip: “At the heart of the economic crisis, rates had a strong impact on guests who must accept tradeoffs. Take a Dutch family traveling to Spain by crossing France: the cost of accommodations must be substracted from its vacation budget. For the year 2010, the trend was down because of the drop in activity. This phase is followed by a second crisis exit period– which we are currently in – marked by rate instability as business oscillates between good and more difficult months. The recommendation I gave my teams for 2011 is to hold steady with respect to 2009. In France, we are the leaders on the 2* segment our job is to regulate the market. We cannot bet on our guests’ sentiments. Those who stay at our hotels did so during the crisis and would not understand a significant rate increase.” Hotel groups are now aware that crisis exits are ideal times for growing customer loyalty. Revenue management is responsible for optimizing rates, but also has a tactical and strategic marketing goal to generate customer loyalty to the brand, in terms of both the product and perceived price. “This loyalty is built on a foundation of rates so when we increase rates six months to a year later, they will be accepted,” estimates Jacques Masson.Maintaining rate coherence has been one of the challenges of hotel sales managers with the advent of Internet. The multiplication of distribution channels and partners has often led to price differentials for a single period and service that create confusion –as well as wariness– in the minds of the public. “We have not yet achieved 100% rate parity according to sales channels, but we are not far,” rejoices Emmanuel Ebray of Choice. “Rate parity is a necessary rule for our subsidiaries and we strongly recommend it to our franchisees, although we cannot impose it. And yet, the warning systems that we have implemented show that "disparity" is marginal. It is in everyone’s interest to avoid having to manage the incomprehension of clients,” continues Yves Lacheret.The Benelux and the United Kingdom got out of the crisis early, especially the Corporate segment. Since its clientele, in particular British, are very sensitive to discount rates, promotional offers are key. “The mechanism is the same in Spain and Poland, but for different reasons,” tempers Jacques Masson. “These countries were more strongly hit by the crisis and if your offers are not aggressive, they do not work. In Poland, the supply is important with a price war between segments.Another example, in Amsterdam, business is picking up steadily, as occupancy in Eindhoven and Utrecht is saw-toothed, alternating between very good and very weak months. “To explain this phenomenon, the MICE business is still fragile,” insists Jeanette Hors. “I think companies have limited business travel in order to stay within their annual budget and save money.” The European market is not uniform and the powerhouses have masked more delicate situations in the South and to the East of the continent. “Paris and London are now the two places that are coming out on top,” observes Alan O’Dea. “In Spain, we see improvements in terms of volume with growth in prices by about 5 to 10%, but we started off very low after the drop in RevPAR from 30 to 40%.”
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