Corporate Rate Negotiations

Corporate travel buyers and lodging industry executives are preparing for corporate rate negotiating season, which begins in September and continues through December. Corporate and contract rates represent almost 20 percent of occupied room nights and almost 30 percent of U.S. lodging industry revenue.

Based on preliminary plans and budgets, the difference between buyer and seller expectations for corporate and contract rates for 2013 are great.

For 2012, the average negotiated rate (ADR) increased approximately 5.0 percent, which is slightly greater than what will be achieved by U.S. hotels based on year-to-date performance of about 4.5 percent.

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The emerging hotel executive consensus outlook for 2013 is for corporate contract rates to increase by a national average of 7.0 to 9.0 percent or more, but many corporate travel managers are planning for increases of 3.0 to 5.0 percent.

A preliminary estimate for the result of negotiations is for an average increase for corporate rates around 5.0 to 6.5 percent depending on location and the number of room nights for a specific buyer. Hotel executives also are seeking to charge separately for some services and amenities instead of including these charges in negotiated room rates. In recent years, some contract rates included services and amenities such as telephone access charges, internet access, fax charges, use of fitness centers, light breakfasts, local transportation, and others.

Some corporate travel buyers still consider that the negotiated rate increases in 2008 and 2009 which generally were higher than achieved because industry performance was weaker than anticipated, and favorable rates for hotels negotiated for 2012 should be reflected in lower rates for 2013. Some hotel industry executives consider that low rates negotiated in 2009 and 2010 for meetings and conventions should be reflected in current negotiations.

One response of buyers to higher rates is to reallocate the portfolio of contract rate hotels to include more upscale, select service and limited service hotels in place of luxury and upper upscale hotels, for example.

These estimates are based on selected interviews with industry executives and corporate travel executives, analysis of industry financial data, press releases, and information available on hotel and brand websites.

Bjorn Hanson, Ph.D., is divisional dean of the NYU-SCPS Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management.