Hotel SourcingAdvito – Bas Vissers

20 April 2010

Hotel Sourcing ProcessDynamic Pricing

3

Develop clear picture of

today’s program

Assessment

Analyticalchallenges

Quantify options to base

confident decisions

Strategy

Strategicchallenges

Optimize program to save

money & time

RFP Process & Negotiation

Negotiationchallenges

Pro-active and sustainable

management

Monitor &Improve

Managementchallenges

Comprehensive Process Overview

Implementation

Build solid foundation for

program improvements

Implementationchallenges

Implement

4

Existing hotel program

Data analysis multiple sources

Recommendations solicitation list and strategy

Compliance, Benchmarking & Gap Analysis

The assessment phase is crucial in the hotel sourcing process. Multiple data sources help forming the basis

Market Dynamics

5

Hotel Rate Developments Year over Year

Country ADR Last 12 Months

-2%

-3%-3%

-6%

-8%

-9%

-11%-12%

-13%

-10%-11% -11%

-9% -9%

-8%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

AD

R D

evel

opm

ent (

Y-o-

Y)

0

20

40

60

80

100

120

140

160

Mon

thly

AD

R (L

ocal

Cur

renc

y)

Source: Advito 2010 Industry Forecast Q1 Update, March 2010

Country ADR Last 12 Months

-1%-2%

-7%

-5%

-9%

-4%

-14%-15%

-10%-9% -9%

-11%

-5%-7%

-1%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

AD

R D

evel

opm

ent (

Y-o-

Y)

0

20

40

60

80

100

120

140

160

Mon

thly

AD

R (L

ocal

Cur

renc

y)

Country ADR Last 12 Months

-3%

0%

3%

-3%-5%

-6%

-14%

-7%-8%

-3%

-6%

-13%

-7%

-4%

-8%

-16%-14%-12%-10%-8%-6%

-4%-2%0%2%4%

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

AD

R D

evel

opm

ent (

Y-o-

Y)

0

20

40

60

80

100

120

140

Mon

thly

AD

R (L

ocal

Cur

renc

y)

UK

Germany USA

Country ADR Last 12 Months

23%

32%

27%29%

16% 18%

5% 4%

20%

8%3%

-11% -12%-14% -13%

-20%

-10%

0%

10%

20%

30%

40%

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

AD

R D

evel

opm

ent (

Y-o-

Y)

0

50

100

150

200

250

300

Mon

thly

AD

R (L

ocal

Cur

renc

y)

Brazil

6

Hotel ADR Predictions for 2010

Forecast of average development of hotel rates used by corporate clients in 2010 against 2009 (local currency)

AR +4.8%

US -2.0%

DE -2.3%UK -2.2% RU ±0%

CN -4.5%

AU -0.8%

JP +0.3%

SG -4.8%

AE –3.0%IN -4.5%MX +3.6%

CA +0.6%

NG+8.7%

ZA +4.3%

Year-over-year development in average daily rates for corporates will be less radical than in the first half of 2009

FR -1.6%

BR +6.0%

FI -1.6%

ES -4.0%

Source: Advito 2010 Industry Forecast Q1 Update, March 2010

7

Tier Distribution

Interestingly, there was no major shift in hotel tiers – the premium segments have even gained share

Tier Distribution

4.0%

3.8%

4.0%

47.5%

46.3%

47.7%

11.4%

11.4%

11.1%

33.9%

34.7%

33.5%

1.7%

1.7%

1.8%

0% 20% 40% 60% 80% 100%

2009

2008

2007

% of Room Nights

Luxury Upper Upscale Upscale Mid Scale Economy Mixed Source: Advito 2010 Industry Forecast Q1 Update, March 2010

8

Tier Developments

One of the reasons might be that the premium for the luxury tier against other tiers has declined

Source: Advito 2010 Industry Forecast Q1 Update, March 2010

Premium/Discounts of Other Tiers Against Upper Upscale

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jul-0

8

Aug-

08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr-

09

May

-09

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct

-09

Nov

-09

Dec

-09

Luxury Upper Upscale Upscale Midscale Economy

9

Project business case

Scenario analysis

RFP preparation

Supplier service evaluation

Quantify options to base

confident decisions

Strategy

Marketchallenges

Comprehensive Process Overview (Strategy)

Develop clear picture of

today’s program

Assessment

Analyticalchallenges

Build solid foundation for

program improvements

Implementationchallenges

Implement

Optimize program to save

money & time

RFP Process& Negotiation

Strategicchallenges

Pro-active and sustainable

management

Monitor & Improve

Managementchallenges

10

What our clients talking about and focusing on for 2010 and 2011

High Speed Internet

Global account offers

CSR

Location

Breakfast

LRA vs NLRA

Safety

Meetings

Dynamic Pricing

Additionally for 2011

11

What are we asking? What are the hotels getting?

Source: Advito

Must have…0% increaseLRAInclusive internet

Would like to have…Priority to hotels that include breakfastNegotiated rate is also applicable for group bookings <25 rooms

15.000 room nightsHotel program reducing to 12 preferred hotels92% compliance to preferredAverage 3,5 nights stayTargeted communications to avoid Tue/Wed travelEncouraged use of preferred for meetingsMandated policyMandated travel agency / booking tool usage

Launch a RFP or launch a non-RFP?

12

The non-RFP turned out to deliver better results thaninitially requested

move away from the traditional “RFP” process with the aim of creating an efficient win-win for you and the hotelsGuarantee a place on the hotel programAcceptance into the program before RFP is launched

Hotel / market knowledge - exampleADR up 5.0% (3 years of increase)RevPar up 4.8% (4 years of increase)YTD Occupancy 71.0% (-0.2%)2008 supply = 1,055,349 rooms2008 demand = 748,930 rooms

Source: STR Global

Benefits

What?

How?

Focus on top destinations onlyShow market knowledge!Webinar per destination Contact onsite sales

Better negotiation results in volume hotelsTime savings for hotels and youPartnership with hotels

13

Optimize program to save

money & time

Proposal evaluation

Benchmarking

RFP Process& Negotiation

Strategicchallenges

Comprehensive Process Overview (Negotiation)

Solicitation

RFP management

Negotiation

Develop clear picture of

today’s program

Assessment

Analyticalchallenges

Quantify options to base

confident decisions

Strategy

Marketchallenges

Pro-active and sustainable

management

Monitor & Improve

Managementchallenges

Build solid foundation for

program improvements

Implementationchallenges

Implement

14

Mapping helps in the decision making process of both the solicitation list and the final selections

Plots client-specific hotels on a city mapProximity to locationDistance from airportNegotiated ratesHistorical rates Benchmark ratesTarget rates

www.hotelbymaps.com

15

Total Cost of Stay – Lodging Savings Approach

Rising travel costs call for the evaluation of the total cost of stay with a focus on savings across all components of the lodging costs

16

Selection and decision criteria are crucial in a efficient hotel sourcing process

Selection Criteria Hotel Program WeightLast Room Availability (LRA) Mandatory

Rates loaded in GDS Mandatory

Cancellation policy 4 pm on day of arrival Mandatory

Rates are non commissionable Mandatory

Free High Speed Internet Access (HSIA) Secondary 40%

Free breakfast Secondary 30%

Free transportation to local office Secondary 15%

Free airport transportation Secondary 15%

Others…..

By applying target rates and selection criteria you can provide a quantitative basis for comparing hotel offers

17

Comprehensive Process Overview (Implement)

Implement

Implementationchallenges

Build solid foundation for

program improvements

Business ROI review

Online Hotel Directory

Travel Policy update

Rate audit

Change Management

Develop clear picture of

today’s program

Assessment

Analyticalchallenges

Quantify options to base

confident decisions

Strategize

Marketchallenges

Optimize program to save

money & time

RFP Process& Negotiate

Strategicchallenges

Pro-active and sustainable

management

Monitor & Improve

Managementchallenges

18

In the Implementation Phase the rate audit is crucial

On average, American businesses

$11.35were overcharged by nightly

12%varied by over their negotiated rates

$1.8 millionoverpaid by daily

Advito rate loading audit results 2010 RFP’s

Audit 1 Audit 2

56 % loaded 70% loaded12% not loaded 6% not loaded32% discrepancy 24% discrepancy

Hotel Sourcing ProcessDynamic Pricing

20

Dynamic Pricing will change the hotel sourcing process and strategies

Hotel industry is following airline industrySince the 2009 RFP process included in NBTA standardBAR rates are proven to be successfulGlobal Discount programs already in place with larger global chainsHilton and IHG are front runners

Flexible corporate rate

Fixed corporate rate

21

Dynamic Pricing is a Pricing Model where a flexible corporate rate – based on a negotiated

discount % off a baseline rate – replaces the fixed corporate negotiated rate.

Definition of Dynamic Pricing

22

GPP - Global Partnership Program (Marriott)

Corporate Gold Agreement (IHG)

GAO - Global Account Offer (Accor)

Chain Wide Discount (Hilton)

…..

A negotiable discount percentage off BAR or other baseline rate for all chain hotels not included in the net negotiated program

Key Facts

• 6% – 20% discount• BAR is usually the baseline rate• Non-binding commitments• Total hotel chain directory is

offered

Dynamic Pricing already exists todayGlobal Discount Programs

23

4.000Accor

1.000Starwood

16.000Total

3.200Marriott

4.400IHG

3.400

Total Number of Hotels

Hilton

By ChainYou can save 6 - 20% on allyour non compliant business with the contracted chains

Your program expands with thousands of additional hotels

All hotels included in the chain wide program will loaded under your 3-letter rate access code in GDS

The objective is to increase coverage in secondary markets with limited time investment

Chain wide discount programs bring savings but can also undermine your preferred hotel program

24

Example BAR versus Corporate Rate

€ 10

€ 30

€ 50

€ 70

€ 90

€ 110

€ 130

€ 150

Sun Mon Tue Wed Thu Fri Sat

Fixed Corporate BAR Dynamic Corp Rate

Advito recommends to make a business case with the hotel chains before implementing dynamic pricing

The next step is that your fixed corporate rates will be replaced by dynamic corporate rates

25

Dynamic Pricing cannot be stopped, but most importantly corporate clients are not ready for it yet

Simplifying the hotel sourcing process (RFP): time savingsFixed discount on BAR: a “continuous” LRA rate No discussions about your corporate rate being higher than the BAR

For corporates

Optimization of revenues by optimal yield management: reduces displacementSimplifying the hotel sourcing processTime savings in processing and loading corporate rates

For hotels

Difficulties in budgeting

No influence on ceiling rate

Many uncertainties about the benefits

For corporates

Slow acceptance of corporate clientsHigh investments due to adjustments in booking- and data management systems Difficulties in proving the financial benefits to corporate clients

For hotels

Advantages Disadvantages

26

• Hybrid model• Negotiated Program• Dynamic pricing for secondary

markets• Chain Wide Discount Program

• Create a business case based on historical BAR development of the hotel versus average stay patterns of your travelers

• Days of the week• Months of the year• Compliance to corporate

negotiated rate• Market share

Recommendations

27

Bas VissersManager Consulting EMEA

E bas.vissers@advito.com Europalaan 400T +31 (0)20 56 21 825 P.O. Box 5035M +31 (0)6 22 80 97 10 3502 JA UtrechtF +31 (0)20 71 88 168 The Netherlands

www.advito.com

Bas VissersManager Consulting EMEA

E bas.vissers@advito.com Europalaan 400T +31 (0)20 56 21 825 P.O. Box 5035M +31 (0)6 22 80 97 10 3502 JA UtrechtF +31 (0)20 71 88 168 The Netherlands

www.advito.com

Questions?

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