HOTEL PROCUREMENT STRATEGIES IN COVID-19 TIMES - Define the right procurement strategies for the 'new normal' - HRS.com
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PROCUREMENT STRATEGIES IN COVID-19 TIMES
HOTEL
PROCUREMENT
STRATEGIES IN
COVID-19 TIMES
Define the right procurement strategies for the ‘new normal’
1
PROCUREMENT STRATEGIES IN COVID-19 TIMES
EXECUTIVE SUMMARY
As the world takes steps – some nations faster than others – to
recover from the Coronavirus pandemic, the outlook for corporate
hospitality evolves seemingly every week. This comprehensive
report, looking at the realities for managed lodging programs and
the hotels that serve them from multiple perspectives, captures
the depth of the industry’s losses while exploring avenues for its
comeback.
THE WAY BACK –
MIXING NEW PRIORITIES WITH
REFINED EXISTING TECHNOLOGIES
Since 2009, hoteliers have overseen a remarkable supplier’s
marketplace, with average daily rate (ADR) and revenue per
available room (RevPAR) growing every year for the vast majority
of the world’s top business travel destinations. New hotels have
opened in growing numbers all around the world; STR reports that
the number of rooms in London has grown by a stunning 41% in
the past decade alone. Corporate hotel procurement leaders were
laser-focused on room rates and other fee-related elements of their
contracts with preferred hotels, straining to maximize the value of
their lodging allocation.
COVID-19 has swiftly redefined dynamics for both buyers and
suppliers. Travel program leaders are now asked to be experts
on how travelers can safely traverse every step of their journey,
covering air and ground transport, cleanliness and distancing
2
PROCUREMENT STRATEGIES IN COVID-19 TIMES
in hotels, even guidelines for dining in restaurants and/or room
service.
This challenge for travel leaders also creates an opportunity for
them to showcase quick competency to address serious employee
concerns. They need to develop data-driven procurement strategies
that factor in hygiene protocols - with smarter rate/fee insights - in
an uncertain time that demands a high degree of planning agility.
Beyond duty-of-care priorities, the realities of physical distancing
and the traveler’s newfound need to minimize personal
engagements on trips sets the stage for a major leap forward for
touchless payment. Automated payment technology – which has
been enhanced and refined at a rapid pace in the past five years
– is ready for corporations and hotels to take advantage of its
many benefits (speed, accuracy, savings, fraud reduction, increased
preferred supplier use, etc.). Widespread use of touchless services at
hotels also enhances the traveler’s sense of personal safety, a key
factor in getting people back on the road.
HOTELS RESPOND WITH EN-
HANCED HYGIENE PROTOCOLS &
REVAMPED PRICING BUNDLES
Hotels are quickly reacting to these changing guest priorities.
With 86% of corporations in an HRS survey saying they will ONLY
consider hotels with revised cleaning protocols in their 2021 RFPs,
hotels have no choice but to enhance hygiene protocols. Most have
already begun. One large global chain announced that they will hire
a dedicated director of hygiene for each of its 1,000+ properties.
Revenue managers are also exercising newfound creativity to win
more market share from streamlined corporate programs – marrying
transient and group volume, offering more flexible cancellation fees,
building new individualized food and beverage offerings, deploying
robots, etc.
With each passing week, we see a trend in pricing for corporates. As
a result of lower occupancy, Last Room Availability (LRA) options no
longer make sense for buyers to pay extra for. Due to new health
guidelines, breakfast buffets are now relegated to the past. These
savings are counterbalanced by hotels baking in the costs of their
new hygiene protocols.
With companies requiring greater cancellation flexibility as the
pandemic’s path is clearly unpredictable, hotels are experimenting
with pricing that factors in this element. New bundles are being
developed around enhanced touchless service options and flexible
terms. Hotels that used the downturn in second quarter volume
3PROCUREMENT STRATEGIES IN COVID-19 TIMES
to recalibrate their proposals to preferred corporate clients will be
best positioned to come back faster as government regulations lift and
companies travel again.
A TIME FOR MANAGED TRAVEL TO
SHINE
The industry’s challenges will be trying for many entities, especially
due to furloughs and staff reductions. However, the practice of travel
procurement has a clear opportunity to demonstrate its value for any
company, in every vertical market. Travel managers are becoming
experts on travel safety and touchless experiences at precisely the right
time. They are collaborating with colleagues like never before, focusing
on key destinations as companies narrow their most important post-
quarantine business objectives. HRS’ flash survey of corporate travel
program leaders in May found that 51% of buyers will issue overhauled
RFPs to get vital new information they need, as well as review proposals
that fit their downsized travel budgets.
HRS anticipates the bulk of these new RFPs will be sent in September to
a recovering hotel industry that will be motivated to secure projectable
corporate volume for 2021. This report provides vital insight to all
parties – for buyers considering their RFP queries, for hoteliers seeking
to win volume – as we look forward to playing our facilitating role in
helping the corporate hospitality industry recover.
Tobias Ragge
CEO
HRS Group
4PROCUREMENT STRATEGIES IN COVID-19 TIMES
INDEX
CONTENTS
1. Coronavirus impact on corporate
travel industry 06
2. Direct impact of the corona virus
on companies 11
1. Duty of care 12
2. Product bundles and savings 13
3. Planning reliability 13
3. How companies should react 14
1. Duty of care 14
2. Product bundles and savings 17
3. Plannning reliability 27
4. Manage your RFP in 2020 29
5PROCUREMENT STRATEGIES IN COVID-19 TIMES
1.
CORONAVIRUS IMPACT ON
CORPORATE TRAVEL INDUSTRY
ACCOMMODATION INDUSTRY IN SPECIFIC
GLOBAL TRAVEL AND, HENCE, THE GLOBAL
ACCOMMODATION SEGMENT AMONGST MOST IMPACTED
INDUSTRIES
The global travel industry has never experienced an external demand shock like this.
Through July, the daily variation in the number of flights compared with equivalent days in 2019 is down
dramatically year-over-year, according to Eurocontrol. More than 160 internationally operating airlines had
their entire fleets grounded at one point; another 91 were using less than 10% of their capacity for multiple
weeks.
The International Air Transport Association (IATA) assumes that the airlines’ turnover will drop by 44 percent
in comparison with 2019 or by $252bn USD. This assumption is based on restrictions on air transport for three
months.
Regarding the accommodation segment: the unprecedented demand shock has hospitality reeling on every
continent. Occupancy rates ranged from 0-20% across almost all global markets for weeks during the second
quarter.
1
https://www.eurocontrol.int/sites/default/files/2020-07/covid19-eurocontrol-comprehensive-air-traffic-assessment-08072020.pdf
2
https://www.eurocontrol.int/sites/default/files/2020-04/eurocontrol-aviation-recovery-factsheet-27042020.pdf
6PROCUREMENT STRATEGIES IN COVID-19 TIMES
STR detailed the steep year-over-year occupancy drops across the globe for May:
› Europe: Fell 82% to 13.3% › Asia-Pacific: Dropped 47.3% to 35.8%
› U.S.: Reduced 51.7% to 33.1% › Central/South America: Fell 73% to 15.3%
SLOW RECOVERY WITH SIGNIFICANTLY LOWER LEVEL
OF OCCUPANCY EXPECTED UNTIL 2022
Even after recovery commences, corporate travel will not go back to supply and demand levels we saw in 2019
due to the following factors:
1. DEMAND
HRS data proves that domestic travel will pick up first, with international travel recovering slowly with
different levels of speed. A deeper look into the pace of China’s recovery shows a trend which we expect to
see on multiple continents as travel recovers: Increasing domestic travel but international travel remaining
at a very low level.
Generally, the return to the new normal is expected in three phases:
1. Domestic
As many borders are still closed around the world, or entry is at least limited drastically, domestic
travel – with drive-to and train-to destinations leading the way - will pick up first.
2. Regional
Travel in regions which are culturally and economically strongly interwoven (e.g. inside the EU, North
America) will return next. With most of Europe’s borders opening in July, mixed with manageable
virus infection rates and pent-up demand, third-quarter activity should be noticeable. Conversely, in
the USA, with the virus rampant in southern and western states, third quarter rebound figures will be
inconsistent. More than 77,000 new coronavirus cases were announced in the USA on July 16, a new
single-day high for the country. By mid-August, more than 5.5 million Americans were infected. These
figures surely weigh down hopes for short-term recovery.
7PROCUREMENT STRATEGIES IN COVID-19 TIMES
3. Intercontinental/Global
This segment will suffer and take much longer to recover. According to a research study by Oracle
and Skift1, over 60% of hotel executives expect that the number of international travelers will be
less than before.
The analytical forecasting model by HRS, which is based on our data and recovery scenarios as
well as external industry sources, predicts that we will see demand to recover to only 70% of pre-
COVID-19 times far into 2022 – main reasons are as following:
› LOWER AIRLINE CAPACITIES › EXTENSIVE HEALTH AND
reduce the potential number of SECURITY CHECKS as well
passengers. Boeing CEO Dave as aggravated immigration
Calhoun stated that “air travel procedures are expected
won’t return to 2019 level for at to lengthen travel duration
2
least two to three years . extensively.
› PROTECTIONIST measures from › Increasing NEAR-SHORING
top corporate travel markets like ACTIVITIES by companies to
China, the U.S. and Europe limit get less dependent on other
the number of foreign inbound countries diminish travel
travelers who could provoke demand .
3
another outbreak .
› Corporations will reduce TRAVEL
BUDGETS to save costs and
mitigate the widespread drop in
overall revenues.
A survey of 263 global travel managers released in July – conducted by Uniglobe4 – found that
61% of European respondents said their firms either are traveling already or expect to within the
next three months, compared with only 32% of North American respondents. Different nations
have varying quarantine regulations still in place, limiting opportunities for re-opening. Therefore,
predictions on the pace as well as magnitude of recovery remain crystal ball gazing.
1 https://www.oracle.com/a/ocom/docs/industries/hospitality/data-driven-hosp-recovery.pdf?elqTrackId=2424d5b5c0c34071aa6010189eb99f3a
&elqaid=95552&elqat=2
2 https://www.seattletimes.com/business/ boeing-aerospace/boeing-ceo-air-travel-wont-return-to-2019-level-for-two-to-three-years
3 https://public.tableau.com/profile/ the.boston.consulting.group#!/vizhome/BCGsTravelRecoveryInsightsPortal/PortalHome?publish=yes
4 https://www.businesstravelnews.com/Global/Survey-Travel-Managers-Lifting-Restrictions-More-Quickly-in-Europe-than-N-America?utm_source=
newsletter&utm_medium=email&utm_campaign=eltrglobal&oly_enc_id=2871H4119645H3G
8PROCUREMENT STRATEGIES IN COVID-19 TIMES
2. SUPPLY
The effect on supply will be minor. A Bernstein Research report from late April estimates that only 2%
of the global hotel supply will permanently shut down due to COVID-19. Recovery is possible for the
remaining supply through government assistance or lenient lenders:
› In Europe, the lenders and landlords › In the US, it is more governmental
need to play ball to keep the hotels support that will keep hotels open
in business. When European hoteliers and operational. The Paycheck
reopen properties, they might need Protection Program under the $2
to rely on flexibility from lenders trillion coronavirus relief fund is
to relax payment schedules on accessible for hotels, helping them
mortgages until occupancy and get through the initial months of the
revenue per room return crisis. As the third quarter hits the
midway point, there is a lobbying
effort underway to secure more
Federal government support given
the rise of the virus in southern and
western states. With the dominance
of more financially-sound chains in
the U.S., there remains a high sense
of confidence that the vast majority
of properties will survive.
As a reference, the 2008 financial crisis, according to the Bernstein report, resulted in a net closure of
around 1 percent of hotels in the UK.
Another effect which is expected on the supply side are increased Merger & Acquisition activities.
The industry already has some supporting facets for high M&A attractiveness: market fragmentation,
benefits of scale and multibrand/product platform, improved bargaining power with online travel
agencies and expanded loyalty programs. Once, the most severe effects from the crisis have been
overcome by the bigger, more global chains, the consolidation trend from the past year will surely go
on and even accelerate as many smaller and regional chains may become easy targets through the
effects of the crisis.
9PROCUREMENT STRATEGIES IN COVID-19 TIMES
HOTEL PRODUCT OF THE FUTURE WILL CHANGE IN
MANY ASPECTS
The hotel stay of the future will definitely look different in many aspects than before the arrival of COVID-19.
We anticipate changes in almost every area of the hotel stay, including:
› More digitization of core processes like online › Some corporate programs may even require
check-in/ check-out options, as well as virtual such options, as they seek to keep the
payment solutions traveler in their (safe) hotel room and out of
restaurants until there is a vaccine.
› Arrival kits for guests, which include hygiene
kits with masks, gloves, sanitizer etc. › There are new standards for typical guest
room services, e.g. supply of all necessary
› Breakfast buffets are likely rendered to towels/linens before the stay and no room
the past. Hotels are investing in creating service during stay etc.
packaged, single-meal options for guests, for
pick-up in dining areas or delivered as room
service.
10PROCUREMENT STRATEGIES IN COVID-19 TIMES
2.
DIRECT IMPACT OF THE
CORONAVIRUS ON COMPANIES
The Coronavirus situation presents huge challenges for travel management, procurement and HR-related
matters.
The most severe constraints are around duty of care, product bundles and savings and planning reliability for
the next 18 months. Procurement leaders will need to expertly manage these three dimensions to adapt to the
“new normal,” and deliver more broadly-understood results for company:
MANY CHALLENGES EXISTS FOR 2021 PROGRAM MGMT-
COVID-19 OFFERS UNIQUE OPPORTUNITIES FOR CORPORATIONS
DUTY OF CARE PRODUCT BUNDLES & SAVINGS PLANNING RELIABILITY
Employees’ health Increasing internal High desire for agility
and safety importance cost pressure and in hotel program
create need for need for savings lead management. to
safety and hygiene to strong push for adapt program to
certification/label hard & soft savings in changing economic
of hotels travel and hotel market
conditions
Provision of adjacent Changing needs of
services to fulfill corporates due to
duty of care and COVID-19 leading
ensure safety of to adapted product
travelers (e.g. food bundles and rate
and beverage, composition
transportation)
11PROCUREMENT STRATEGIES IN COVID-19 TIMES
1. DUTY OF CARE
Of course, health and security of employees comes first before everything else. Companies should undertake all
necessary actions to protect their employees – and most have used the downturn in recent months to do just
that. Travel policies will be much more directed at security and health related issues.
An HRS survey shows the immense interest of corporate travel managers in revised hygiene standards for
the hotels within their managed programs. It will be one of the core tasks of travel managers to restore the
confidence of travelers into traveling safe and return healthy when traveling for business purposes.
ARE YOU SEEKING HOTELS THAT HAVE A REVISED
COVID-19 DRIVEN HYGIENE STANDARD?
86,5%
13,5%
Yes No
The crisis will change the practice, with more programs going towards more mandatory travel policies that
include rigid cost and content control. Duty of Care is now the top priority. It will be comprised of procurement,
authorization flows, carefully selected and managed booking channels, touchless stay experience and employee
tracking possibilities. The general strategy will focus on Compliance Enforcement, ensuring booking channel
management, and use of procurement experts and central virtual payment.
12PROCUREMENT STRATEGIES IN COVID-19 TIMES
2. PRODUCT BUNDLES AND SAVINGS
The HRS COVID-19 Travel Buyer Sentiment Survey in June found out that 65% of corporations are recalibrating
travel priorities for post-coronavirus business activities. Additionally, the survey showed that for 73% of
companies, the most important aspect for the hotel program is to ensure that hotels are following hygiene
protocols, leading to the result that 62% see revising duty-of-care guidelines as a priority topic. Procurement
will make sure that ‘new normal’ product bundles incorporate such changes and, therefore, evaluate the various
components of product bundles such as breakfast, LRA and/or flexible cancellation rates. These items are prime
for negotiation without harming the pure bid rate of hotels.
3. PLANNING RELIABILITY
Solving leakage problems by ensuring channel and content control strengthens duty of care (know where the
traveler is) and planning reliability (know what the traveler paid). Travel managers will reinforce (via stricter
travel policies) that their travelers should book in appropriate managed channels. In combination with the
consolidation of most programs on a destination level, there is the potential for programs to have consistent,
recurring demand for select single properties in some locations.
13PROCUREMENT STRATEGIES IN COVID-19 TIMES
3.
HOW COMPANIES SHOULD REACT
“THE GREATEST DANGER IN TIMES OF TURBULENCE
IS NOT THE TURBULENCE ITSELF, BUT TO ACT WITH
YESTERDAY’S LOGIC.”
Managing in Turbulent Times by Peter F. Drucker (1980)
There are many elements and strategies corporations can put into place when preparing and issuing 2021 RFPs
to sufficiently address the three challenges mentioned above: (1) duty of care, (2) product bundles and savings
and (3) planning reliability.
1. DUTY OF CARE
MAKE YOUR TRAVELERS FEEL SAFE THROUGH HOTEL
HYGIENE CERTIFICATIONS
At HRS, our main priority is to ensure the health, safety and security of our customers and business partners.
This is why HRS partnered with SGS, the world‘s leading inspection, verification, testing and certification
company, to develop the Clean & Safe Protocol.
14PROCUREMENT STRATEGIES IN COVID-19 TIMES
The HRS Clean & Safe Protocol provides both corporations and hoteliers with a well-defined, transparent
standard of property hygiene. The Clean and Safe Protocol is based on guidelines from:
› The World Health Organization (WHO) › The U.S. Center of Disease Control and
Prevention (CDC)
› World Travel & Tourism Council (WTTC)
› The Research Institute for Exhibition and
Live-Communication (RIFEL)
The Clean & Safe Protocol comes in two different labels, Self-Inspected and Expert-Inspected (compliance
audited by a 3rd party). These labels are visible across all HRS booking and procurement channels, as well as
the RFP platform.
The Clean & Safe Protocol helps corporations to:
✓ Meet duty of care requirements throughout ✓ Help travelers feel at ease traveling knowing
the sourcing, searching and booking that their health and safety is being looked
process after
✓ With more than 350 thousand hotels ✓ Build a safe hotel program with the label
in the HRS portfolio alone, it provides visible in the RFP
transparency of cleanliness standards with
two unique labels
✓ Provides a guideline for travelers, with
the label visible throughout the booking
process
DIGITIZE TRAVEL RELATED PROCESSES (E.G. TOUCHLESS
CHECK-IN/CHECK-OUT)
While there have been efforts in the last few years to use technology to make business travel more efficient,
the COVID-19 pandemic has put this at the forefront of the industry. Many industries are looking at how
they can use technology to increase automation and efficiency in their processes, while reducing physical
touchpoints. The overall consensus is that digital strategies will help minimize the impact of COVID-19. As cited
in a study by the World Economic Forum, digitization helps businesses stay open while reducing the spread of
COVID-194 and other diseases. As customer expectations and demand have dramatically shifted, organizations
that anticipate those needs will be positioned for long-term success.
4 WEF. 2020. https://www.weforum.org/agenda/2020/04/10-technology-trends-coronavirus-covid19-pandemic-robotics-telehealth/
15PROCUREMENT STRATEGIES IN COVID-19 TIMES
Digitizing the check-in/check-out process benefits both individual and chain hotels. Even before the pandemic,
hotels like CitizenM began incorporating digital processing to attract more tech-savvy consumers5, standing
out in a highly competitive market. COVID-19 has only heightened the demand for technology. In May 2020
McKinsey published a study demonstrating that in eight weeks businesses and customers have jumped five
years forward in their adoption of digital technologiess6. Digitalization has shifted from a convenience to a
necessity.
For corporations, the imperative is to reduce costs and improve transparency and control over their travel
programs, while keeping their travelers safe. The touchless experience addresses two of the biggest reasons
of why travelers don’t follow the corporate travel policy: complexity and time consumption. The touchless
experience incentivizes program adoption by simplifying travel and reducing pain points through digital check-
in/check-out and virtual payment. At the same time, it provides greater transparency of employee movement
and spending for the corporate.
The digitization of the registration and payment information increases data processing speed and the quality
of the information. Corporates can then continuously improve their travel program based on analysis of this
information. For example, if they need to include parking in their procurement of certain cities because their
employees tend to drive to that location versus using a train and taxi. Providing a touchless experience helps
corporates save time and money, enables hotels to differentiate themselves, and ultimately gives travelers a
better experience.
DRIVE COMPLIANCE AND CHANNEL CONTROL TO
ENHANCE YOUR TRAVELER TRANSPARENCY
There was a period when, due to a lack of advanced technology, travel procurement professionals saw the only
way to drive savings in a corporate lodging program was through strict compliance into designated booking
platforms. Unfortunately, for too many, this led to more travelers booking outside of managed channels. The
corporate Online Booking Tools (OBT) had limited functionality and could only bring in a single source of
content. Hotels were becoming more advanced in their revenue management and direct marketing to corporate
travelers – leveraging higher loyalty points and free WIFI to drive travelers to book at the hotel website.
As technology and advanced analytics progressed, there was a shift from channel control to traveler centricity.
Travel procurement professionals saw that they could still show volume and savings through multi-source
data integration, while allowing travelers to choose their booking method. Nevertheless, this practice led to
the inability to locate travelers in extreme times of crisis – a reality that many programs discovered when the
pandemic first hit and companies needed to quickly get travelers home.
The outbreak of COVID-19 initiated a wide-spread global crisis that has impacted corporate travel like we have
never seen before. But corporate travel will resume. As employees get back on the road, more responsibility
falls to procurement to deliver both safety and savings within the hotel program.
5 Kim, Chan; Mauborgne, Renée. “CitizenM Hotels: A Blue Ocean Chain in a Red Ocean Industry: Blue Ocean Blog.”, www.blueoceanstrategy.com/blog
citizenm-hotels-a-blue-ocean-chain-in-a-red-ocean-industry/.
6 McKinsey. 2020. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-covid-19-recovery-will-be-digital-a-plan-for-the-
first-90-days
16PROCUREMENT STRATEGIES IN COVID-19 TIMES
So, what is driving the urgency and what can you do?
› Duty of care: Knowing where your employees › Cost control: Channel control helps drive
are in times of further corona outbreaks: savings through content management,
• Modify your travel policy and compliance consistent traveler communication and
(open booking is dead) to provide guidance payment options. Especially if all transactions
to employees that ensure the ability to are channeled through one globally managed
find travelers in times of need and provide platform
a level of confidence in their safety
› Loyalty to be available through managed
• Implement a central Payment option as
channels to decrease maverick bookings of
an instrument to drive a more contactless
heavy travelers.
traveler experience and provide additional
data transparency and incentivize your
travelers to use the managed channel.
This is the time when procurement departments can demonstrate their value by expanding their strategic
toolbox. As the “traditional” RFP season begins, they can include a variety of existing and emerging instruments
to achieve the best possible impact at the market level. This includes technology-driven savings and duty of
care strategies via real-time benchmarking, automated and selective re-bid processes, and e-auctions that
provide measurable results with less time and resources. By providing the booking tools, content, and amenities
that drive both cost savings and traveler confidence, procurement increases channel control and transparency.
2. PRODUCT BUNDLES AND SAVINGS
ADAPT PRODUCT BUNDLES TO CHANGED TRAVELER
NEEDS AND “NEW NORMAL”
Clearly, the “new normal” leads to different needs and expectations by corporations and travelers towards
hotels and, therefore, to changed product bundles and pricing. Product bundles from the pre-COVID-19 era must
be reevaluated and adapted to the new buyer’s market.
The HRS Travel Buyer Sentiment Survey highlights that companies mainly focus on two things in adapting
their desired product bundles: Increased flexibility with T&Cs (88%) and enhanced hygiene protocols (86%).
The survey shows that travelers will simply expect that negotiated rates include hygiene kits as well as high
flexibility on cancellation policies. Increasing investments into personnel, touchless elements and COVID-19
related hygiene measures and the increased need for higher cancelation flexibility might influence rates into
becoming more expensive. While properties that adopt minimal legal hygiene measures may not add to the
price point, other properties that try to differentiate themselves by offering high-end hygiene practices are
more likely to increase rates.
On the other hand, changed rate packages will also be reflected in lower rates. For example, due to new health
guidelines, breakfast buffets are now relegated to the past. Many companies have the cost of breakfast included
into their rate as part of their legacy contracts. This cost can be reduced, cut or modified, depending on the
17PROCUREMENT STRATEGIES IN COVID-19 TIMES
changed travel policies of corporations. The HRS survey highlights that the companies now prefer take-away
breakfast for their travelers.
Also, as a result of lower occupancy, Last Room Availability (LRA) options no longer make sense for buyers to
pay extra for in all destinations. By leveraging the HRS database - the most extensive benchmarking database
in the industry - the surcharge of an LRA rate in comparison to NLRA was analyzed in detail. The results showed
that for the top 100 business travel destinations, the average LRA surcharge on the rate was 10% in 2019. A
thorough analysis of required destinations and the anticipated pace of occupancy increases in those locations
should take place when readjusting the corporate program to the “next normal.”
SURCHARGE OF AN LRA RATE IN FIVE SELECTED BUSINESS
86%
80%
71%
Avg. Availability
52% 52%
14%
9% 11% 9%
Avg. LRA 10%
Surcharge 2019
Berlin Shanghai Paris Sao Paulo Chicago
Source: HRS Data
With companies requiring adapted product bundles as the pandemic’s path is clearly unpredictable, hotels are
experimenting with pricing that factors in this element. Hotels that use the downturn in second quarter volume
to recalibrate their proposals to preferred corporate clients and develop new bundles will be best positioned to
come back faster as government regulations lift and companies get back on the road.
18PROCUREMENT STRATEGIES IN COVID-19 TIMES
Corporations and procurement leaders must reevaluate their hotel program and adapt to their post-COVID-19
travel requirements and needs. Due to the ongoing uncertainty, the following factors need to be taken into
consideration and prepared thoroughly by procurement leaders:
› FOCUS ON DATA-DRIVEN PROCUREMENT: › AUDIT HOTEL PROGRAM: Check hotel program
Establish an even stronger focus on data- on hygiene and safety requirements and
driven procurement strategies derive necessary measures (e.g. include hotels
which are certified by a universal program,
› UPDATE TRAVEL POLICY: Essential travel,
such as the HRS Clean & Safe Protocol)
approvals, end-to-end hygiene (flight, smart
check in/out, touchless payment), smart rate › ANALYZE VOLUME AND TARGET RATES:
caps, cancellation clauses… Identify lower volume destinations, national /
regional / global, high volumes (negotiations)
› SET SAVINGS TARGETS: Define savings need
vs Mid/Low destinations (bundling
and target
› UNDERSTAND TRAVELER: Incorporate
› ADAPT PRODUCT BUNDLES: Analyze
employee’s preferences, feedback and risks
amenities and define requirements of product
bundle in general and per destination
ENSURE COMPETITIVE RATES AND ATTRACTIVE
BUNDLES DESPITE LOWER EXPECTED VOLUMES
While negotiating rates with new suppliers can drive savings in top travel destinations for the program, what
about low-to-medium volume destinations or those with artificially lower volume in early 2020? Typically, low
volume destinations in a travel program are left to book a public rate, or possibly a discount off public rate via
a chain-wide discount. However, as COVID-19 pushes volume down across corporations worldwide, procurement
leaders should make use of a provider who can bundle travel volume across multiple programs to achieve more
competitive fixed rates in so-called consortia rates while delivering steady and sustainable revenue to the
hotel.
In order to cover secondary locations not close to Points of Interest (POIs), with a lower production, within a
large destination city (e.g. airports, train stations, etc.), consortia rates are the most convenient choice to grant
coverage, attractive bundles and savings.
19PROCUREMENT STRATEGIES IN COVID-19 TIMES
This scalable solution provides coverage to “bridge” the gap from current low volume until travel recovers at
different rates across geography and industry. Important safety standards or amenities (think hygiene kits with
masks or in-room dining) are pre-negotiated, and destinations can be re-evaluated as volume returns to a level
justifying a dedicated corporate rate.
BUNDLING OF LOW VOLUME ROOM NIGHT DESTINATIONS
IN CONSORTIA RATES
Bundling low volume room night destinations of several buyer’s ensures
OPTION A
>
Hotel program Low volume =
100
company A moderate savings potential
OPTION B
100 100 100 Higher bundled volume
CCR 100 100 100
= higher savings potential
Company A Company B Company C
HRS HAS THE MOST SUCCESSFUL CONSORTIA PROGRAM IN THE WORLD, WITH
STRATEGICALLY TARGETED RATES BASED ON MARKET FLUCTUATION
89€
avg. rate
3.7
avg. stars
8,700+
hotels with
worldwide HRS
coverage CONSORTIA
PROGRAM
8.3
google
99% rating
Wifi 76% incl.
6pm cxl breakfast
20PROCUREMENT STRATEGIES IN COVID-19 TIMES
MONITOR RATE COMPLIANCE TO TRANSLATE PAPER
SAVINGS INTO REALIZED SAVINGS
The Coronavirus pandemic only emphasizes the need for real-time information, enabling a focus on the current
most important topics of security and costs to ensure more reliable and flexible planning7.
The goal of travel and procurement managers should be to utilize data as a predictive tool, forming the
decision grounds for their future portfolios. Valuable data about the following items can translate into valuable
benchmarks:
› Their markets’ developments,
› available suppliers and their compliance, as well as
› other buyers and
› their own data
One example when it comes to the rate is to identify and analyze the gap between a fixed negotiated rate and
the actual averaged booked rate over the course of the year. In reality, there is a gap between the average
displayed rates and the average actual spend: inclusion of amenities, availability, different cancellation policies,
and incorrectness of the displayed rate will impact the real spend compared to the original evaluation.
Driven by a commitment for transparency, HRS developed an estimation of the “actual” average rate a given
room will be associated to - dubbed “Normalized Rate” - to enable a fair comparison between offers, and also
provide a better evaluation of the realized savings a given portfolio optimization will lead to.
To evaluate normalized rates, HRS takes advantage of its comprehensive booking data history and its unique
innovative tool set, including automated Rate Auditing functionality. These tools incorporate historical
information on the costs of amenities (such as Breakfast and Wifi), but also the impact of the rate availability
and rate correctness based on actual retrospective scans of the rates proposed by the hotels. In addition, the
overall impact of cancellation policy associated to the original rate is also integrated. The additional average
costs are evaluated for a given hotel and a given customer based on their historical cancellation pattern
(average share of cancellations and average cancellation period).
7 Whitehill, 2020; UNWTO, 2020b
21PROCUREMENT STRATEGIES IN COVID-19 TIMES
VIZUALIZATION OF THE BREAKDOWN OF THE NORMALIZED RATE
ALONG WITH NORMALIZED RATE DISPLAY IN OUR eRFP TOOL
Normalized Rate Breakdown
10,5 5,5 151
8 7
10
110
Bid Breakfast Wifi Cancellation Unavailability Incorrectness Normalized
Rate
Procurement Tool
SMARTLY APPROACH DYNAMIC RATES AND
PROLONGATION OF 2020 RATES
It is commonly agreed that the annual corporate lodging RFP process needs an overhaul. Spending six months
negotiating a yearlong program every year is not efficient or effective. Opinions vary on how to manage that
change.
GBTA announced in April 2020 that they were endorsing a full rollover of 2020 rates for all of 2021 due to the
limited resources at the hotel level8. As discussed before, while there are many logical and expedient reasons to
overhaul your program to COVID-19 endorsed needs, some corporations might still decide to prolong their 2020
rates. In theory this does seem to free up everyone’s time. However, this strategy and logic does not take into
account the effort and potential impacts to “just prolonging rates.”
22PROCUREMENT STRATEGIES IN COVID-19 TIMES
EFFORT
RATE COLLECTION CLOSED HOTELS
› Even if your program relies heavily
› Find an alternative to cover the need
on chains, there is still analysis and
communication necessary - blanket vs › Negotiate a rate not to impact ADR
individual property efforts to determine
› What will be the negotiation process?
if the hotel will honor the 2020 rate,
amenities, and if they are even open
› Collection of hotel extension agreement &
Official T&C agreement
RATE LOADING
› Check Rate / Tax / Amenities compliance › Heavy work to ensure format & client’s
with Previous Year. Several countries specific request compliancy
are lightening the VAT tax for a specified
› Offline rate management
period of time
› Collection of updated Seasons, Trade
Fairs and Black Out Days. Holidays and REPORTING
trade fairs will shift from year to year,
and are especially hard to project as the › Impossibility to update Directory & OBE
impact of the pandemic extends into reports
2021.
AUDITS
› Missing Official T&C agreement for Rate
› Misalignment between previous year rate
Extension
and activated rate in CRS/GDS
NON-COMPLIANT HOTELS • Check Rate compliance with
Previous Year
› Duty of care: security & hygiene norms
not respected • Check Tax compliance with Previous
Year
› Ensure hotels and hotel referent are
available • Check Amenities compliance with
previous Year
› Chase manually the hotels to agree on
same rate
› If refusal:
• Find an alternative to cover the
need
• Negotiate a rate not to impact ADR
IMPACT
8 https://www.gbta.org/blog/gbta-endorses-postponement-of-2020-hotel-rfp-amid-coronavirus-pandemic/ 23PROCUREMENT STRATEGIES IN COVID-19 TIMES
IMPACT
ECONOMICS QUALITY
› Missed Savings › Leakage on both program & tools due to
higher rates than market
› Potential ADR increase
› Risk of uncovered destinations
› On site costs for additional amenities
› Risk of inconsistent rate conditions
TIME › Lack of transparency on hotel level
› Extended time to negotiate & replace
› Duty of care risk: extending hotels non
hotels afterwards
COVID compliant
› Long cycle to collect, verify & chase
› Cancellation policy flexibility
hotels on various metrics
› Traveler experience worsened with
› 2021: time consuming to manage
amenities you might not benefit from
dissatisfaction of higher rates, to
without negotiation
renegotiate better rates or new
hotels to get better offers, potential › Rate Activation delay due to closed
contaminations hotels
24PROCUREMENT STRATEGIES IN COVID-19 TIMES
WHY NEGOTIATE RATHER THAN PROLONGING 2020 RATES?
STRATEGIC
RELEVANCE
Corporate now have a strong desire for a
unified standard hygiene protocol within their
SAFETY,
lodging programs next to enhancements of
HYGIENE AND
duty of care protocols. Chains are developing
DUTY OF CARE
different safety protocols while HRS is trying to
harmonize on this.
It is part of the travel buyer role to renegotiate
TRAVEL BUYER
the rates, since there is a huge imbalance
ROLE IN A
between supply and demand, to meet the actual
BUYER MARKET
corporate demand pressure for cost savings.
After 10+ years of rates increases we will now
SAVINGS
face a period of heavily decreased demand
OPPORTUNITY
while supply is anticipated to still grow.
It is important to revise the list of amenities,
because world has changed after COVID-19
AMENITIES
and those negotiated in 2019 will not cover
travelers’ needs.
Extending rates does not necessarily save
time: hotels have to be contacted in any case
to agree on the extension, to check if they
are open or close and to ask them specific
EFFORT
questions (safety / hygiene, new amenities,
blackout rates, tradefair rates etc), heavy rate
loading process, audits. There are heavier
administrative costs involved.
25PROCUREMENT STRATEGIES IN COVID-19 TIMES
On the other end of the spectrum, there is the opinion that a 90-100% dynamic program is the way to go.
That is not the answer either. This approach doesn’t consider the fact that 84% of global hotel market share is
owned by independent hotels. This approach favors global chains that have the technology to either implement
dynamic rates at the property level, chain wide discounts across all properties or dual load static/dynamic
rates. In addition, there is very little alignment on how to capture savings and audit the application of a
dynamic rate. Even with a LRA (last room available) dynamic rate and comparable amenities included, there is
still a lack of reliable technology to apply and audit the discount.
Dynamic rates limitations, including:
› BUDGETING AND PLANNING HARDLY › NO COMMITMENT OF CHAINS – Dynamic rates
POSSIBLE – Corporates lose ability to plan infer no chain commitment to agreed rates,
ahead and budget costs professionally availability & best price delivery
› DYNAMIC RATES HELP IN TIMES WITH LOW › TIME-INTENSIVE MONITORING OF RATES – No
AVAILABILITY – Availability will be of no big transparency of rates leads to high workload
concern for the next 18 months+ to monitor rates and availability
Both sides of the argument are assuming that there is a one-size-fits-all strategy. However, years of rate
analysis say there is not. There is a time and place for extending static rates, implementing dynamic rates and
renegotiating both. In addition, both sides fail to acknowledge that after a decade of being in a seller’s market,
the tables have turned. Therefore, it has never been more critical to build a strategy that works for your
specific company’s needs and culture through a hybrid approach.
Whether or not we know the exact volumes in the recovery period, what we do know are the percentages and
distribution within a corporate’s program. Historical data can show us where the highest volumes will be and
advanced forecasting logic will show us which rate strategies to apply and what a corporate should be paying in
those markets.
One of the biggest deterrents to a negotiated dynamic discount or hybrid approach has been how to calculate
the savings for internal reporting. In recent years, there has only been a focus on the savings methodology for
a dynamic discount applied at the time of booking. As global chains have adapted to the current environment,
offering dual rate loading (static & dynamic), the need for an updated negotiated savings methodology has
become critical to this RFP season.
When travelers do return to using updated booking channels, some savings drivers will stand out for their
proven ability to turn negotiated results into realized savings:
› Sourcing alternative suppliers
› Bundling travel volume across corporates, and
› Implementing dynamic adoption within a 15 to
18 months portfolio horizon.
26PROCUREMENT STRATEGIES IN COVID-19 TIMES
3. PLANNNING RELIABILITY
MAKE YOUR RFP LEAN AND AGILE TO PREPARE TO ACT FAST IN
UNCERTAIN TIMES
While it is acknowledged that there are limited resources on the supplier side to manage RFPs, it is
unreasonable to ask corporates to do nothing to adjust their programs to the current market conditions. Travel
procurement professionals would be negligent in their corporate responsibility to duty of care and competitive
bidding if they did not go to RFP.
So, how can the 2020 RFP process feature advantages for both corporations and hotels?
› DELAYED START OF RFP SEASON: While peak › CONTINUOUS REVIEW AND ADAPTATION OF
RFP season has traditionally begun in the THE PROGRAM: The market environment is
beginning of June, RFPs have been generally extremely volatile, fragile and agile, therefore
postponed and delayed until September. adapting the hotel program continuously is
This will allow for better responses as hotels crucial. By utilizing historical data, we can
reopen and furloughed employees return to create a solid and reliable 2021 program
work. foundation. However, HRS recommends re-
assessing in late Q1 to early Q2 2021. This
› SHORTENED RFP CYCLE: Through an will provide early recovery data to consider:
innovative paralleled approach to the RFP
• Market price shifts in key markets
process that HRS put in development pre-
COVID, the negotiation timeline is shortened • Travel pattern changes
from an average 16 weeks to 4 weeks.
• Organizational changes
• Multiple RFPs are launched at the same
• Hotel partner accountability
time with a one-bid request in order
to improve process efficiency and • Any unexpected events
reduce the burden on hotels and chains
that would normally be responding to
hundreds of ad hoc RFPs.
• Data is pre-released to allow for
response preparation and the ability to
submit a best-and-final offer the first
time.
• Live benchmarking gives assurance to
both hotels and corporates that the offer
is competitive
The corporate hospitality industry is at an unprecedented juncture. This calls for action and innovation – not
inaction and complacency. Through transparent communication, partnership and agility, the industry has
a unique opportunity to modernize the outdated annual RFP and create a sustainable continuous sourcing
process.
27PROCUREMENT STRATEGIES IN COVID-19 TIMES
USE NEW BI MODELS BASED ON COVID-19 DATA AND
INSIGHTS
The crisis caused by the COVID-19 pandemic has had repercussions in all aspects of our industry, including our
ability to evaluate future volume of travelers and room rates, which was traditionally based on pattern analysis
of historical data.
HRS adapted its approach and built a new set of forecasts. These approach combines advanced statistical
modeling, in form of an additive regression model for decomposing the time-series into different factors such
as general trend and seasonality effects for a given destination for instance, and the in-depth knowledge of
our travel experts, including the specifics of particular client relationship, travel patterns and post-COVID-19
priorities.
As we look ahead, the most critical aspect to understand is the volume of demand for travel, as supply and
availability is no longer a limiting factor. HRS’ demand forecast assembles all available data, with the addition
of Google trend data to model the new behavior of travelers. HRS experts can input various recovery scenarios
in the forecast to better reflect the reality on the ground (certain markets will recover faster than others,
domestic travel will recover faster than international travel, etc.). This unique approach enables a forecast
tailored to the new reality and specific needs of customers and partners.
In addition, future rates are evaluated from the prior year’s rates, while also incorporating the new reality of
our travelers, as mentioned above in section 3.2 product bundles and savings. Accordingly, these new rate
forecasts allow for transparent communication with corporate clients and hotel partners.
Screenshot of the output of our demand volume forecast
28PROCUREMENT STRATEGIES IN COVID-19 TIMES
4.
MANAGE YOUR RFP IN 2020
As the globe emerges from the Coronavirus pandemic, corporations are recalibrating their managed travel
programs as they plan to get back on the road. Companies are revising their duty-of-care guidelines, and
sharpening their focus on prioritized destinations.
Due to increased pent-up demand, detailed volume and capacity planning is crucial for success. The newly-
defined goal for decision-makers in travel management is clear: they need to take steps to ensure traveller
safety and health, even as they maximize the value of reduced lodging allocations. This trend is driven by the
financial pressure many companies face due to the slump in sales caused by the global economic downturn.
New bundles that appropriately balance critical hygiene and safety issues with financial considerations are
quickly becoming the next normal in managed travel.
DUTY-OF-CARE AND HYGIENE ARE THE NUMBER ONE
PRIORITY FOR HOTEL PROGRAMS
The coronavirus outbreak has redefined priorities for corporate hotel program managers. Leaders are examining
traveller safety for every part of the business trip – literally from the moment the employee leaves their
home, through the “traditional” elements of the business trip (air / hotel / ground transport / dining / meeting
location), and on to the completion of the journey and return home.
29PROCUREMENT STRATEGIES IN COVID-19 TIMES
On the hotel front, RFPs are totally revamped, with safety and hygiene questions dominating the document.
Queries include topics such as:
› Guest and meeting room cleaning › Distancing guidelines for public areas
protocols and frequencies, like lobbies, elevators, and gyms, and
› Sanitizing chemicals the hotel uses, › Enhancements to food and beverage
preparation, individual item options, etc.
With the pace and penetration of the virus varying by location, flexibility is also a highly-ranked priority.
Companies are placing a premium on same-day cancellation to account for local virus trends, as well as
concerns travelers may have about going to a specific location.
THE NEW BUNDLE: FACTORING HYGIENE & SAFETY
WITH LOCAL PRICING REALITIES
With each passing week, HRS sees a pricing trend for corporate hotel programs. The changed circumstances are
reflected in changed product bundles and, hence, pricing. Factors include:
› At a time when occupancy rates have
dropped dramatically, companies no
longer need to pay the (on average) 10
percent premium to have Last Room
Availability clauses in hotel agreements
in all destinations. A thorough
analysis of required destinations and
the anticipated pace of occupancy
increases in those locations should take
place.
› As properties adjust to Coronavirus-
related hygiene protocols, buffet
breakfasts have been removed from
the vast majority of hotels. Many
companies have the cost of breakfast
negotiated into their rate as part of
their legacy contracts. This cost can be
reduced, cut or modified, depending
on the changed travel policies
and breakfast/food guidelines of
corporations
30PROCUREMENT STRATEGIES IN COVID-19 TIMES
› As discussed above, fluid on-the-
ground realities with local COVID
transmission levels are placing a
premium on cancellation flexibility.
Hotels...enduring lower demand in most
markets...are more willing to offer that
flexibility.
› Hotels have had to make investments
in personnel, cleaning materials and
other touchless elements to address
the need for enhanced hygiene and
distancing practices. These recurring
investments inevitably are reflected in
hotel rates. Properties that adopt the
minimal legal cleanliness requirements
may not add to the price point,
while other properties that seek to
differentiate with high-end sanitization
practices are more likely to increase
rates.
› With general demand uncertain,
corporations that have the proven
capability to truly steer volume
to preferred hotels can secure
deeper discounts with market share
commitments.
› Finally, as companies ask their
travelers to get back on the road to
visit clients and sell to prospects,
travelers rightly seek assurance that
preferred hotels are clean and safe.
To address this baseline requirement,
hotels should engage with universal
programs, such as the HRS Clean & Safe
Protocol, which provide labels that
showcase the hotel’s newly enhanced
standard in both procurement and
shopping processes.
31PROCUREMENT STRATEGIES IN COVID-19 TIMES
In addition, companies are taking steps to drive more travellers to book within the travel policy,
thereby enabling better tracking in the event of medical or regional crises. Given the fragmentation
of the global hotel market, with ongoing challenges in benchmarking, the optimizing of the lodging
program remains a major task for procurement leaders worldwide.
Accordingly, new bundles are being developed around these elements, as well as touchless service
options and flexible terms. Moving forward, corporations need to be more thorough as they prepare
for hotel negotiations. They should have more pre-RFP exchanges with hotels to have a better sense of
the bundles preferred partners are considering. Hotels using the downturn in second and third quarter
volume to recalibrate their proposals to preferred corporate clients will be best positioned to come
back faster once companies travel again. This client-partner transparency is essential to a successful
negotiation season for both parties.
For more insights on the Corporate Travel
32 and the lodging industry visit hrs.com/corporate
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