Providers: Audit To Improve Hotel Sourcing Results

By | May 5, 2017

Companies that do not audit hotel rates and availability are leaving piles of cash on front desks, according to BCD Travel analysis of client data.

Without standard rate audits, a firm spending about $20 million annually on hotels overpays them by $490,000, the travel management company found. The same client would save about $900,000 per year using both rate and availability audits.

Extrapolating the findings, BCD Travel estimated that if its top 50 clients did not correct for hotel rate errors, they would pay up to $30 million more than if they implemented a “standard GDS rate audit” to do so. If those companies “globally performed a rate availability audit in addition to a standard audit, they would save a combined $55 million,” the TMC found.

“Rate audits, rate availability audits and hotel price assurance should become standard in every program,” according to BCD Travel SVP for supplier relations and global hotel strategy Dave Mitchell. “There’s a return on investment for every one of those services.”

Nearly two-thirds of 200 travel managers polled as of March by hotel content and sourcing provider HRS and the Global Business Travel Association said they audit rates either once a year or only after rates are loaded into booking systems. The poll found that 2 percent of buyers audit rates weekly and 7 percent do so monthly. Among buyers who perform audits, one-third find discrepancies more than 20 percent of the time.

hotel rate audit“Hotels can put into place dynamic room management and pull rooms out of inventory,” Mitchell said during an Association of Corporate Travel Executives meeting in New York last week. “It limits the opportunity to use corporate negotiated rates. That can push average daily rate up.”

Hotel Solutions president Robert Langsfeld has observed many of the same problems. “A number of properties yield their preferred rates,” he said during a phone interview. “You’ll find a rate is loaded but there’s no inventory associated with it. More and more of the companies that are looking find they’re not necessarily getting the benefits of the negotiated rate, such as breakfast or parking. Hotels have learned very well how to manage this stuff. It’s a significant and increasing issue with yield management.”

Langsfeld said he has found rate errors in upwards of one in four bookings. There are various reasons they may be missing or wrong. He warned against relying on TMCs for auditing, though, since they have their own interests.

Although 2018 rate negotiations won’t heat up until later this year, hotel sourcing strategy is top of mind for many buyers as the Marriott-Starwood merger for the first time is set to impact corporate negotiations.

“Hotel contracts and RFPs continue to get more complex,” said Mitchell. Many buyers, hoteliers and their partners agree that the traditional approach to hotel sourcing doesn’t work very well; the trouble is coming up with another way.

Attendees to an ACTE panel discussion heard a few perspectives. TripBam’s Steve Reynolds noted his desire to “kill” the RFP process. He realizes it won’t happen all at once. Advocating less drastic changes were speakers from BCD Travel and HRS. Both said they were beefing up their sourcing services this year.

ABC Global Services, also, is chasing more clients this year after sourcing for 32 of them in 2016.

Mitchell said BCD Travel favors a diversified approach using traditional negotiated rates and market pricing. Rather than killing the RFP process, he told Reynolds, clients should “take some steps” toward that:

“You can put in with preferred partners both fixed and dynamic negotiations. A little like the 80/20 rule. You can layer in chain programs to cover secondary markets and sold-out situations. Also, use tools for spot purchasing, a little like a lowest-fare program. Lastly you should bring in a rate assurance tool to monitor rates and offer lower rates to a traveler even after they have purchased. It can be at the same hotel. All this should give you the ability to manage dynamically in that environment and message travelers to let them know rates are peaking. Maybe they can change their meeting, or move a little outside the city.”

In its analysis, BCD found that price assurance programs realize a net savings of $110,000 for every 50,000 hotel bookings. Also speaking at ACTE, HRS CEO Tobias Ragge said these solutions can offer 2 percent to 3 percent savings.

HRS last year opened a sourcing service in the United States, marketing it at no charge. The company said it would make money on client use of HRS’ commissionable properties. That has mostly worked, but Ragge told The Company Dime that HRS has informed some clients it’s over: “At some point, we have to say we’re not just a free ride. So we’re changing it for those who couldn’t commit. There are ongoing discussions.”

The HRS sourcing service includes free auditing, officials said. “All sourcing clients allow HRS to view rates impacting their respective hotel programs from all sources,” according to a spokesperson. “We do audit the GDS rates given to the GDS from the hotel since we have the same view on the source as the client. Of course, we also audit rates loaded in the HRS portal as well.”

Ragge said the United States was HRS’ second-largest market for sourcing last year. He expects it to be the biggest this year. He said the company has added 20 percent more sourcing staff since last year. “We have the biggest team,” he claimed. “We’re playing a completely different sport.”

ABC Global Services CEO Eric Altschul sees it as a sport with different divisions. The large TMCs “are very targeted on very large customers and it’s a very expensive proposition,” said Altschul in a phone interview this week. “We think there’s a big gap in the market. There are many programs with less than 800 hotels that are not being well-served. The TMC account managers are not sourcing experts.”

ABC isn’t giving anything away, but Altschul is convinced its pricing is competitive. The service is offered in three tiers, depending on how much consulting or ongoing management the client needs. ABC offers it through TMC partners.

Asked about the idea of throwing out the annual process, Altschul said it’s not in the client’s best interest.

“I have not met a travel manager out there who doesn’t want a sense of control and an idea of what their cost will be,” he said. “Travel managers want a relationship with their suppliers. I don’t think it’s part of their culture to say, ‘Whatever everyone does is fine, we’ll just report on it in the end.’ I don’t think technology will change that.”

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