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TEN TRENDS THAT WILL AFFECT YOUR 2025 HOTEL RFP
As negotiations for next year’s corporate hotel programmes get under way, experts advise buyers what’s changing in terms of pricing, rate types, purchasing tactics and more
By Amon Cohen (published 19 July 2024)
1. Rates will rise yet again – but less sharply
Following robust growth in 2024, “we are expecting a more subdued 2025 in terms of rate increases,” says Cameron Spence, global hotel practice line lead for American Express Global Business Travel. “For all corporates there is an understanding there will be some growth but the hope is that it will be more reasonable.”
Steve Cuschieri, global travel category manager for Haleon, whose annual hotel programme runs June-May, confirms he is already seeing pricing moderation in his newly commenced cycle. “Last year was really bad for significant increases. I was expecting something similar this time but I have been pleasantly surprised,” he says.
Cuschieri even achieved flat and in a few cases reduced rates in some parts of Europe and the US. “Last year hotels were living on the back of recovery in leisure,” he says. “Corporate volumes have started to recover but I’ve talked to a lot of travel managers who are half holding back again because they don’t have the budgets. That’s relaying back to the hotels, who are being less aggressive. If hotels in our programme are going to put themselves beyond our city cap or outprice themselves in an RFP then they aren’t going to be successful.”
However, BCD Travel managing consultant for hotel spend management Eric Wynton cautions that “in recent meetings with suppliers they are still citing inflation as the key issue. They are struggling to cope with increasing costs: labour, energy, mortgage repayments even. It’s less of a seller’s market but it will still be a tough year for negotiations.”
2. Supply growth will help buyers
Given the time it takes to initiate projects, naturally it has taken a few years for hotel development to recover post-Covid, lagging the return of demand. But more hotels will start opening in Europe during the second half of 2024, says Spence.
Jutta Moore, managing director of revenue management specialist Moore Hotel Consulting, believes that effect is already being felt in London, where she says 4,000 rooms were added in 2023, with 6,000 more anticipated in 2024 and 2,000 in 2025. The great majority of the new supply is mid-range accommodation “where average daily rates had previously risen exponentially,” Moore says. “Additional supply impacts hotels’ achievable rates because newcomers come in very competitively to win the business.”
3. But beware rate hotspots
Demand continues to soar in some cities, carrying achieved rates upwards with them by double-digit percentages. Current hotspots noted by Spence include Rome and Edinburgh, whereas Wynton points to, among others, Norway, Sweden, India (especially Delhi and Hyderabad), Mexico, Colombia and Brazil. Looking ahead, Spence warns rates could rise sharply in Barcelona after city authorities announced a clampdown on short-term rental accommodation by 2028.
4. Hotels will push dynamic rates harder than ever
Dynamic rates are an agreed corporate discount off the best available rate and hotels prefer them to fixed rates both to protect their yield in high-demand markets and because they save time on negotiating.
“Suppliers are making us aware ahead of the 2025 season that dynamic rates are a primary focus for them,” says Spence. “From a corporate perspective there’s still a degree of uncertainty around dynamic, most particularly because it’s challenging to forecast their actual cost. But we will probably see corporates trial them, most likely in secondary and tertiary markets where room night volumes aren’t at critical levels.”
5. Fight for your right to last-room availability
Both Spence and Wynton caution that hotels will be increasingly parsimonious about allowing last-room availability, in other words guaranteeing the fixed corporate rate so long as the property is not full.
According to Spence, LRA will be especially hard to achieve in cities which enjoy strong demand from both business and leisure guests. Some hotels will aim to avoid LRA completely. Others, he says, “are always willing to put an LRA on the table but they will place a more extreme premium on it. They are pricing it almost to the point where they want to drive non-LRA acceptance.”
Wynton counsels buyers to stand firm in their 2025 negotiations and insist on hotels giving them fixed LRA rates. However, buyers should also be selective about the battles they fight, insisting on fixed LRA where they have a good track record of delivering substantial, reliable volume to suppliers. In return, buyers may have to give way to dynamic or even chain-wide and agency-negotiated rates in markets where they cannot demonstrate volume and commitment.
6. Make negotiations shorter
“Make it clear to suppliers you are not in it to play three rounds of rate tennis. That should encourage more competitive initial bids you are able to accept on round one,” says Wynton.
Spence has been delivering a similar message to suppliers. “We appreciate hotels are going to start high to provide themselves some wiggle room but we are really trying to stress they may find travel managers will turn away quite quickly,” he says. “There’s no point dragging out the negotiation process to end up at the point we were always targeting in the first place.”
7. Watch out for more severe cancellation policies
Hotels are increasingly trying to extend their customary 24-hour cancellation policies to a longer notice period. Buyers should look for the changes and challenge them where they can, says Wynton.
8. Don’t back down where you are a good customer
Whether shifting from fixed to dynamic rate, from LRA to non-LRA, or from 24-hour cancellation policies to longer periods, buyers should brace for more battles than usual with suppliers for 2025.
“Be strict,” says Wynton. “Where bids are unrealistic be prepared to reject and be strong, but make sure you have done the due diligence. Get your bid packets out early so that suppliers know exactly what your requirements are and hold to them. Be prepared to shift share where you aren’t getting the rates that you need.”
Again, however, buyers have to be realistic and show strength only where they really have it: in the ten per cent of cities that, according to Wynton, typically deliver 65 per cent of their spend. “If you push hard enough, you can get there,” he says.
9. Don’t delay – start today
As alluded to by Wynton, buyers who make a prompt start on their 2025 programmes will have enough time to communicate their wishes to suppliers, show firmness over unacceptable offers and generally demonstrate seriousness of intent.
“My advice would be that if you’re going for a January-December RFP then August is the latest you want to be launching it, so you should be setting your strategy right now,” says Cuschieri.
10. Move away from a January-December cycle
Alternatively, buyers can do as Cuschieri himself has done and detach their RFP cycle from the calendar year. “The advantage is that you are seeing rate performance into the calendar year that the hotels have budgeted for,” says Wynton, who says several clients have taken this step. “You are also missing the bottleneck and getting the supplier’s attention.”
As to how to shift from the January-December routine, the solution is simple enough. Make agreements kicking in from January 2025 14 or 15 months in duration as a one-off. Then the 2026 programme can start in March or April. Or repeat the abnormal duration in 2026 to line up for a May to July start in 2026.
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