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Hotel Rates Set to Climb Fast in 2016

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18 July 2016 by Onyx CenterSource in Blog , Hospitality Trends & Research ,

Forecasters are predicting heavy hotel rate increases for 2016. Consequently, corporations need their Travel Management Companies (TMCs) and other booking service providers, more than ever, to keep accommodation costs down.

Global hotel outlook – the only way is up

Air fares often dominate corporate client thinking about travel costs. But if you really want to help your customers bring their hotel spend under control in 2016, accommodation is undoubtedly where they will feel the most pain, according to forecasts from both GBTA Foundation/Carlson Wagonlit Travel and Advito (the consulting arm of BCD Travel). Globally, GBTA Foundation/CWT predicts that while air fares will rise only 0.5% globally, hotel rates will climb 2.5%. Advito believes the gap will be even bigger: air fares will stay flat or fall up to 2%, but hotel rates will rise 3-5%.

USA – leading the hotel rate boom

The biggest hotel rate rises will be in the USA. GBTA Foundation/CWT predicts a 4.7% increase, and Advito a range of 4-6%. A third forecast from the hospitality division of PwC expects average daily rates to climb 5.8%, up from an estimated 5.0% in 2015.

Prices are booming because demand continues to grow steadily, while there has been very little new supply. PwC says room occupancy levels in the USA in the first half of 2015 were at their highest since 1987.Ironically, new supply is expected to accelerate slightly in 2016, especially brands in the mid-service sector such as Hyatt Place, Homewood Suites and Hilton’s Home2Suites, but it is too little too late to slow rates.

Watch out especially for inflation on the West Coast. Los Angeles will be hot in 2016, but the Bay area (San Francisco and San Jose) will be even hotter, with double-digit increases entirely possible.

Europe – beware of hotel rate hotspots

Limited supply and rising demand will push up rates in Europe too next year, but worries about the eurozone and slower growth in China mean hotels are hesitant to push up prices too fast in most cities. There are a few exceptions, including London, where buyers report aggressive negotiating tactics by suppliers.

Other cities where Advito predicts above average rate rises include Geneva, Zurich, Dublin and Istanbul – although political and security concerns may halt recent strong growth in Turkey’s largest city.

Asia-Pacific – a quieter year

This is the region most likely to buck the upward trend in 2016. New supply has been greater here than in other parts of the world, and of course Asia-Pacific feels the effects of China’s slowdown especially strongly. However, as always, there are exceptions. Both GBTA Foundation/Advito and CWT predict rate growth of up to 5% in Japan as visitor numbers accelerate and its economy improves after years of moderate performance.

How can TMCs and other booking service providers help their corporate clients?

Higher rates will not be the only problem facing your clients in 2015. Some hotels are also beginining to charge airline-style ancillary fees (such as extra charges for early check-in or late check-out), while clients that negotiate their own corporate rates are increasingly being refused deals in cities where they don’t book many room nights. Cancellation policies are also being tightened.

So how can you add value to your clients in a difficult environment like this? Here are a few tips you can try:

Communicate – warn your customers that accommodation will be their major pain point over the next 12 months, and offer to help them.
Report – give your clients clear data showing exactly how much they are spending and where. Break the data down as much as you can to provide full transparency. Examples might include:
How much clients spend in each city in each category.
How many days in advance they book.
Which nights of the week they stay.
Advise – find ways to help clients reduce their average daily rate. Examples might include:
Encourage them to book further in advance (ideally when they book their air or rail, which also improves your all-important attachment rate).
Make adjustments to policy, for example creating rules about whether they are allowed to purchase early check-in/late check-out.
For clients with enough volume to negotiate corporate rates, encourage them to consolidate to fewer suppliers. Many companies still use too many properties in the same city.

2016 hotel forecasts

 ADVITO  %  GBTA/Carlson Wagonlit Travel  %
 Europe  +1 to +3 Western Europe +  0.7
 Middle East  -1 to +1  Eastern Europe  + 2.0
 Africa  +2 to +4  Middle East/Africa  + 1.0
 North America  +4 to +6  North America  + 4.3
 Latin America  +4 to +6  Latin America  + 3.7
 Asia  -2 to 0  APAC + 3.0
 Southwest Pacific  0 to +2  Global  + 2.0