What businesses are doing to cut their travel costs - Financial Times ...

2 FINANCIALTIMESMONDAYNOVEMBER 10 2008
Global Traveller
IN THIS ISSUE
Soap Box
ALAN PARKER
The chief executive of Whitbread Group
writes that ‘budget’ no longer has to mean
‘bad quality’ Page 3
Business Class
AIR TAXIS
Rohit Jaggi finds the arguments for the
business have merit. But will they attract
the required passengers? Page 4
Frequent Traveller
PETER GAGO
The chief winemaker for Penfolds says
preferential treatment for business travellers
is not elitist, just fair Page 5
Business Hubs
LIMA, MUMBAI AND FLORENCE
FT correspondents on grand Peruvian
façades, charming Indian hotels and an
Italian city that breathes culture Pages 6­7
Wake­up call
Roger Bray looks
at the lengths
companies will go
to cut their travel
budgets: The Big
Story Page 8;
Case studies –
Boston Scientific
and SFR Page 8
CEO Interview
CHRIS CUDDY
Roger Blitz meets the head of Cheapflights,
a price comparison website Page 11
Front Page Illustration: MEESON
Contributors
Roger Blitz
Leisure Industries Editor
Rohit Jaggi
Aviation Columnist
Mark Mulligan
Madrid Correspondent
Naomi Mapstone
Andes Correspondent
James Fontanella­Kahn
India Editor, FT.com
Jonathan Soble
Tokyo Correspondent
Jill James, Roger Bray
FT Contributors
Seb Morton­Clark
Commissioning Editor
Steven Bird
Designer
Andy Mears
Picture Editor
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Travellight:clientsareplanningday­tripsratherthanovernightstaystosavemoney Corbis
Battle lines drawn as
budgets begin to bite
AGENDA
Hotels are bracing
for a year of
stiff competition,
writes Roger Blitz
Business travellers
and the hotel industry
have embarked
on a battle royal
over prices as hoteliers fight
tooth and nail to stop the
economic downturn from
eating into their profits and
corporations drive a hard
bargain over room rates.
According to some of the
bigger hotel groups, business
travellers hoping to see bargains
being thrown their way
from hard-pressed hoteliers
during these lean times may
be getting a bit ahead of
themselves. But the mood
among corporate travel buyers
is uncompromising and
hotel groups are reluctantly
admitting that they are in
the early stages of a
prolonged buyers’ market.
No-one in the hotel industry
denies that trade has
started to dry up, alarmingly
so in some cases. Rezidor,
the European-based group
that manages Radisson SAS
hotels, last week said it was
cutting costs by €20m after
announcing a big slump in
profits.
Marriott, Wyndham and
Accor have all reported
sharp falls in business and
virtually everyone is predicting
a rough ride in 2009. With
companies scything through
their travel plans, or trading
down, discounted rates
would appear inevitable.
“For 2009, we will see
hotels really looking for business
in a way they have
never had to do for a number
of years,” says Nigel Turner
of Carlson WagonlitTravel,
the travel management
group. “We will see some
better rates in the marketplace.
A lot of hotels are
increasingly giving us indications
that they are interested
in marketing to corporate
business.”
Current discounts average
about 10 per cent, “not a lot,
given the increases in the
last few years”, Mr Turner
says. “But it is the first time
we are seeing rates go in the
other direction.”
“Discount” is not a word
that readily comes to hoteliers.
Expect to hear hotel
groups talk about “value” as
they compete with each
other for the ever-reducing
numbers of business travellers
over the next 12 to 18
months. Cutting back on
charges for accessory spending
is one strategy. Those
hotel groups with mid-scale
brands can argue that customers
who normally pay
extra for hotel amenities at
upscale hotels will effectively
pay nothing for them when
they trade down.
“The winners will be the
brands that offer exceptional
value and service,” says
Betsy O’Rourke, senior vicepresident
of marketing at the
7,000-hotel Wyndham Worldwide.
“Travellers hate being
nickelled and dimed to death
for every service like internet
access, local calls, use of
a business centre or gym.”
To win business, hotel
groups know they have to
spend marketing dollars, and
the campaigns are starting to
come thick and fast. Inter-
Continental Hotels Group,
for example, because it is
legally obliged to spend a
marketing fund made up of
hotel owners’ contributions,
has £800mits disposal.
That will go partly into
keeping IHG at the top of
Google’s hotel search page,
plus promotion of Holiday
Inn two-nights-for-one offers,
room upgrades and free
breakfasts. But much of it is
heading for its loyalty club
points system, which has
20m members.
“We are certainly looking
from a marketing point of
view to increase the way we
promote our loyalty
schemes,” says Leslie
‘The winners will
be the brands that
offer exceptional
value and service’
McGibbon of IHG, which as
well as doubling loyalty
points will also be giving
away wine and baseball merchandise
through the system.
Loyalty schemes have real
traction in the US. Marriott
is tweaking a variety of its
reward programmes, increasing
points bonuses, offering
one night free on a five-night
stay and abolishing “blackout”
dates from January,
thereby enabling members to
redeem points on any day.
Wyndham is doubling points
for the next two months.
But when it comes to customers
beyond the US –
where loyalty schemes generate
less interest – and the
all-important corporate
travel brokers, pricing decisions
may be the only means
for hotel groups to control
the inevitable decline in revenues.
“Points appeal to travellers,
but pricing appeals to
the organisations they work
for,” says Mr Turner. “If they
want to hit both people, it’s
got to be really on price.”
Hotels and their corporate
clients are in the midst of
negotiating over 2009 prices.
The anecdotal evidence
shows clients shopping
around more, plotting daytrips
rather than overnight
stays and reducing the
number of hotel suppliers
they use to increase economies
of scale.
JW Marriott, chairman of
the hotel group, acknowledged
last week that the outlook
for next year was weakening.
If occupancy drops
further, it plans to open up
more discounts on a hotel-byhotel
basis. “Dropping the
corporate benchmark rate is
not something we will be the
first to do,” the company
said.
It is not surprising that
corporate travel brokers
expect 2009 hotel bills to be
considerably cheaper than
those in 2008. “Most of the
markets are expecting a
discounting of prices and the
corporate broker will use this
to make any rate gain as
little as possible,” says IHG’s
Mr McGibbon.
Did he just say “rate
gain”? Even in this recessionriddled
market, IHG is still
working on the premise that
hotel rates are going up.