Power Is Back in the Hands of Suppliers

In business travel, airlines and hotels use rediscovered negotiating power.

As leaner airlines learn the lessons of the recent past and keep capacity down to fill their aircraft, corporate hotel rates are rising rapidly, especially in major business cities. This is presenting agents with a double hurdle as they negotiate rates for clients for 2011. With business travel resuming quickly, corporate travel agencies claim that negotiated airfares and hotel rates are climbing for the coming year, with the biggest increases in hotel rates already visible in cities like New York. Agents’ clients have raised travel budgets and this is pushing negotiating power back in the hands of air and hotel suppliers.

Corporate discounts are getting rapidly smaller. This trend is likely to continue as the economy improves, particularly in the US. One travel management consultant said that corporate airfare negotiations would be difficult partly because “the airlines have done a really good job of reining in capacity.” Recent consolidation in the industry and the strengthening of global alliances are giving even more power to the airlines in corporate negotiations.

Alliances may even soon start to negotiate as combined entities rather than individual airlines. Another travel consultant suggested that one way companies can keep air travel costs down is to ask employees to buy advance-purchase fares sold to the public. Corporate hotel rates are expected to rise in 2011. In New York, for example, where demand has remained strong, increases could be as high as 20%. This could mean that companies will tell some employees to downgrade from full-service accommodation.

NYT [Photo courtesy IHG]

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