TREND ANALYSIS REPORT
October 1, 2015
By Bjorn Hanson, Ph.D., Clinical Professor
NYU School of Professional Studies
Tisch Center for Hospitality and Tourism
As the corporate and contract rate negotiation season is about to begin, the outlook is for the largest increases in the past three decades.
Corporate and contract rate negotiations generally begin during September and continue into December. Corporate and contract rates represent almost 20 percent of occupied U.S. room nights and almost 30 percent of U.S. lodging industry revenue.
The emerging outlook is for corporate contract rates to increase the most since NYU started preparing this forecast, with a national average of 6.5 to 7.5 percent for 2016. This would be the largest increase since 2006 or 1987 depending on the final result. This is a larger increase than the approximately 6.25 percent for 2015, which was the largest increase since 2006. Overall average daily rate (ADR) is expected to increase approximately 6.0 percent in 2015.
A trend that started in 2010 and has accelerated through 2015 is to charge separately for some services and amenities instead of including these charges in negotiated room rates. In 2010, for example, it was common for corporate and contract rates to include services and amenities including internet access, fax charges, use of fitness centers, and breakfasts; that practice has generally been reversed.
Corporate management is attempting to control travel costs, especially for hotels, in an environment of increased business travel with hotel room rates increasing at approximately three times the rate of inflation.
There are several practices to respond to average daily rate increases:
- Buyers are reallocating their portfolios of contract rate hotels to include more upscale, select service and limited service hotels in place of upper upscale hotels and full service hotels.
- Some corporate travel departments allow travelers to select hotels that are not included in the portfolio of hotels with negotiated rates. This can be especially popular among younger travelers and can have the effect of lowering the overall average rate while increasing travel experience satisfaction.
- There is a general pattern of greater enforcement of corporate travel policy and auditing of employee expense reports and hotel compliance with the contracts.
These estimates are based on selected interviews with industry executives and corporate travel executives, analysis of industry financial data, press releases, and information available on hotel and brand websites.
About the Author
Bjorn Hanson, Ph.D., is a clinical professor with the NYU School of Professional Studies Tisch Center for Hospitality and Tourism. He is a hospitality and travel researcher, widely respected for his industry forecasts and for having created econometric models that transformed business analysis in the field. He has served as divisional dean of the School’s Preston Robert Tisch Center for Hospitality, Tourism, and Sport Management and as co-interim dean of the NYU School of Continuing and Professional Studies (now the School of Professional Studies). Prior to joining NYU, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP.
About the NYU School of Professional Studies
Established in 1934, the NYU School of Professional Studies (sps.nyu.edu) is one of NYU’s several degree-granting schools and colleges, each with a unique academic profile. The reputation of the School of Professional Studies arises from its place as the NYU home for study and applied research related to key knowledge-based industries where the New York region leads globally. This is manifest in the School’s diverse graduate, undergraduate, and Professional Pathways programs in fields such as Accounting, Finance, and Law; Applied Politics; Creative Cities and Economic Development; English-Language Learning; Fundraising and Grantmaking; Global Affairs; Health Information Management; Hospitality and Tourism Management; Human Resource Management and Development; Languages and Humanities; Management and Systems; Marketing and Marketing Analytics; Professional Writing; Project Management; Public Relations and Corporate Communication; Publishing; Real Estate, Real Estate Development, and Construction Management; Social Entrepreneurship; Sports Management, Media, and Business; and Translation.
More than 100 distinguished full-time faculty members collaborate with an exceptional cadre of practitioner/adjunct faculty members and lecturers to create vibrant professional and academic networks that annually attract nearly 5,000 degree-seeking students from around the globe. In addition, the School fulfills the recurrent professional education needs of local, national, and international economies, as evidenced by close to 48,000 Professional Pathways enrollments in Career Advancement Courses, Diploma Programs, workshops, and seminars. The School’s community is enriched by more than 28,000 degree-holding alumni worldwide, many of whom serve as mentors, guest speakers, and advisory board members. For more information about the NYU School of Professional Studies, visit sps.nyu.edu.