WHERE THE BARGAINS ARE IN HOTELS Smart travelers know they can get the best rest for less. The continuing hotel glut is forcing even the fanciest inns to give in. Hoteliers count the towels and hang on.
By Faye Rice REPORTER ASSOCIATE Jennifer Reese

(FORTUNE Magazine) – WHEN package designer Marc Rosen plans trips now, he always asks his travel agent about hotels with the best discounts. Rosen, whose clients include Colgate-Palmolive and Rayovac batteries, favors expensive Old World palaces. But he says it just isn't chic anymore to pay outrageous sums for hotels. He doesn't have to. For a trip to Paris he grabbed a 45%-off special at the four-star Grand Hotel Inter-Continental. Says Rosen: ''I don't want to sacrifice lifestyle and image since I invite clients up. The trick is to find an image hotel with special prices.'' Meet today's business traveler -- tough, smart, and like any other obsessive shopper, always on the lookout for a deal. Complains Jonathan Tisch, 38, head of Loews Hotels: ''They are beating us up at the front desk.'' Hoteliers like Tisch are getting clobbered by pricing that is a couple of floors below the posted tariff, or ''rack rate,'' and sometimes 40% under the corporate rate. In London some highfalutin hostelries will accept dollars in lieu of pounds, a gracious 42% discount. In Asia, where price breaks are as rare as Chevrolets, promotions are popping up. It is a buyer's market out there in hotel land, particularly in the U.S., where a five-year slump caused by overbuilding has shattered the industry's pricing. Says hotel consultant Stephen W. Brener: ''For the first time in history, the customer has an absolute understanding that the industry's rack rate isn't real.'' In this menage a trois of corporations, hotels, and travelers, each party has staked out a new rooming strategy: -- Corporate travel managers are bypassing their counterparts at the big hotel chains and bedding down extra bargains at individual locations. They are also concentrating their buying in fewer travel agencies, a tactic that makes it easier to enforce travel policy, saving more money. -- Travelers, too, know they have the upper hand and are taking advantage of the industry's troubles. Just for the asking, you can often wrangle sizable rate reductions, or be upgraded to a better room, even though your reservation is booked for a standard room at the corporate rate. It also pays to read the frequent-flier mail and look for promotions aimed at tourists. -- The lodging industry's plan is to stay alive until 1995, when the surplus of rooms will diminish. Amid their own corporate restructurings, some hoteliers are skimping on sheets and towels, eliminating amenities, and dishing out smaller food portions in a somewhat desperate effort to contain costs. CORPORATE TRAVEL managers, under the recessionary hammer to corral costs, have been busy. During 1991 even the most discount-resistant hotels yielded to the competitive pressure. Since the mid-1980s, when vacancy rates started to climb, companies like AT&T and General Electric began flexing their muscles to get lower rates for volume business. As the industry weakened, corporations were able to turn the screws, nabbing 40% or more off the posted room rates. At some high-vacancy locations, hotel managers ignore their company's carefully crafted rate schemes and negotiate cheaper tariffs directly with corporations. The public stance of the 800-unit Forte Hotels chain, which is based in London and includes Paris's ritzy George V and New York City's Plaza Athenee, is that corporate discounts are never larger than 15%, no matter how much volume is guaranteed. Yet Kelvin Houchin, senior vice president of sales and marketing for the Americas, admits that he would be ''naive'' to think all his hotel managers were sticking to that policy. At the charming King Edward Hotel, a Forte property in the center of Toronto's financial district, general manager Bill Croke recently surrendered a 40% price break plus free upgrades to a corporation that guaranteed 1,100 room-nights annually. Explains Croke: ''Two years ago we didn't feel it was necessary to discount because customers were still knocking at the door. Last year our occupancy dropped 20%, down to the 50s -- and it is not climbing.'' Shrewd negotiators like AT&T's transportation manager Russell DeAngelo sign contracts with hotels that ensure the company will always get the best rate. If a hotel runs a distress sale and prices dip below his signed rate, AT&T gets the lower price. American Express, the largest travel agent, says that formerly most big companies typically used many agencies. ''That dilutes the buying power of the company,'' says Roger Ballou, president of American Express Travel Services Group. Ballou, who admittedly has some fish to fry, claims American Express always finds that by reducing the number of agents, a company can save money. In 1986, AT&T reduced the number of agencies it used from 311 to just three: Carlson Travel, Thomas Cook, and Amex. AT&T won't reveal the exact savings but says they are substantial. With fewer agencies, a company has an easier time tracking miscreants who try to bend the rules. Says transportation manager DeAngelo: ''The agency will let us know that employee X was told to stay in a hotel where we have the negotiated rate but instead selected one that cost $50 more.'' Many employers fail to capture savings because they do not enforce their travel policies. In the past bosses have been reluctant to play tough with road-weary employees. But as travel budgets get tighter, reluctance is giving way to necessity. Successful enforcers resort to a blatant form of persuasion: Travel directors send monthly reports of abuses to the culprits' immediate bosses. Consolidation within the agency business and the creation of huge travel networks allow companies and individuals the advantage of size without the loss of personal attention. The local agency may look like a cubbyhole, but mom and pop shops have rapidly been joining big consortiums like Hickory Travel Systems and Woodside Travel Management. That's a blessing for smaller firms that do not have the muscle to get substantial price reductions. Woodside, for example, says it gets cuts of up to 40% below rack rates with 1,500 hotels worldwide. Whatever the sophistication of travel agencies, it pays to be a knowledgeable consumer. Individuals, particularly frequent fliers, can still find ways to reduce both leisure and business travel costs. Does the guy checking in before you have a better rate? It never hurts to ask the desk clerk for the lower tariff. ''Hotels are more rate-confused than airlines,'' says consultant Brener. ''Some have as many as 20 rates for the same room.'' Promotions are particularly fleeting. The key is to lasso the lowest one with the largest amount of amenities piled on. Packages labeled ''winter,'' ''summer,'' and ''weekend'' are generally great buys. For the downtown Los Angeles Hyatt, a reservationist offered a $99 special, $90 off the rack and $70 less than the corporate rate. A few miles away in the heart of Beverly Hills, the Hilton has a $145 BounceBack special, including a continental breakfast, a $75 saving -- if the traveler can stay over Saturday night. So if the marketing chief arrives on Thursday and must remain over the weekend, this package is ideal. At the downtown Los Angeles Hilton, the BounceBack rate of $95 includes a continental breakfast and an upgrade to the best available room. FREQUENT FLIERS can sometimes get a double-dip discount. Many of the major airlines, for instance, give away bonus coupons for substantial reductions at hotels. United Airlines issues 50%-off coupons for hotels to its frequent fliers who have accumulated 20,000 miles. Participating hotels include the Hilton, Hyatt, Inter-Continental, Westin, and Kempinski chains. If your travel agent books with Kempinski, say, for rates 40% below those posted, you may get that price cut, plus another 50% off by presenting your airline coupon. For overseas travelers, hotels from London to Hong Kong are putting up ''Yankee Come Back'' signs. During and after the Gulf war, American executives stayed home and conducted business by phone, fax, and videoconference. ''Before the war, occupancy rates at the Four Seasons in London were in the 80s, but the war cut that in half,'' says John B. Richards, senior vice president of marketing. Some posh hotels in London and other European cities that cater to Americans were reportedly near empty during the first quarter of 1991. The Rank Organisation's five hotels in London announced a dollars-for-pounds promotion in February 1991, and the offer has been extended through August 31. Whatever the quoted rate in pounds, Americans are invited to pay that figure in dollars. At Rank's five-star Royal Garden Hotel in London, a shilling's throw from Kensington Palace, home of Prince Charles and Princess Di, guests can get a room with a view of Hyde Park for $151. The-top-of-the-lin e room, which includes 24-hour butler service, can be let for an extra $25. An undersold feature of the hotel: fortuitous sightings of the royal couple. The ''great affordables'' package advertised by a marketing group called Leading Hotels of the World includes a host of frills like free champagne and breakfast, and a price break at many hotels, including Claridge's and the Savoy in London and the Hotel de Crillon in Paris. Importantly, the lower rate often includes all taxes. South American hotels, limping from raging inflation and worldwide recession, have been hurt by a crime wave that prompted the U.S. government to issue travel advisories for Brazil and Colombia. The five-star Copacabana Palace in Rio de Janeiro lowered prices twice during 1991 as occupancy plummeted 30-plus points to the low 50s. For $130 a traveler likely can be upgraded to a $290 suite at the Copacabana with a balcony that faces the beach. Discounting has generally been anathema to Asian hoteliers, but they have been stung by the double whammy of Tiananmen Square and the Gulf war. After the Tiananmen massacre in Beijing, hotels in Hong Kong and other Asian cities experienced a considerable dip in business from North American guests, many of whom make stopovers going to and from China. The Shangri-La Hotels & Resorts group set a corporate rate for the first time in 1992 and is promoting incentive packages for its 19 hotels. The Island Shangri-La in Hong Kong now has a corporate rate of $270 for rooms with a commanding view of the harbor, a saving of $70. For summer and winter specials, those rooms let for about $190.

Hotel executives have had to learn to chop costs while maintaining service, and in the U.S. they've had years of practice. Even before the Gulf war and recession stymied travel, the industry was suffering from the wild overbuilding of the gotta-do-a-deal Eighties. Chains such as Marriott developed properties and sold them to eager investors -- hey, real estate ; can't miss, right? -- and took back management contracts without enough regard for demand. Occupancy rates of U.S. hotels slipped steadily from a high of 71% in 1979 to 60.9% in 1991. Analyst Bjorn Hanson of Coopers & Lybrand estimates that the breakeven occupancy rate for most hotels is about 66% and that only 32% of full-service hotels in the U.S. managed to do that last year. The other 68% were in the red, and the industry's total loss was a walloping $3.4 billion. Companies such as Marriott have had to restructure -- selling hotels and other businesses and reducing headquarters staff. So many debt-plagued hotel owners have been unable to pay their mortgages, notes consultant Brener, that U.S. government agencies own or have interests in more hotels than any other institution does. With the industry crawling, hotel room prices inched up only 1.7% in 1991 and have not kept pace with inflation since 1989. ''Hotels are the cheapest they have ever been in real dollars,'' says Hanson. He estimates that the the average discount last year for U.S. hotels was 27%. Hotels everywhere are cutting corners to keep the doors open and rates low. Just two years ago, the biggest trend in the hotel industry was to stock bathrooms with enough toiletries to fill an apothecary's shelf. Now, some of the industry's heavyweights are scaling back those expensive little extras. Says Hyatt Hotels President Darryl Hartley-Leonard: ''It had reached the point of amenity lunacy out there.'' Sewing kits were eliminated in Marriott's full-service hotels, as were body lotion, sponges, and hair conditioner in some places. The company will not reveal the total saving, but analyst Hanson estimates that hotels are spending $1.50 less per night per room than in 1988. Hyatt Hotels now places fewer towels in bathrooms, a yearly savings of $2 million, and it has switched from cream-colored sheets to white, which bleaches another $1 million. All that cream-colored dye adds up. In addition, Hyatt's VIPs are now picked up at the airport in Lincoln Town Cars instead of stretch limousines. Hilton no longer gives out fresh bars of soap every day to guests who check in for several days, food portions have been downsized, and 16% of the corporate staff has been eliminated. EVEN THE RITZIEST hotels are finding ways to skimp. Caroline Hunt's Rosewood Hotels, which includes Dallas's Mansion on Turtle Creek and the new, amenity- stuffed Lanesborough in London, consolidated purchases with one or two manufacturers and saved $15,000 last year just on toilet paper. To keep from raising prices, the Italian branch of Orient Express Hotels, where the rooms run $500 per night, has reduced the size of soap bars from 100 to 40 grams. The general manager of the Hotel Splendido in Portofino reports that big bouquets of flowers have given way to one or two stems. When guests stay longer than one night, only the top sheet is changed daily. Most travelers don't feel short-sheeted by the lack of goodies. Pleased with discounts of 40% or more, they are not likely to quibble about an extra bar of soap or bottle of lotion. Just how long will these good times roll for the business traveler? Lodging experts say for another two or three years. By then many dilapidated properties will be removed from the market. And since most bankers would laugh out loud at the thought of underwriting new hotel construction, the supply of rooms won't grow. The era of ''distressed rates,'' as Hilton Hotels President Carl Mottek calls it, will end. So enjoy the low prices while you can, but have a heart and don't steal the towels. These guys have enough problems as it is.