If you think the hospitality and meetings industry took a hit after the events of 9/11, take a look at what’s happening now. Industry analysts are saying this year’s lodging industry downturns may be unprecedented.
It’s no secret hotels are hurting just about everywhere, and anyone who has short-term business to book or even into the next couple of years can wheel and deal as never before. Year 2009 may go down as the best buyer’s market on recent record, but what are the best strategies to get the most bang for your meeting buck?
What can you expect from destinations that may be looking at some of the leanest quarters in memory?
Unusual Market
“Of the 50 cities we forecast, we are projecting declines in 32 of them,” says Robert Mandelbaum, director of research information services for PKF Hospitality Research. “We are forecasting a 2009 decline in average room rate growth at 2.7 percent for the year. When you consider than the decline for years 2001 and 2002 were 1.4 and 1.5 percent, respectively, the projection is significant.”
Most years, he says, room rates grow at 3.4 percent per annum over the long haul, but they tapered for 2008 to 2.7 percent—a rare occurrence.
Many lodging industry downturns are caused by an oversupply of room inventory, he adds. But the current market downturn is falling primarily because of the global economic recession and the failure of consumer confidence.
Jan Freitag, vice president of global development for Smith Travel Research, says U.S. hotels are facing a perfect storm: an increase in supply of rooms and a drop in demand from both the leisure and business sides, which is unusual.
“Forecasters are all over the map with this. Some think it will be worse than the post-9/11 and early ’90s drops, but we are saying it will not be as bad,” he says. “We are suggesting room rate growth will continue, but very, very slowly. Rates will increase by maybe 1 percent across the U.S. for 2009. This forecast makes us bullish, and many disagree.”
Freitag adds that the drop in leisure demand gives hoteliers more heartburn than they had in the post-9/11 period and other recessions when consumer demand on weekends kept them going. Adding to that lagging situation are airline capacity constraints.
Destination Creativity
So what are destinations doing in the face of these economic headwinds? Plenty, according to reports from the field.
Brian Stevens, president/ceo of ConferenceDirect, a site selection and conference management firm in Los Angeles, says cities and hoteliers are getting very creative with value-adds.
“Some cities have a certain bucket of money, usually from bed or other taxes, that can be spent on offsets for citywide conventions, costs like transportation, convention center space and F&B charges, that kind of thing,” he says. “Cities set aside some of the tax dollars to give themselves an advantage over their competitors. They leak it back to conventions.
“We have a major client who is going to get $100,000 credit toward expenses if they book D.C. for 2010,” he continues. “I have never seen or heard of that large a concession.”
Hotels are now more generous, too, Stevens says. In cities where convention centers have fixed costs (such as energy) that don’t budge, CVBs and convention centers are asking hotels for help with underwriting booking incentives.
Despite perceptions to the contrary, Donovan Shia, vice president of marketing intelligence with Destination Marketing Association International (DMAI), says destination management organizations (DMOs) stand ready to give groups some of the best deals they can find in this—or any—market, at no cost to them.
“Many people think DMOs don’t have the negotiating power to get them the best deals. This is a myth,” Shia says. “They can and often do get a better deal because they book a lot of business for the suppliers in their market. Some people don’t understand the value of CVBs and how they are funded. So they go to third- party people, which may be free up front, but end up costing them more because these parties take commissions on the back end.”
Mandelbaum says PKF forecasts that the steepest 2009 occupancy declines—greater than 5 percent—will be in Florida. Tampa, Miami and Orlando are all heavily dependent on leisure fly-in travelers, he says, and he predicts great rates and value-adds for buyers in those cities.
To bring in the business, the Orlando/Orange County CVB has for the first time implemented a destination-wide package that gives organizations a 2.5 percent rebate on guest room revenue from participating hotels. There are also airfare and car rental specials available.
“Nationwide, groups will find much more flexibility on value-adds, too,” says Gary Sain, president of the Orlando/Orange County CVB. “This is because hoteliers want to maintain their rate structure systemwide, so their attitudes toward value-adds is actually incredible right now. This can be from transportation to recreation, F&B and suite upgrades, because those all have a hard-dollar value and they can bring down the overall cost of meetings.”
Gary Schirmacher, CMP, senior vice president sourcing for Experient, a meeting and event management company, says now is the time to ask bureau sales managers to put together packages that lessen direct costs to an organization.
“Some cities like Salt Lake City, Denver, Philadelphia and Atlanta have infrastructures that provide quality entertainment, restaurants and good ground transportation,” he says. “This means I can put together a citywide with minimal transportation costs. Some groups can spend up to a half-million dollars just on ground shuttles, so if that cost can be cut, all the better.”
Advice to Planners
While the current buying power for groups may be obvious, negotiations experts have recommendations for strategies that will guard against long-term damage to relationships between planners and suppliers.
“It was a seller’s market for a few years, and now the cycle has turned,” Freitag says. “Planners are now in the driver’s seat, but we strongly suggest they resist the temptation to tweak rates. Rate cutting hurts the hotel industry. We learned this post-9/11. So we advise them to ask for more value in the rates, things like free Internet access, bottled water, rollbacks on resort fees and so on.”
Freitag also cautions planners about getting swayed by half-price promotions.
“If you are looking for a certain level of service and amenities, you can’t expect a full-service experience for $45,” he says.
And there is also the possible chance of a lifetime to put your group in a luxury resort property that now fits into your budget.
“If I were having a customer-oriented event, and I had been going to a JW Marriott, I might take the group for the same price to the Ritz-Carlton,” Stevens says. “There is now this silver lining in 2009 for those of us who have always wanted to upgrade, so long as nobody is worried about the AIG effect—you know, the perception that the spend is more than it is.”
According to both Stevens and Schirmacher, now also may be the time to renegotiate standing contracts.
“Maybe canceling the original meeting and paying the fee is best,” Stevens says. “Everyone will lose something, but this whole notion that we negotiated a contract three years ago and there’s no wiggle room is inaccurate. There may be escalation clauses that entitles the hotel to a 4 to 5 percent increase a year. Some of these need to be revisited. By the end of 2009, for instance, New York rates will be down and if you have contracted for 2010 and beyond, now could well be the time to renegotiate. We just don’t know where the bottom of this thing is, and nobody knows when people will regain confidence in the economy again.”
Good communication in any scenario is critical now, Stevens adds.
“Hotels can’t know if your association is doing okay or not, so you need to tell them,” he says. “If we don’t communicate, we might get big attrition fees. Nobody wants that. I am actually predicting that you’ll hear major hotel chains announce they won’t hold you to your attrition fees, that they will allow anybody who books for any of 2009 to do without attrition penalties.”
Planners really must ask the questions and not be intimidated to keep going back to the table, Schirmacher advises.
“Everything may be negotiated even if it’s contracted, so long as it makes sense for the hotel,” he says.
