Much has been made about a "perfect storm" hitting the U.S.—and indeed, the world’s—economy. The plummeting stock market and resulting hit on individual retirement accounts, the official designation of a recession and the massive failure of key segments of the economy such as financial services, the credit market and the auto industry have some even raising the prospect of a depression, and pinning their hopes on a new administration in Washington riding to the rescue with an all-star team of economists.
The hospitality industry is feeling the pain, too, and while an oversupply of guest rooms coming on-line combined with less demand for existing rooms points to increased bargaining power for meeting planners and the organizations they represent, this perfect storm translates into a buyer’s market in which the buyers may lack the money to buy.
Ask the Expert
"For the hotel industry overall it’s going to be rough sailing ahead," says Jan D. Freitag, vice president of global development for Hendersonville, Tenn.-based hospitality industry research company Smith Travel Research (STR). "We’re expecting that the number of rooms available is going to increase 2.4 percent while at the same time demand for rooms is going to fall 1.6 percent. With demand dropping, it’s definitely going to be more of a buyer’s market than it has been for the last three years, because not only do you have the existing hotels competing for your business, but you also have the new hotels competing for your business."
Freitag says that hotel room demand is closely related to U.S. Gross Domestic Product (GDP) growth, and STR expects GDP will not be positive again until the third quarter of 2009.
Hotel segments that were the darling child of the industry during the past few years—such as luxury hotels—have now hit hard times, and properties across the board are fighting perhaps an unwinnable battle to maintain rate integrity.
"It turns out we’re already seeing rate deprecation on the upper end," Freitag says. "The common wisdom is that you maintain your rate integrity. The problem we’re seeing in the hotel world is we’re seeing hotels saying, ‘Fine, you maintain your rate, I’ll cut mine.’
"The yield management techniques that maintained rates the last three years are now a tool that deteriorates rates even quicker," he continues, "which is why we’re projecting that rates are going to decrease 2 percent in 2009."
While Freitag expects rates to decline, he advises that planners can immediately start grabbing for the low-hanging fruit by negotiating for meeting amenities that may not greatly impact a hotel’s bottom line.
"I think that the meeting planner should look at the total cost of travel and not just focus on the room rate side, because these days there are all these charges on amenities," he says, "such as Internet access, gym access, pool access, resort fees, minibar restocking fee, parking, water in the room—those sorts of smaller-ticket items that can really add up for the meeting attendee. You can just roll that into the room rate."
Oversupply and the resulting drop in room rates, coupled with the continuing decrease in airlift to many destinations, could result in a more challenging market for second-tier cites, and deals to be found in the first tier.
"In general, destinations with airline capacity issues are going to be hit on the demand side," Freitag predicts. "As the pie of demand shrinks, everyone’s going to scramble to get their fair share. As first-tier cities decrease their rates to in some cases be more competitive, and [the cost of] air travel goes up, something has to give. That’s certainly going to have an impact on destinations that were more of a value play earlier on. Second-tier cities are going to be hit with a double whammy. They’re getting pushed from tier-one cities, and the air travel [environment] may be detrimental."
Because of the decreased demand, meeting planners may also be able to find more-reasonable rates during traditional high seasons and days of the week in which they may have previously been priced out.
"If you were forced by a hotel to move your meeting to a less desirable date, suddenly that date may be open," Freitag says.
The Planner Perspective
Meetings Media polls its readers on a variety of questions every year as part of its Meetings Market Trends Survey. Respondents to the last forecast, conducted near the end of 2007, foreshadowed the economic storm that has since come to pass, and this year’s survey finds even more key statistics pointing to a continuing downward trend.
As one would expect, meeting planners were far from flush during the last year in terms of their budgets and attendance numbers, and aren’t bullish for 2009.
Nearly a third, 31.3 percent, of association planners said their budget was reduced last year, compared with a startling 46 percent of corporate planners, 46.5 percent of independent planners and 17.1 percent of government planners. The trend line on budgets also angles downward when compared to the 2007 survey, with 15.2 percent more association planners saying their budgets decreased in this year’s survey; 25.2 percent more corporate planners and 27.5 percent more independents said their budgets have taken a hit.
For 2009, budget expectations aren’t great: 29.9 percent of association planners expect a decrease, along with 36.7 percent of corporate planners, 32.7 percent of independents and 31.4 percent of government planners. Year-to-year, 15.7 percent more association planners expect a decrease, compared with 21.3 percent of corporates and 24 percent of independents.
"There is absolutely no room for mistakes and inefficiencies," says Amanda Bigley, associate director of events and education for the Arlington, Va.-based National Association of Federal Credit Unions (NAFCU). "I have to make every dollar count. It has definitely affected my speaker honorarium budget. I’m trying to convince speakers to work at a discounted rate or waive speaking fees altogether. I’ve started to tap ‘unprofessional speakers’ as well."
Kathleen Zwart, CMP, meetings and events manager for Jacksonville, Fla.-based Blue Cross Blue Shield of Florida, also finds she is tasked with stretching her budget dollars.
"The current economy has required us to rein in our spending by utilizing on-site facilities and centralizing our off-site planning," she says. "In October we completed a 14,000-square-foot conference center at our headquarters. In conjunction, we instituted a new corporate policy requiring all meetings and events to be booked in our internal meeting space. Any exceptions must go through an approval process, and those exceptions will be sourced by the new Meetings and Events Department."
The academic association segment is faring little better, it seems.
"The saying ‘desperate times call for desperate measures’ comes to mind," says Matthew Wales, manager, meetings and events for the Washington, D.C.-based American Association of Colleges for Teacher Education. "Given recent economic conditions, the education community has been hit just as hard as other industries. Our meeting attendees come from colleges across the country, many of which have faced up to 15 percent budget cuts. Therefore, my events need to have a ‘fiscally sound’ approach to them, in which the value the attendee receives for their dollar is truly maximized."
Attendance also appears on the wane.
For example, just short of a third of association planners responded that their attendance decreased last year, followed by 28.6 percent of independents, 27.8 percent of government planners and 23.9 percent of corporate planners. And this response from association and independent planners jumped about 20 percent from the last survey; 12.9 percent more corporate planners said their attendance decreased this year when compared to the 2007 survey.
"Attendance is shrinking due to budget restraints," says Sue Keeley, marketing and pre-sales services manager for Emeryville, Calif.-based food-service sales consortium The Performance Group, Northern California. "Some clients have considered canceling programs but rethought their decision and just reduced the number of attendees. They realize the value of the meeting but have to work within reduced budget parameters."
The number of meetings and events is expected to drop in the next 12 months, too, by the following percentages: 20.7 percent for association planners; 32.6 percent for corporate planners; 28.1 percent for independents; and 30.5 percent for government planners. Although the lion’s share of the drop is expected to be less than 10 percent in three of the four segments tracked, 11 percent of corporate planners predicted a decrease of more than 10 percent.
"The number of meetings we are doing in 2008 has decreased by over 50 percent and the outlook for 2009 is still unclear," says Susan Pazderski, account manager, client services for Chicago-based ACCESS Medical, a scientific and medical marketing consultancy.
As far as air travel for meetings, 24.1 percent of association planners responded that it decreased during the past year, compared to 35.5 percent of corporate, 36.3 percent of independent and 34.3 percent of government planners. Year-to-year, 16.4 percent more association planners answered that they required less air travel as opposed to the 2007 survey, along with 21.7 percent more corporates and also 21.7 percent more independents.
"I am worried that attendance for meetings at smaller cities will suffer," says the NAFCU’s Bigley. "It’s challenging to convince a member to spend upwards of $400 on a flight that may involve layovers, cancellations and delays, not to mention that many major carriers have reduced flights to smaller cities and members may not be able to use frequent flyer miles or fly with a preferred carrier."
Ezra Bourne, CMP, director for conference services for the Washington, D.C.-based American Institutes for Research, concurs.
"We are looking more at airline hub cities to host meetings," she says. "Some locations with fewer flights and higher fares make it a tough sell for my clients."
Attrition Slippage
With belts tightening in both the hotel industry and at organizations planning meetings, meeting planners have noticed that attrition policies are starting to relax.
Big changes were registered regarding the issue of attrition in this year’s poll when compared to the poll conducted in late 2007, especially in the corporate and independent planner segments.
Allowance for slippage increased in this year’s survey, with 5.3 percent more corporate planners responding that it increased during the year prior to the survey. The figure was 2.1 percent more for association planners and 6.2 percent more for independents; 8.6 percent of government planners noted that their allowance for slippage increased.
The attrition question also elicited an increase in planners who responded that attrition fees were dropped altogether: 4.4 percent more corporate planners, 1.1 percent more association planners and 4.1 percent more independents; 5.7 percent of government planners said their attrition fees were dropped in this year’s survey.
"It has been our experience that the attrition clauses have been enforced less strictly," says Rev. Randy Bryant, executive director of the Vero Beach, Fla.-based Florida State Association of Free Will Baptists. "It has been my perception that the hotels are glad to have the business and unless you are really, really off on your room block, they are willing to work with you in hopes of having your business return."
Looking Ahead
When asked how they think 2009 will shape up for the meetings industry, many meeting planners expressed optimism that the cyclical nature of the economy will translate into a recovery late in the year, and said they will keep charging ahead in the meantime.
"Our budget will definitely decrease, but we must continue having our meetings or attending meetings," says Sonia Viteri, project manager for Atlanta-based Safe-Guard Products International. "Running away from the problem is not going to solve anything. We simply have to make the most of what we are investing, more so than in previous years."
Jeannie Battin, CMP, CTSM, senior program assistant for the Denver-based National Education Association, believes the onus more than ever is on the meeting planner.
"I see events costs increasing and the need to work closer with hotels, etc., in developing agendas, menus and manage services that will be within budget," she says. "I believe it is critical for the meeting professional to negotiate more, provide early and frequent details to potential attendees and develop events that have substantial take-away value. People will no longer attend a conference ‘just because they have in the past’—it’s going to be a decision based on value to the attendee."
In the end, the industry sector a meeting planner serves may be the deciding factor next year.
"I foresee, based on industry reports and colleagues, that many meetings are being cut back and scaled down, if not canceled completely due to budgetary cuts," says Michelle Gothan, senior marketing coordinator for Scottsdale, Ariz.-based Early Warning Services, which serves the financial industry.
The 2009 Meetings Market Trends Survey is a proprietary Meetings Media online study that was distributed to 35,288 Meetings Media subscribers. As an incentive to complete the survey, respondents were offered a chance to win a $200 Visa gift card. Conducted in September 2008, the survey generated 628 complete responses.
