Don’t look now, but that great meetings contract you negotiated a couple of years ago may be in jeopardy. Demand for U.S. hotel space is higher than ever, few new hotel rooms are coming on-line, and hotel owners are pressuring managers to recoup revenues they lost during deep-recession years.
These trends have produced a hot 2013 seller’s market that has caught many planners off guard, according to several meetings industry veterans, who warn unwelcomed surprises may be in store.
“You might have cut a really good deal back in 2009 for 2014 business,” says attorney Jonathan Howe, president/senior partner of Howe & Hutton, Ltd., “but it may not be there now. If your hotel gets a better piece of business for the same period, they may cancel you. Hoteliers are thinking things like if a booking is between Little Sisters of the Poor and a Fortune 500 company, I’ll do penance.”
Another current market scenario is that you may think you have the hotel’s ballroom booked, Howe warns, but discover you actually may not. Your facility has moved you 20 blocks away to another hotel to accommodate a better piece of business.
What’s Going On?
“Demand for U.S. hotel rooms is stronger this year than ever,” says Jan Freitag, senior vice president of Smith Travel Research. “Hotels sold more rooms than ever in first quarter 2013, and we predict that trend will continue through the year. At the same time, there’s a lack of new hotel rooms coming on-line, especially at the upper end of the market.
“All this gives pricing power to hoteliers,” Freitag continues, “and we are telling them that now is the time to raise rates because this market won’t last forever. Already banks are beginning to loosen up their lending. Projects like a large Gaylord hotel for Colorado have come back into planning.”
Freitag and others say many planners don’t realize how much the market has changed in a relatively short time, or how aggressive some hoteliers have become about recouping revenues they lost in recent down years.
To satisfy owner demands, managers may do more than bump meetings deals off the table when they find higher paying clients. They might also demand more stringent attrition clauses. Some are trimming sales and meetings service personnel at individual properties. Concessions are also harder to snare as hotel mergers proliferate.
David Scypinski, senior vice president for ConferenceDirect, agrees with Freitag, and adds that transient business traveler demand has come back substantially. This, he said, is another development that gives hotels even more pricing power. Transient guests typically pay higher rates than groups. PageBreak
“A hotel with 1,000 rooms in a major metropolitan area might have given a block of 600 room nights on peak previously,” Scypinski says. “Now, they are blocking only 500 because they can sell more transient rooms at higher rates.”
Add meetings demand to the business traveler demand, and you have a market that’s favorable now for hotels in many markets. ConferenceDirect meetings bookings were up 25 percent year over year in the first quarter, he notes. Other third-party booking companies like HelmsBrisco and Experient have also seen booking spikes.
Despite the demand increases for rooms, there’s lots of nervousness among both sellers and buyers because of government cutbacks, Scypinski and Howe contend.
“Government actions have a dramatic ripple effect,” Howe says. “Any association that is dependent in no small part on government participation from, say, the defense or healthcare sector, may see their numbers go down for both exhibitors and attendees.
“It’s a nasty ripple effect, and coming awfully close to a tsunami now. Bottom line, it’s a tough marketplace and everyone--both planner and hotelier--is scrambling,” he continues. Planners aren’t as empowered as they were just a short while ago. The planner has to sell her boss on a deal, and on the corporate side, procurement as well. Hotel revenue managers must sell customers, bosses and owners. It’s a chaotic situation.”
Contract Negotiation Tactics
Individual planners are particularly pressed in the current market, Scypinski says, and some are seeking third-party negotiating help with meetings bookings.
“The individual planner who is not with a big corporation or association, [who] does maybe eight to 10 meetings a year, is in a tough place now,” Scypinski says, “and many are outsourcing the booking process to others who book thousands of meetings per year.”
Flexibility has never been more important, Scypinski adds, and it’s a good idea to play hotels off each other in the contracting process.
“Go to three cities at least, and look at second- and third-tier cities like Nashville; Fort Worth, Texas; and Cleveland. They are just some of the destinations that are beefing up their facilities portfolios in some cases to first-tier city levels.”
He also advises planners to understand the marketplace and to be conservative as much as they can in blocking rooms and committing for spend like F&B.
Freitag adds that planners need to stop negotiating for short-term contracts.
“Rates are rising and will continue to rise, so the wise planner is contracting for long-term value and relationships,” Freitag offers. “To capture good rates now, it’s time if you can to approach hoteliers with multiple pieces of meetings business. Ask them what they can do for you if you give them three to four years of your annual conference, for instance.”
Howe follows that advice with a reminder to planners that “longstanding clients almost always get different treatment from ‘Joe Blow from nowhere.’”
“I like also to remind everyone on both sides of the table,” Howe adds, “that this industry has been and remains the ‘hospitality,’ not the ‘hostility’ industry.”
