Cos. Try Easing Rate Pain: Seeking Preferred Hotel Deals To Mitigate Increasing Meeting Costs

Such negotiating tactics as the establishment of preferred meeting hotels have been successful in keeping hotel rate increases to a minimum this year, but will not stem the tide of rising meeting costs that buyers will have to navigate in 2006 as hotel rates and all other costs are set to rise and buyers see corporate meeting discounts dwindle.

Bjorn Hanson, head of the hospitality and leisure practice at PricewaterhouseCoopers predicted that hotel group rates may rise an average of 5 percent to 7 percent in 2006, but primary cities may see even higher jumps in peak seasons. "In cities like New York next year, we may see 10 percent to 15 percent increases in spring and fall peak meeting periods," Hanson said. "That's just the rates. There will be lots for planners to look out for in food and beverage charges, meeting room charges, surcharges and fees. That will be even more aggressive in 2006 than it was in 2005."

Rate hikes have become a "self-fulfilling prophecy squared," Hanson said, as talk of increases influences the market. Hotels may try to set expectations of rate hikes high to prepare buyers for increases.

Meeting buyers can expect average hotel rates to increase anywhere from 7 percent to 11 percent, depending on the property and market, said Hyatt Hotels Corp. senior vice president of sales Ty Helms. Properties increasingly will turn away groups next year based on revenue, not just availability, he added.

Hyatt has employed a range of yield-management techniques for meetings demand, Helms said, including better rates for off-peak bookings.

"We're making customers aware of the opportunities where they can save more money if they can change patterns by a week or by a day. Our revenue systems at hotels and our yield-management processes are getting much more sophisticated than they ever have been before," Helms said.

Helms said buyers should look for opportunities to bring more revenue to a hotel to get greater discounts. For example, if food and beverage is needed for an event outside the hotel property, the hotel may be able to provide catering services.

"Sometimes we aren't aware of other revenue opportunities within a group and maybe they aren't either or think it's not important to us," Helms said.

Hyatt will continue to offer multi-year, multi-meeting discounts this year as the popularity of such programs grows with meeting buyers, he said.

Only 7 percent of respondents to a Meetings Monitor survey of 189 corporate meeting buyers said their meeting discounts have increased this year at hotels. Most respondents said their discounts have remained the same or decreased. According to the survey, 37 percent of respondents said this year they are receiving smaller hotel meeting discounts compared with 2004. More than half the number of the respondents, 56 percent, said their discounts have remained the same.

Even as hotel discounts for corporate meetings weaken, buyers have been able to develop and fulfill preferred meeting vendor arrangements. According to the survey, 55 percent of respondents said their companies have developed preferred vendor arrangements with hotels specifically for meetings. Among those that have preferred meeting hotel partnerships, 13 percent said they were able to place all of their meetings at their partner hotels and another 54 percent said they were able to place the majority of their corporate meetings at preferred hotels.

Bob Steiner, director of procurement for Minneapolis-based Fair Isaac Corp., said preferred vendor relationships have become even more important as hotel rates increase.

Fair Isaac is in the initial stages of a new meetings management program and is collecting data on group hotel rates to develop a preferred vendor list, Steiner said.

"With preferred vendors, you're much more inclined to work with those suppliers that are supporting you and you can provide business to. They're much more willing to provide you the impetus to continue to stay at their properties," Steiner said. "It all goes back to relationships. If you're providing business like any supplier-purchaser relationship, then they're willing to work with you to meet your needs."

Fair Isaac, a developer of credit-scoring systems, has more than 320 meetings per year worldwide. Steiner said as hotel demand increases, corporate groups increasingly might be turned down on the basis of revenue, not just availability.

"You're going to find that too prevalent," he said, "especially with the loss of areas like New Orleans and how that impacts the transient and meetings market in other places."

Fair Isaac this month had a sales meeting scheduled in New Orleans that it had to relocate, Steiner said.

"Of course, with last-minute planning, you're going to pay more money. In those areas that are great conference areas they can now charge more for their hotels," Steiner said. Events with short lead times are more greatly affected by market demand, he added.

"We're advocating to our executives to keep in sight where we are going to be at in three to five years, so they can at least start the initial preparatory work and put contracts in place so we know we're protecting ourselves," he said. "With inflation, increases in cost and everything else, you know the prices are going to go up."

Diane Reardon, senior director for regions and groups for Carlson Hotels Worldwide, said as demand becomes stronger and transient business increases, hoteliers next year will look at how much revenue a corporate group can generate, not just whether enough availability exists.

"Increasingly, we're looking at the total package," she said. Key factors for a corporate group include committed room blocks, catering spend and how much risk a corporate group brings to the table. Good deals depend on how credible a corporation is and what data it can provide to prove it can meet its volume commitments, she said.

Hotels in such primary meeting destinations as New York and Washington, D.C., would be more likely to turn groups away based on revenue, she said.

Jo Ann Gallardo, Round Rock, Texas-based hotel and meeting coordinator for Dell Inc., said in 2005 she has been able to avoid significant increases in group hotel rates thanks to preferred vendor relationships, but expects 2006 to bring higher hotel costs.

"It sounds like rates are really going up," Gallardo said. "In 2005, we did really well. We were able to stay flat on increases at a lot of our hotels, and I have to say it was due to our partnerships."

Gallardo said Dell had the greatest success in keeping rates steady in cities where it could commit significant volume. The company has a non-mandated meetings policy.

Gallardo said she doesn't expect those strong partnerships to be able to keep group hotel rates as steady as they were this year.

"Based on what I'm hearing, I have a very strong feeling that rates are going to go up," she said. "I think it's very important that we come to a win-win situation for both sides."

Gallardo acknowledged that hotels have business goals and profits to generate just as any industry does, but said hotels should take a long-term approach to corporate meetings business. However, properties at prime locations tend to value relationships less, she said.

"I find that hotels that are conveniently located take advantage of that and their rates seem to be much higher than the hotel down the street. I have a problem with that," she said.

Taking a preferred meetings hotel relationship to unusual heights, Carole Liberti, vice president of corporate travel and meeting services at Chicago based Information Resources Inc., said she was able to lock in a three-year contract with a local hotel that set group room rates at the negotiated transient rate and includes a standing room block.

Liberti said she is able to commit all of her Chicago meetings volume to the property, and has developed the partnership for years.

"We have a really good deal and we did that for a reason. We didn't want to be in a constant state of negotiating and plus we wanted to lock in our low rate," according to Liberti. "That hotel gets all of our business."

The agreement ends at the end of next year, she said. IRI, a market research firm, has about 5,000 room nights a year in Chicago and the company has developed the preferred hotel partnership for six or seven years, she said. "We're their number-one client, so that helps," she added.

Even though IRI has been able to lock in a good rate in Chicago, Liberti said she heard that hotel rates will increase next year.

"I do hear that hotel rates will be going up and I don't know if that's a self-fulfilling prophecy," Liberti said. "Because everybody's saying it is then maybe it will be."