The ability of corporate meeting planners to manage contracted hotel room blocks has been complicated by a series of recent trends and events, requiring a higher level of attention to ensure that all attendee hotel bookings are credited to the room block, lest contractual attrition clauses be triggered.
The rise in prominence of merchant-model Web sites, the continuing propensity of many leisure and transient room rates to be lower than contracted group rates and, most recently, the decisions by most major hotel chains to guarantee low transient rates on their own Web sites all have set hurdles for room block management efforts. Additionally, as hotels begin to feel more optimistic about the growth of future meetings business, they are becoming more likely to negotiate more stringent attrition clauses.
Attrition is of tremendous importance in association meetings management but typically felt most by corporations for larger events in which attendees—often non-employees—register their attendance. The effect of attrition is described in detail in a voluminous report released last month by the Convention Industry Council.
That report, dubbed Project Attrition, includes a survey of 302 association and corporate planners of which 32 percent paid some type of attrition fee to a hotel between January 2002 and April 2003, up from just 4 percent in 1998.
"It's always a concern," said Tom Smith, manager of meetings and events at Woodland Hills, Calif.-based managed care firm Health Net Inc. "It's all the more reason I need to be on top of my internal clients and help [them] manage their lists and communicate as often as possible with the hotel."
Attrition management today is arguably more complex than ever before: Although new room block management technology has been developed and refined, the Internet also has offered attendees new distribution channels to find low hotel rates and book them outside the room block, though not necessarily outside the hotel. Low leisure and transient rates have proliferated and, for many attendees, finding rates lower than those negotiated by the corporate meeting buyer is often not a challenge.
Yet, the late-2003 decisions by nearly every major American hotel chain—including Hilton, Hyatt, InterContinental, Marriott (BTN, Nov. 11, 2003)
and Starwood—to at least guarantee the best Internet-only room rates will be found on their own Web sites have thrown an additional curve to room block management efforts.
As many attrition clauses are based on the contracted rate of the guest room, not simply whether or not the room was booked, a guest room booked at a rate significantly lower than the negotiated group rate significantly could hamper the corporation's ability to meet its room block revenue.
Of all rooms booked outside a group's contracted block of hotel space, said Paul Rantilla, senior vice president of sales and marketing for Quincy, Mass.-based group reservation technology firm Passkey International, about 25 percent will be booked in that same hotel. "It can have a significant impact," Rantilla said. "Resolving it is a laborious and confronted situation."
"It's absolutely possible, and it complicates the issue all the more," Health Net's Smith said. "That problem will always be there. It's sticky."
Hoteliers acknowledged the potential for the new rate-parity programs to potentially damage room block management efforts and said they are reacting accordingly. "We still give every group the ability to cross the registration list with the house list," said Starwood Hotels & Resorts senior vice president of industry relations Dave Scypinski.
Scypinski said buyers have tried a variety of methods during contract negotiations, including basing room block pickup on the number of room nights booked without regard to the rate at which the rooms were booked. As the economic outlook brightens, he said, these negotiating tactics are less likely to succeed. "We'll see clauses that say that if one attendee finds a cheaper rate, then everyone gets that rate," Scypinski said. "We tell them, 'Thanks, but no.' Also, we'll see clauses that request a dollar-for-dollar credit regardless of the rate booked, but we're not going to give $169 worth of credit for a $99 booking. Maybe we'll settle on $129, but we will try to accommodate them."
That said, Scypinski noted that if a piece of group business is valuable enough to a hotel, due to the event type, size or dates to be staged, then it is conceivable a buyer successfully could demand that all booked rooms be credited at the contracted rate, regardless of the actual rate paid. "As times get better, we move further away from that," he noted.
Scypinski said Starwood's standard clause allows buyers to receive the average daily rate of that day's bookings as credit toward the block, regardless of actual price paid.
Since most attrition clauses today are based on the price of the guest room, Smith said, the importance of room block management is heightened. "The hotels are great to work with, and we will fulfill our contract obligations," Smith said. "And they hold me to it."
Hilton Hotels Corp. last month introduced a software application that works with the chain's property management system to allow planners to access an automated cross-reference of group registration lists against hotel rooms, in certain properties (Meetings Today, Jan. 19).
"It's the number-one issue for a lot of corporate planners," according to Hilton Hotels Corp. senior vice president of sales Steve Armitage. "They've tried a lot of different things to find solutions, like having two different fee structures on registration materials. That's been very helpful."
CIC's Project Attrition details the likelihood of success of dozens of methods of mitigating attrition, concluding that only a handful—including offering attendees a discounted registration fee for booking hotel rooms via the preferred channel, or denying registration to attendees without a reservation at the event-contracted hotel—have a very high likelihood of consistent success. The report effectively assumes planners will compare registration lists to rooming lists frequently and thoroughly.
"I so carefully, and verbally not just electronically, talk with the internal clients about their needs, their histories, their room block pickups," Health Net's Smith said. "We need to show them that it's important not to get into a problem with the hotel or we'll have a financial ordeal. I've treated it with kid gloves more than ever before."
"It sounds obvious, but you have to compare the registration lists to who has booked rooms," Rantilla said. "Knowing that and being able to stay on top of it is highly important to the success of the meeting. You're blind otherwise, and you'll ask for a list of who booked three weeks before the event, which is really difficult."
Passkey has developed several applications for hotels and planners designed to mitigate attrition. A combined strategy of attendee incentives and Passkey tools can shave the number of attendees who book outside the block by about 5 percentage points--from 15 percent to 10 percent, for example. But there's a limit as to how much attrition can be avoided through any tactic. "That's the $64 million question, and we're trying not to make grandiose claims," Rantilla said. "There's no way you can eliminate it entirely, but you can get a 5 percent swing with a few things compounded together, especially if you have a captive audience."
Passkey has a handful of contracts directly with large corporate clients, Rantilla said, but most planners come into contact with the firm's tools through its alliances with several hotel chains, including Hyatt, Marriott and Omni. The company has developed applications to import rooming lists into its reservation system from Microsoft Word and Excel, and has links to more than 50 public and private registration systems. Passkey's tools were cited in Project Attrition as a technology application to help manage attrition, as were several other technology tools, including HrrtSolutions, Travelhero and Cardinal Communications' ResPath. "We're trying to ensure the automation of all group reservations," Rantilla said.
As the economy improves, Rantilla said, hotels will be less likely to offer heavily discounted rates, somewhat limiting the problem of book-arounds. "There will always be some challenges, but the question is the extent of the attrition," he said. "As the economy improves, group rates will begin to have more integrity, and you won't be able to book a luxury hotel for $119 per night. It won't be as tempting to book outside of the block."