Cos. Hold The Cards: Hotels Not Yet Feeling Strength Of Recovering Economy

Despite expressed optimism from hoteliers and third parties about potential growth in corporate group and meetings volume in 2004, as well as an economy that appears to be gaining strength, hoteliers have not been able to translate those trends into a stronger hand in corporate meeting negotiations.

Buyers generally found little resistance at the end of 2003 and thus far in 2004 negotiating favorable terms on both room rates and ancillary charges and contractual clauses, despite what seems to be a modest spurt of demand as last year closed. Hoteliers, thirsty for corporate meeting bookings and the ancillary revenue they generate, still are forced to negotiate for that business.

"December was outstanding for us, as hotels were very responsive to get deals done before the end of the year," said Rick Binford, national director of corporate sales for Twinsburg, Ohio-based meetings management firm Conferon. "They are still pretty aggressive and they want business on the books, especially in the near term."

Though hoteliers certainly would like to increase rates as much as possible, Binford said, they cannot do so without risking the occupancy, and ancillary revenue that comes with it, that corporate meetings deliver. "They will try to raise rates whenever they can, but they cannot draw a line in the sand because they can't be 100 percent sure they'll replace it with another piece of business," Binford said. "They will have to compete. They will try to raise rate at every opportunity, but they will not leave rooms empty to do so."

"Hotels are being very aggressive with short-term rates, going out to about 12 months to 16 months of lead time," said Greg Malark, executive vice president of Scottsdale, Ariz.-based site selection firm HelmsBriscoe. "Beyond that, they're trying to hold the line."

Buyers with small, short-term corporate meetings still are finding significant flexibility in hotel negotiations, on both rate and ancillary charge negotiations, Malark said.

"Not to over-generalize, but buyers are seeing aggressive rates, as well as coffee breaks thrown in and flexible contractual terms, especially if you're able to hit a hole," he added. "We're getting tremendous business with two weeks to five weeks of lead time and, quite frequently, they are able to be accommodated."

But hoteliers' focus on occupancy above all eventually will lead to some restricted supply, Malark said. "There's a sense that space will tighten up," he said. "Hotels booked a lot of groups at the end of last year. Larger groups should buy in the near future because rates and space will soon be tight."

Bjorn Hanson, head of PricewaterhouseCoopers' hospitality and leisure practice, echoed that theory. "Their confidence may build as the year progresses," Hanson said. "It could be wise to negotiate now and not wait until the spring and summer." He said meeting rates should rise throughout the year by a similar margin to the 1.9 percent that the firm forecast overall average room rate will rise in 2004. "This year, the base number for rate increases for meetings is 2 percent," he said. "That's not too bad, but it's for off-peak, smaller meetings. It's a larger increase for peak periods, in the 8 percent to 10 percent range."

Given other meeting charges—meeting room rental, food and beverage consumption and setup fees—the overall cost for a small, off-peak corporate meeting could rise about 4 percent from 2003. But, Hanson noted, hoteliers may well be amenable to trading rate increases for ancillary charge reductions. "What can happen if planners agree to that is the possibility of other charges being waived, like high-speed Internet or fees for receiving incoming packages, that can offset the rate increases," he said. "Management is pushing to get the RevPAR up, which leaves a window for other charges being waived."

Other analysts said higher meeting costs are unlikely due to the difficulty of forecasting meeting demand. "They're expressing optimism, but nothing has really materialized," said another industry analyst who requested anonymity. "Every operator talks about groups being weak, then pauses and says that associations and conventions are fine. Corporate is harder to predict. In general, they'll talk a lot about optimism because they don't want to let on to customers that things aren't quite there yet. It's going to be a slow turnaround."

Though Fred Shea, vice president of sales operations for Hyatt Hotels Corp., was very bullish over the chain's results in the final three months of 2003 and projected business for this year's first quarter, he noted that the recovery was not geographically consistent.

"Some markets are still struggling, and corporations will look to places they have not gone before," he said. "We're trying to take things very cautiously, with no significant changes. We have to remember that cycles go up and down, and that we must maintain relationships. Go after the business, but don't get crazy."

Buyers, too, noted little change in ongoing negotiations.

"They are expressing optimism, but they are still pretty flexible with us, especially with larger groups," said Julie Steible, events manager with Dayton, Ohio-based NCR Corp. "We're not seeing too many major changes to what we had seen before."

Steible noted that NCR's meetings business also has changed little of late—about the same number of meetings, length of lead time and attendees as the company has staged in previous years. Though hotels have tried at some points to push for higher rates during negotiations, Steible said, those efforts largely have failed.

The current negotiating climate, though, is driven by other factors beyond hotel supply and buyer demand. A general move toward the standardization of corporate meeting contracts, partially driven by the growth of procurement philosophies in the meetings arena, will leave room rate as the key negotiating point, Conferon's Binford said: "As the non-rate elements of group deals become more consistent, the rate becomes a bigger divining rod."