Cutbacks Spur Hotel Discounting

Corporate meeting cutbacks and a newfound buyer's market have led to more—or at least, not less—discounting by hotels trying to attract groups, according to a Meetings Monitor survey. The exclusive poll also showed that properties' willingness to bargain many aspects of each contract has slightly diminished buyers' incentive to create preferred hotel programs specifically for meetings.

The Monitor survey of 137 corporate meeting buyers found that 45 percent of respondents are receiving greater hotel discounts than they did 12 months ago, while an identical percentage indicated that the discounts are about the same as they were this time last year, leaving only 10 percent who said their discounts are smaller.

The trends behind those numbers are clear and have been well-documented: The domestic economic recession and Sept. 11 attacks have left hoteliers with more supply than is needed to meet the demand of a recessed corporate meetings market. The resulting changes in the market have been profound. Contractual clauses that not too long ago were all but sacrosanct, including meeting space rental fees and cancellation clauses, are now open to negotiation, as is room rate.

"We've seen discounts across the board," said Bill Davidson, manager of corporate travel and meeting services at Austin, Texas-based International Sematech. "There's been comped rooms, comped meeting space, reduced food and beverage charges, reduced audiovisual and contract concessions."

Also, Davidson said, some individual properties have taken the step of offering him guaranteed rates and space for meetings equivalent to transient discounts, regardless of the number of room nights or meeting space the meeting requires—a significant step for hoteliers wary of events with few room nights but high space requirements because of the resulting poor yield.

The major chains, though, don't paint such a dire picture and stress they have no intention of taking every piece of business strictly on the buyer's terms.

"In general, there are more opportunities for buyers," said Fred Shea, vice president of sales operations for Hyatt Hotels Corp. "On some dates, they do have more negotiating potential. But that does not mean we are going to change our negotiating philosophies, because those are still sound."

Shea said Hyatt had no intention of slashing rates to compete with properties to offer inferior service and product, and added many buyers are seeking for cost savings through other means anyway. "It's not all rate," Shea said. "Buyers are seeking overall flexibility in contracting, including easier cancellation and attrition clauses, and specific amenities for VIPs. That's added value. The problem is when they negotiate off the rate, then lower the food and beverage component, the business won't look as good to the hotel and they may not accept it."

JoAnn Kurtz-Ahlers, vice president of sales and business development for the Ritz-Carlton Hotel Co., compared Ritz's strategy with those of the airlines, which offer a wide variety of potential prices based on booking window, location and demand.

"Our strategy is not to discount but to offer a range of rates that's more open," Kurtz-Ahlers said. "We're offering rates that were not always there or not available due to demand."

That said, Kurtz-Ahlers believes her chain's wider range of potential rates will be temporary. "Right now, demand is up 50 percent from November and December," she said. "Our Naples, Fla., property just booked 15 meetings to be held within 60 days. I don't know if it's because demand is so pent-up or because corporations have the new year's budgets, but these days of extreme value are going to come to an end. Other flexibility, though, will not recede as rapidly."

Not every property, though, can bank on those types of current demand levels, and some meeting buyers have seized upon regional fluctuations in demand and willingness to negotiate to create better contracts and save money.

"We're seeing hotels more willing to dig deeper," said Lisa Trenda, manager of worldwide travel services at Minneapolis-based Cargill Inc. "But the process is still the same because there's peaks and valleys everywhere and there's different pricing because of it. But we try to work with the seasonality and the peaks, and we'll seek the valleys if it makes sense for our business."

It's largely for this reason that designating properties or chains as preferred solely for the purpose of meetings may not exactly take the industry by storm: Only 39 percent of Monitor respondents said they have done so, slightly down from the 42 percent who last year indicated was the case. With deals abound, buyers said, it's best not to limit one's options.

"We do tie our transient and meetings together to maximize volume," Trenda said. "If the specs for the meeting work, we'll offer our preferred transient properties the right of first refusal. More often than not, they're the best fit."

"Preferred status on the group side just doesn't mean that much," said Hyatt's Shea. You still have to negotiate rates, dates and space every single time."

Ritz-Carlton, however, has seen an upswing. "We're actually seeing more of it," Kurtz-Ahlers said. "People want more guarantees, and they're interested in pre-agreed contractual conditions more than they ever have been. It takes a lot of work on the front end, but it makes the back end quicker." She added Ritz only will consider such an arrangement when the event has a documented history with the chain.