For many resort hotels, this past winter was anything but cold. A surge in both corporate meetings and leisure business coupled with a lack of new resort development is challenging corporate meeting buyers seeking high-end rooms at reasonable rates.
More vulnerable than most other types of lodging to economic conditions, resorts, which bore the brunt of recession and fallout from the Sept. 11, 2001, terrorist attacks, now ride the crest of a strengthening economy. According to the 2005 "Trends in the Hotel Industry" survey by PKF Hospitality Research in Atlanta, resorts, along with convention hotels, are expected to experience the greatest revenue growth among all lodging segments in 2005.
According to Robert Mandelbaum, PKF's director of research information services, resort hotels understandably are eager to seize whatever opportunities they can to make up for the lean years. "Resorts are rebounding, but because they were the hardest hit after 9/11, they have a lot of ground to make up for," he said. "Occupancy rebounds first, then rates: 2004 brought occupancy rises; 2005 will bring more aggressive room rates. Rate growth will continue in 2006 and 2007. There will be a return to the seller's market."
Others in the industry believe the seller's market is already here. "Room rates in season are really on the rise," said Jim Schultenover, president of the Krisam Group, a site selection firm based in Washington, D.C. "Meeting planners' expectations are not always in line with what is happening. They are expecting only moderate increases, but rates are rising faster than that. We're seeing rates of $400 or $500 a night at top resorts."
Schultenover noted that many corporate meeting budgets, particularly those that were allocated last year, are not adequate to meet the jump in rates. He added that meeting at resorts during shoulder or low seasons makes more economic sense than ever. "Demand for resorts is growing especially fast during the high-demand season, something that we're seeing in all destinations, including those offshore," he said. "It's not that you can't find availability, but it will cost you more."
Jerry Janove, director of sales for the Resort Meetings Consortium, an Orlando-based organization that assists corporations in negotiations with resorts, found a similar scenario. "Resort demand is going up in 2005—way up," he said. "Business is being done that wasn't being done in years past. The outlook for this year and 2006 is really strong."
Finding good rates and availability, especially in popular destinations such as Florida and Las Vegas, is growing ever-more challenging, Janove added. "High season in south Florida is really expensive now and there is not enough supply to meet demand, especially from January through April and on weekends," he said. "Room rates there are up 5 to 8 percent this year—and that's on top of room nights already at $250 and $300 a night."
On the brighter side, however, Janove said that resort fees and food and beverage costs remain relatively flat. He also is seeing fewer charges resulting from attrition. "There are fewer problems from attrition now because the rooms are being picked up—there's little problem in filling up room blocks," he said, "and the resorts can easily replace business on short notice."
Janove believes that resort room rates are now close to their record-breaking 2000 levels and that the cycle once again has returned to the seller's market.
"Hotels will do the best they can, but it might not be as good as you expect," according to Janove. "The economy has turned around and they need to realize their potential."
In another trend, Janove said he is seeing the size of resort meetings grow larger, something that poses a further challenge in times of tight availability. "We are using overflow hotels more in resort locations," he said. "Not because we want to, but because we have to."
Availability, rather than rates, is seen as a bigger challenge for resort meeting buyers by Mike Burns, regional vice president of Conferon, a meetings management firm. "Budgets are looser and people are meeting more at high-end properties, including resorts," he said. "It's a catch-22. Now that more people can afford resorts, it's harder to get in."
In particular, higher attendance at incentive meetings is driving more business toward resorts, Burns noted. "As the economy improves, more people are qualifying for incentive rewards, so these groups are getting larger," he said.
With most corporate meetings booked with short lead times
(see story, page 27), Burns said companies are having a harder time getting their top pick of resorts. "More people are settling for their second or third choice," he said.
With availability a bigger challenge, some companies may be planning further ahead. According to Barbara Talbott, executive vice president of marketing for Four Seasons Hotels and Resorts, this is a noticeable recent trend among corporate meetings. "We're finding that planners are booking further ahead," she said. "The pace of inquiries for 2007 has picked up greatly. The improvement in the economy has given businesses of all kinds the confidence to plan ahead."
Bill Briscoe, chief industry relations officer for the site selection firm HelmsBriscoe, said that while many resort meetings still are booked in the short term, there has been a noticeable opposing trend. "People have seen how hard it was to get space at the properties they want this year, so some are now locking in space for 2006 and 2007," he said.
Flexibility also has become more important. Robert Purdy, executive director of sales for the resort division of Hyatt Hotels & Resorts, said a willingness to shift meeting dates by a day or two can make a big difference. "Resorts are paying close attention to arrival and departure dates," he said. "A Sunday arrival date is key. If groups can go for this, it really helps us accommodate them."
According to analysts, resorts are likely to stay in a strong bargaining position for years, barring economic or geopolitical disasters. The reason is that hotel companies are building few new resorts and, according to Mandelbaum, it could be a while before many new projects begin.
"Traditionally, it is an increase in supply that keeps things competitive, but now development is very slow," Mandelbaum said. "It is very difficult to get a full-service hotel or resort built right now. Even though resorts are improving their revenue, their profitability is still not what it was in 1999 or 2000, so the lending community is very reluctant to finance resorts right now."
Mark Lunt, hospitality practice leader for Ernst & Young, agreed. "Resorts are not only benefiting from rebounding corporate and vacation business, but from a lack new supply," he said. "Resorts are a huge undertaking and take a long time to get financed and built. Although things are on the upswing, it will take new development years to happen."
Those new resort projects almost always include condominium units, according to Lunt. "Condo hotels are easier to finance because developers get money from the perspective home owners," he said. "It's unlikely that we'll see new luxury resorts get built that don't have a residential housing component."