Hilton Hotels Corp. is expected to shift its business mix away from discount group blocks to higher-margin leisure and transient business travel, according to an earnings forecast by JP Morgan Securities released Feb. 1. Buyers said they already have seen rate increases for group corporate bookings, and expect a tougher year ahead for negotiations as the market cycles back to favor vendors.
"Hilton is benefiting from a more profitable business mix, with less discount/contract business and a growing amount of higher rated business transient and corporate demand," said Harry Curtis, lodging industry analyst at JP Morgan Chase, in his report.
Robert Dirks, Hilton's senior vice president of sales and marketing, reaffirmed the chain's commitment to groups as "the backbone of our large hotels," but said Hilton will attempt to accommodate more transient travelers.
"We're trying to better balance our market now that business travelers are coming back," Dirks said.
Corporate groups made up an abnormally high level of business after the terrorist attacks of Sept. 11, 2001, when transient travel shrunk, Dirks said, but now the market has begun to rebound.
Dirks said groups "have always proved their value," but that Hilton is taking another look at their placement.
"You don't want to displace the business traveler by taking a group that will fill up the whole hotel," he said.
Tighter negotiations for corporate group hotel rates have been expected for many months
(Meetings Today, Oct. 18, 2004).During the past four years, groups have become more important to hotels than they had been for decades, said Bjorn Hanson, global head of the hospitality and leisure practice for PricewaterhouseCoopers.
The percentage of demand represented by groups either remained the same or increased, but the percentage of revenue that groups represented to hotels increased more, Hanson said.
"The convention group became relatively more important, were treated very well and were able to start to negotiate rates," Hanson said. "But now, as individual business travel is returning, hotels are focused on how to allocate resources to marketing and surveying the Sunday-through-Thursday business traveler."
Corporate group buyers can expect other changes in addition to higher sleeping room rates, Hanson said, as hotel chains start to use yield-management methods for meeting space. Meeting room rates may increase during busy periods and hotels may begin to charge for banquet room rental, he said.
"The market has turned back to a sellers' market and that's really coming to fruition this year," said Lisa English, manager of conference planning for ING Advisors Network. "I expect rates to go up and I expect our lead times to get back to what they used to be."
English said she already has seen a slight rise in rates and longer lead times required in hotel contracts. ING has begun to cut back on entertainment and incentives for attendees and to seek opportunities where events could be combined or eliminated, she said.
"At the same time, we have some meetings that are coming back that haven't taken place in the past couple of years and we're trying to work those in still within the budget—so it's going to be a challenging year," English said.
ING meetings budgets have not yet reflected the rise in hotel costs, English said, and in the next few years the practice of marking up annual budget forecasts a certain percentage to accommodate rising costs may resurface.
Sherry Drzewicki, manager of meeting services for Kawasaki Motors Corp.'s U.S. operations, said she also expects hotel room-block rates to rise this year.
"Negotiations are going to be a little tougher this year than in the past two years," Drzewicki said, and added that her meeting budgets have remained the same as last year. Kawasaki's largest event requires more than 1,400 peak room nights, she said.
Hanson said the full ramifications of the hotel rebound would not be clear until after most corporate negotiations for this year were completed
(see story). Group buyers, however, now can expect a sellers' market, he said.
"In 2005, clearly, hotels will have a stronger balance of power in negotiations," Hanson said.