Corporate meeting buyers during the past six months have found far fewer bargains at hotels for small, short-term meetings both when compared with prices for longer-term events and the deals they negotiated one year ago for those meetings, according to a new Meetings Monitor survey of 195 respondents.
Hotels of late have focused their negotiations with short-term meeting buyers on rate, buyers reported, more so than on ancillary fees or contractual attrition and cancellation terms.
Several factors are at play in the short-term meeting rate squeeze: Some hotels are seeing an increase in the volume of short-term corporate business and the percentage of all meetings that are booked within 90 days of the events and have adjusted their prices to meet the demand. Some properties and hotel chains have upgraded their yield and revenue management systems. And one year ago, when the United States had just begun a war in Iraq, many properties slashed rates to draw in any short-term meetings business they could.
According to the survey, only 12 percent of buyers said the average rate for their meetings planned with fewer than 90 days of lead time is lower than the average rate for longer-term meetings. That is a significant drop from a Monitor poll in March 2003, which showed 34 percent of respondents believed short-term meeting rates to be lower than their longer-term counterparts.
About 20 percent of respondents feel short-term average rates are higher than long-term rates; 10 percent thought so last year. The remainder in both surveys thought the average rates were about the same regardless of lead time.
"We are seeing some hotels trying to charge as much as 67 percent higher as they were last year," said John Lowry, manager of meeting planning and the hotel program at New York-based Altria Group Inc., the parent of the Kraft Foods and Philip Morris family of companies. "And those are from hotels that sought our business when they needed it last year and we obliged them."
Lowry said the changes are due to a few factors, including a tightening of available hotel inventory in the short term and a desire among hotels to re-establish room rates after years of cutbacks.
"The rates went below where they should have gone," Lowry said. "The hotels did not respond well to the economy or to Sept. 11, 2001. They became cutthroat [with each other] with rates, and there was no rate integrity. Now, they are a bit more buoyant."
Availability, too, has played a part, Lowry said. "A year ago, we would call 10 hotels and get eight responses back," he said. "Now, we'll get four or five."
Despite the increase in rates, Lowry said, there are still opportunities to negotiate other meetings-related costs with hotels. "You can still get ancillary charges because they all are so rate-conscious."
Other buyers, too, noted they are paying more for short-term meetings than in the recent past.
"If I'm delivering repeat business to a property, they'll keep most of my terms and conditions," said one large-corporation meetings buyer who requested anonymity. "If I haven't dealt with the hotel before, it's getting tougher in the short term on rate, attrition and cancellation. At least it tends to perpetuate itself: Once I work with a property, they are more flexible the next time."
The buyer said the hotels typically are negotiating corporate group rates with greater intensity than ancillary fees or attrition and cancellation clauses. "If I give in on the rate, they are more apt to work on the other stuff," the buyer said. "For me, rate is just another bargaining point. Fight me on attrition and cancellation and I'll fight you on rate. If you help me out with risk management and be flexible, I'm more apt to accept the rate."
The buyer pointed to Las Vegas and Orlando hotels as particularly difficult to negotiate with for short-term meetings, and downtown properties in other major cities less so. "Business must be picking up, because they are being more selective," the buyer said, "but it could also be the result of the hotels being burned too many times on cancellation."
Hoteliers noted that corporations have negotiated in a buyer's market for some time, and that it is natural for there to eventually be some pushback in negotiations. Some chains are detecting an uptick in meetings business and feel more confident that more such revenue is on the way.
"The pendulum is swinging away from being so one-sided to what is now a more balanced equilibrium," said Jeff Senior, North American brand president at InterContinental Hotels & Resorts. "Planners have options in the short term, but because we know there will be those short-term bookings, we have the confidence to hold the line a bit and charge what we think is appropriate."
Senior said the balance between accepting or rejecting a corporate group during negotiations in the short term, and the balance between maximizing revenue and not driving buyers to other properties, is critical to maintaining the most profitable possible mix of business in a hotel.
"You have to have confidence that meetings are going to materialize on a very short-term basis," Senior said. "It's a challenge to forecast and also manage the mix of business in the hotel, as it's important to have the appropriate amount of group business. Groups drive catering and ancillary revenue, so we don't want to see just one segment booked, but neither do we want that space empty."
That effort has been augmented, Senior said, by InterContinental's introduction of new internal information management technology. "Dealing with short-term business has become the new standard, and we have had to change the way we do business. I like to think we were very responsive before, but now there is a necessity to be so. We had to invest in some new technology to better manage relationships and move information around our system," he said. "That technology supports our group efforts."
Ritz-Carlton Hotel Co. senior vice president of sales and marketing Bruce Himelstein said the luxury chain recently has seen an increase in corporate short-term meetings volume, compared with one year ago, but denied that rates had increased across the board as a result.
"There's a lot of demand in the short term, and we're seeing even more volume in that segment than we did at this time last year," Himelstein said. "But we take every booking as it stands on its own merit. There has been no direction that says, 'now that this has happened, we have to do this.' We treat each meeting as its own entity."
That is not to say that there has been no rate increases for meetings at any Ritz-Carlton, however.
"We do support supply and demand," Himelstein said, "but each market and each segment is distinct. Some have not yet rebounded, some are very dependent on citywides. It's all relative."
One other aspect of the decline in available meeting deals in the short term is the relative difference between meeting rates offered to corporations and the annual transient rates they negotiate. For two years, meeting rates have trended higher on average than corporate transient rates, though some large companies—or buyers with a high level of control over meeting site selection—have succeeded in paying that transient rate for meeting bookings. As availability tightens, this may change.
"Depending on the yield management capability of the property, when they are booked to capacity they are much less willing to give the corporate rate instead of the meeting rate," said Shimon Avish, director of professional services for American Express Meetings & Incentives. "Sometimes, you can get a better corporate rate than a group rate, but it depends on the property and the time of year."
Buyers' experiences thus far in 2004 square with predictions that this year would be a more difficult year in which to negotiate
(Meetings Today, Nov. 10, 2003). PricewaterhouseCoopers late last year indicated that meeting planners should expect guest room rates for meetings to average about 4 percent more than in 2003 and, in some cases, more than 10 percent in key markets during peak seasons.
As for short-term negotiating, a vast majority of buyers surveyed do not believe there will be any lengthening of lead times in 2004 (see story, page 32), and there have been no indications that most companies plan to cut meetings throughout this year. As such, hotels should have a base of short-term meetings business to depend on for the remainder of the year. However, not everyone said that meetings will continue to sport as little lead time as they recently have.
"Short lead times are not getting any shorter, and they've been pretty consistent over the past eight to 12 months," Senior said. "What's different is that there is now a real desire among corporations to start booking farther out. There are a few companies doing that, but, for the most part, they're still booking short term. Yet, they plan to be more aggressive in making their meetings longer term."