As corporate transient demand spikes, corporate meeting buyers next year can expect less power when negotiating room rates, ancillary fees and contractual terms with hotels. However, hotels remain hesitant to reject potential corporate meeting business and are signing contracts with minimal increases.
"Hotels are confident in 2005 occupancies and rates and will look to increase their share of transient business at higher rates," said Bjorn Hanson, head of PricewaterhouseCoopers' hospitality and leisure practice. "They are not going to minimize meetings, but they will primarily shift to the individual traveler."
Corporate meeting buyers can expect negotiations to be more difficult than they were in 2003 and early 2004, Hanson said, as hotels will continue to yield- manage individual meeting aspects, including meeting room rental and food and beverage costs, charging widely variable prices based on demand (Meetings Today, April 26).
"Unless you're picking up lots of room nights, hotels will not be willing to negotiate across the board," Hanson said. "Planners who are flexible still can find the kinds of rates they paid in 2003 and early 2004, but if they are not flexible, they will find an unpleasant surprise."
Buyers reported some changes in their negotiations. "If we go out early, hotels still are very much willing to deal, but not so in the short term," said Peggy Lee, global travel and meeting manager for Sunnyvale, Calif.-based technology firm Network Appliance Inc. "If it's six months in advance of the meeting, a lot of hotels have space. If it's less than three months, they will negotiate less. There's nothing on the books six months out, so they will make things happen. If you know what to ask for, they still will give up a lot."
Lee asks hotels for specific contractual clauses allowing Network Appliance to reuse canceled space and reduce its meeting deposit and meeting room rental fees, but does so only after the room rate is negotiated. Hotels, she said, now are less likely to accommodate that negotiating approach and would prefer to tie negotiations on room rate directly to negotiations on contractual clauses.
"They are starting to try, and they will ask questions and move back and forth," Lee said. "They are very willing to negotiate on rate, depending on the caliber of the property—business meeting hotels are more willing than luxury, resort and leisure destinations."
"We're beginning to see what we experienced in early-to-mid-2001," said Barbara Cummins, associate director of meeting management services at New York-based PricewaterhouseCoopers. "We're not seeing very large increases in room rate, about 3 percent to 5 percent, unless we're looking at a very peak time."
Cummins said that percentage would be higher were it not for an "extraordinary increase in our meeting volume this year" and several long-term relationships with national hotel salespeople. PwC and other firms with very high meetings volumes, she said, probably are outliers.
"We've also had no challenges with contracts," Cummins said. "We have established good relationships, and the hotels are open to our contractual addendum and requests."
The trend crosses all domestic geographic lines, Hanson said, but still is changeable based on the demand of a given day. "It's hotel by hotel, day by day," he said. "San Francisco, for example, has seen improvement, but it started from a very low occupancy base. However, there are days when San Francisco is sold out." The exception is New York, in which hotel occupancy and room rates continue to soar, he said.
Hoteliers, however, said they are reluctant to prematurely stiffen meetings negotiations, as previous market recoveries have proven transitory and fragile. Still, they said, they will try to increase rates where they can.
"Demand is better, but it's still a bit iffy in certain hotels and destinations," said John Meissner, executive director of corporate meetings at Fairmont Hotels & Resorts. "They're not lined up to get in, but fewer dates are available."
Meissner said even as corporations generally appear ready to ramp up meetings operations, coaxing them to commit to meeting dates remains difficult. "Getting people to sign contracts is still tough," he said. "It's still a tightrope out there, and though it's much improved over last year, we're not out of the water."
Meissner said Fairmont has upped its rate to an extent and plans to do so further in 2005. "We have to give less away, and we are edging prices up a bit," he said. "We do need to get contracts signed, but we still expect some value. Hopefully, in four to six months the market will let us be more demanding." Meissner pointed to Scottsdale, Ariz., and Hawaii as markets in which Fairmont can push for higher rates, but noted Canada remains soft.
Those rate increases, Meissner said, lead to buyers' desire to negotiate better ancillary clauses and contractual terms. "Customers' budgets are pretty flat, so if you raise prices, they still want to see the value and expect us to give something in return," he said. "Nobody wants to let go."
Some buyers have expressed interest in multiple-meeting contracts, Meissner said, which Fairmont also is interested in negotiating. "We are talking about multiple-year and multiple-property contracts," he said. "Three pieces of business, three properties, over three years, for example. We'll add value there. We're doing those kinds of things with more customers."
"There's been an uptick on the corporate meetings side; meetings are both longer-term and have larger attendance," said Bob Dirks, senior vice president of sales strategy and development for Hilton Hotels Corp. "There may be a correlation to the transient market, but we're seeing meetings increase in all markets, including downtown city centers and resort destinations."
Despite the rebound, Dirks said, Hilton realizes most corporations' meetings budgets hardly are overflowing, so excessive price increases are not yet desirable. "All still is negotiable, as we're still not at a place where there is superb demand in every single city," he said. "Rate is always important to buyers, food and beverage is always important; open checkbooks are gone.
"We're not tightening up on policies, and there is no change in how we do business," Dirks added. "We do things with each individual piece of business. If we commit to a group, though, we expect that revenue to come through. We will not give space away to a company we know will cancel."
Hilton also has no desire to disrupt each property's individual business mix, even if a particular sector shows more consistent demand than others. "Not for us," Dirks said. "We believe in a balanced mix of business among business transient, corporate meetings, association meetings and leisure. We don't want too many eggs in one basket."
Dirks attributed the recovery to better corporate performance and overall positive economic signs, rather than any particular action on the part of hotels. "It's more the economy than anything else," Dirks said. "We're all flexible, Hilton and our competitors. It's corporate performance, stock price and earnings that have given the business community some overall confidence. If you look at business cycles, you always see when corporate earnings are up, you see more travel on the business side." Dirks expressed concern, though, about the troubled state of the airline industry (BTN, Oct. 4) and a possible down-the-line effect on hotel business. "Usually, you have to get on a plane before you get to a hotel."