Hotels Squeeze Mtgs.: Chains Seek To Make Up For Lost Business Travel Revenue

Major hotel chains are targeting corporate meeting business not only to bolster occupancy levels but also revenues, leading to an extremely unusual market that, in some major cities, has led to higher average guest room rates for meeting blocks than for corporate transient travelers.

The continuing hospitality industry slump also has led to an increased willingness by chains to negotiate more far-reaching meeting deals with certain corporate clients, offering multi-meeting deals and standardized contract clauses in exchange for increased share and pledges to book group business in specific properties in the offseason.

Many corporations are leery of negotiating anything but single-event contracts, due to continued economic uncertainty and the lack of speed with which corporations are increasing meeting budgets. They are not finding hotels as financially accommodating during rate negotiations as they may have hoped or expected—though they are finding movement on ancillary charges.

"Hotels are trying to firm up their rates, are experimenting with higher rates and finding planners cooperative. They're not negotiating every dollar," said Bjorn Hanson, global industry leader of PricewaterhouseCoopers' hospitality and leisure practice. "Planners think we are in the midst of a recovery and therefore expect rates are going up, and few are testing hotels' willingness to walk away from the business."

This is in spite of continued weak overall occupancy levels. "Occupancy is down and still soft," Hanson said. "Though it's better than in the fourth quarter of 2001, it's still only at 59.8 percent (projected for full year 2002), and it's only been lower than that in seven of the past 75 years. In some cities, including New York, San Francisco and, in some months, Chicago and Orlando, the average group rate exceeds the transient rate. That has never happened before in history. It's not $40 more, but it is unprecedented."

This phenomenon was brought on by hotels' willingness to discount all rates after Sept. 11 to grow occupancy numbers, with meeting and group business the most effective avenue to increase those percentages due to the higher number of room nights. But, Hanson said, the pressure on properties to grow revenue has increased significantly, especially in light of the impending 2003 transient rate negotiating period this autumn.

Some hotel executives agreed that the unusual imbalance exists, but said the impetus behind it is not a sharp rise in meeting rates but a continued transient slump that has caused the average transient rate to decrease below commensurate meeting rates.

"It's happening, especially to groups that negotiated far in advance," said Steve Armitage, senior vice president of sales and marketing at Hilton Hotels Corp. "But because of the uncertainty, hotels react on a very short-term basis to transient booking trends. Transient levels are not picking up like they historically have, and hotels are very aggressive right now."

Christie Hicks, Starwood Hotels & Resorts Worldwide senior vice president of global sales in North America, agreed: "Transient has slowed and is not coming back as expected. Meeting business still is fairly robust in certain markets, but there are a few pockets. It's really not that odd. The markets determine so much."

Greg Deininger, vice president of national accounts for Marriott's global sales organization, however, dissented. "That shouldn't happen at Marriott often because of our pricing philosophy or rational pricing," he said. "Usually, as the transient rate comes down, the group price is something off the transient. It may be the case for a citywide.

In any case, the limited supply of meetings has led chains to broaden their deal-making perspectives. Since attracting meetings to offseason or slower properties and ensuring a higher share of meetings both are critical but difficult, the chains are attempting to achieve both objectives through different styles of corporate contracts.

"We are looking to form long-term relationships, including those that include annualized yield," Armitage said. "The customer can still get value for a specific date, but in the long term, if the customer has yields year-round, we can provide availability, products and services in times that are not as open. It has helped us and we're finding it happening more and more. Companies have impacted cost containment and want to leverage their spending, and there are more regional, national or global agreements because we have so many price points and distribution channels. We are having success and developing relationships with the Fortune 100 that we did not have."

Deininger said Marriott's willingness to negotiate more comprehensive deals or develop standardized contracts shows the chain's desire for corporate group business. "Most hotels are grouping up because transient business is down," he said. "There's a lot of dynamics here. We're seeing more partnering with buyers and leveraging those relationships with multi-city or multi-date deals. We're seeing some standardizing of contracts. The largest companies and our best clients are doing that."

But many corporations don't have the internal structure that allows them to commit to either a specific amount of volume or the ability to direct meetings to properties the chain would like to bolster. Also, even those that can may not be inclined to ink such a commitment given the continued flux of the meetings industry and the economy. Still, Deininger said Marriott is prepared to help certain corporations that want to walk this path.

"In many cases, we provide the information on how to consolidate because of our data warehouse," Deininger said. "We can show the customer who is planning the meetings in the organization. It lets them understand the spend as we see it, and we share that with our top clients."

For most corporations, even those that have centralized meeting departments, current trends may not augur well for lower rates, but they do for negotiating ancillary charges, including meeting room and banquet room rental fees, food and beverage commitments, resort fees and contractual cancellation and attrition terms.

"We certainly see more flexibility, but we book very short term, and we've seen an increase in use of value dates," said Carol Muldoon, director of meeting services at Montvale, N.J.-based KPMG. "There's been more flexibility with terms and conditions, and hotels are more willing to accept our contract addendum terms. We're able to make strong recommendations to our internal clients about value dates, and they usually go along with us. The hotels need to be flexible, and we make sure we get the best deal."

A contract manager at another large company who requested anonymity also found great negotiability of attrition and cancellation clauses with little hotel pushback. He has been able to focus negotiations on amenities rather than rate for both transient and meetings negotiation, a process through which he has realized great concessions.

The hoteliers acknowledged ancillary charge negotiating opportunities. Deininger specifically noted buyers looking at meeting room rental, resort fees and other surcharges. PwC's Hanson said there has been flexibility with charges for audiovisual services as well

"There are still value opportunities if planners are flexible in date and location," Armitage said. "Most customers look at rate but still see the value of the whole experience, and understand there are a lot more variables than rate. We're listening to how hotels are giving great rate discounts for next year, but that is the exception. It may be occurring. We are open to discussion. If we can be flexible with space, with food and beverage, we certainly will. Many corporate buyers see a greater need to manage the master account."

Starwood's Hicks said the contractual flexibility simply shows that business has not picked up to the extent that hotel chains hoped. "There's a shorter booking window and more flexible discounting for favorable dates on terms and conditions and contracts, but it's not across the board," he said. "It's not picking up as quickly as we'd like. There's a lot of activity—destination searches—but not all of that is translating. We're balancing by brand. With the variety of brands that we have, we're able to balance revenue and occupancy. That's our strategy."