Increases A' Comin': Hoteliers To Rein In Soft Rates, Contracts

Industry observers expect hoteliers to try to tighten negotiations with corporate meeting buyers in the coming year. Buoyed by positive economic indicators and internal and external forecasts of some increased corporate travel and meetings activity—however slight—hotels are seeking higher room rates and stricter contractual clauses governing ancillary revenue. Buyers are not at all convinced hoteliers will succeed.

PricewaterhouseCoopers forecast that overall hotel rates will increase 2.2 percent, despite the belief that many negotiated corporate transient rates will hold steady from 2003 levels or decrease slightly, said Bjorn Hanson, head of PwC's hospitality and leisure prcatice. 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.

Hanson said hoteliers will be more aggressive when negotiating meetings because of a general feeling of confidence in higher demand for 2004, and because transient rates are likely to produce little, if any, increased revenue next year.

"Corporate transient rates are being set right now, and corporate travel managers are being aggressive in those negotiations, and many rates will be flat or even decrease," Hanson said. "There are some signs that 2004 will be a good year for hotels, but they need business and they must be careful in the transient negotiating season. Plus, corporate transient rates are the maximum rates those travelers will pay, as the Internet could undercut them."

As such, PwC's Hanson said, with the corporate transient market offering limited potential, hoteliers will turn to meetings to increase revenue. "Meeting planners are not as budget-conscious," he said. Additionally, Hanson said, meeting buyers should expect the return of some ancillary charges that have been de-emphasized in recent years. Specifically, Hanson expects hoteliers to slightly raise food and beverage prices, or at least offer fewer choices for existing prices. Also, though many buyers have found meeting room rental charges negotiable of late, that may change in 2004.

"You'll see more charges and more yield management of meeting rooms," Hanson said. "Where they may have charged the same amount for a meeting room rental every day, now they might charge $1,000 for the fourth of July and five times that for April."

Still, despite signs that corporate meeting buyers will have less of an advantage in 2004 than they recently have had, it's not 1999 so hoteliers will have to balance their desire to ride the corporate meetings market to increased revenues with the realities of the still-tentative marketplace.

"When a hotel has 30 percent occupancy, its goal is to sell rooms. When it has 60 percent occupancy, its need to fill rooms lowers, and its goal becomes revenue maximization," Hanson said. "They will have varying degrees of success. One negotiation in the morning might get them nothing, while one in the afternoon might get them everything, but they will experiment to see what works."

Some hoteliers acknowledged that corporate meeting buyers, particularly those with little flexibility in potential meeting dates or destinations, should not expect to have a free hand in negotiations. "Industrywide, occupancy levels have returned to pre-9/11 figures," said Steve Armitage, senior vice president of sales for Hilton Hotels Corp. "That, combined with a low rate of supply growth, will leave customers with not as many options as they have had in the past. There're always great opportunities if they are flexible, but it's harder to find value in New York City in the fourth quarter."

Armitage added that the extensive cost-containment measures implemented by corporations, including reducing the number of meeting attendees, lengths of meetings and food and beverage consumption, make it less likely that buyers will realize levels of revenue requisite to reduce or eliminate ancillary charges.

"In the world of conventions and conferences, cost containment is now a way of life," Armitage said. "Corporations will not pay less attention to it. You see average size of meetings shrinking, shrinking F&B budgets, but as planners focus on cost containment, hotels have to look at value. Things that are sometimes free, like meeting space, if there's less rooms and F&B, there may be some more fees. These will be discussion points in the future."

"Negotiations are such a situational thing," said Dave Scypinski, senior vice president of industry relations at Starwood Hotels & Resorts. "To say we will take a harder line is dangerous, because we'll take a hard line any time there's pressure on a date. But we're not out of the woods yet. To toe a hard line is dangerous and premature."

Scypinski did not dismiss Hanson's forecast of a 4 percent increase on meeting guest rooms. "That's not unreasonable, but the whole thing depends," Scypinski said. "You might pay higher than that for short-term corporate meetings in pressurized cities and less than that in other cities. Nobody knows."

Corporate buyers, though, said they saw no current move to increase rates or ancillary revenue.

"I don't see it yet," said Tony Pastor, site and contract specialist for New York-based McKinsey & Co. "They're still pretty flexible in negotiations, especially at properties where we've demonstrated an ability to produce business in the past."

Pastor currently is negotiating for meetings throughout 2004, he said, though most are scheduled for the beginning months of the year. He sees little reason to believe hoteliers will start employing tougher negotiating methods. "I hope not," he said, "but business is not going to just shoot up. There's still a mist over the travel industry, and we're never that far away from an impactful event that could put it in a tailspin. Three years ago, hotels were willing to take chances and they would tell us they could do better by waiting for another meeting. In the next few years, though, the edge will go to those buyers with the time and experience to negotiate."

Another buyer said whatever projections hotels have created, they have not translated into more difficult meeting negotiations. "Not yet. We are still being successful in obtaining the terms we want to obtain," said one corporate meeting buyer who requested anonymity. "We haven't seen it translate into higher rates or stricter clauses." The buyer currently is planning meetings through July and has seen little change in the negotiating climate even for summer 2004 meetings. "They can look at their projections, but they still have to write a contract today, against today's competition," the buyer said. "They are taking their usual hard-nosed attitudes for citywides, but that's it. Look, if it changes, it's been a nice ride, but it hasn't yet."