Some hotels this year have resurrected the long-dormant practice of applying yield management strategies to ancillary corporate meeting revenues—in particular, meeting room rental fees. Some properties have taken to charging far higher fees, as much as five times higher, for the same space depending on the day of the week or the time of the year.
Meeting room yield management, which cannot be compared to the advanced science that marks yield management theory in other aspects of the travel industry, typically is marked by individual property managers charging higher rental fees for the times when demand is projected to be at its highest. In the latest incarnation, the disparity between the minimum rental rate charged and the maximum rate can be significant.
"We're seeing a spread of a multiple of three to five from minimum to maximum," said Bjorn Hanson, head of PricewaterhouseCoopers' hospitality and leisure practice. "That is anecdotal and not based on authoritative research."
Though seemingly a simple question of supply and demand, the concept of meeting room yield management has a complex history following its growth during the raging 2000 seller's market
(Meetings Today, May 15, 2000).As the seller's market died, many experienced buyers found little need to pay rental fees at all, much less at high rates, due to hotels' eagerness to book whatever corporate meeting business they could. With growing supplier optimism about the burgeoning meetings market, however, some hoteliers feel the time is ripe to maximize revenue. Yet, it would be an overstatement to call the move toward higher yield management an organized, marketwide strategy.
"This is not a formal program implemented by any hotel company, but an accelerated approach for something that began in 2000," according to PwC's Hanson. "In between, it was a time when anything troubling or offensive—surcharges, fees—were eliminated from the contract."
There are also no specific equations that dictate the amounts hotels should charge for optimal meeting room yield.
"Unlike guest room yield management or airline yield management, this is not algorithm based," Hanson said. "It's more because properties figure that if they can charge $500 for a room rental, they can charge $1,500 when it is busier. There is absolutely no mathematical basis."
Hanson said meeting and banquet room yield management also has been less structured than guest room management, adding that hotels likely will vary their approach based on seasonality, but not as much as they do with guest room rate. "They may have eight schedules for room rates, but only three for this," he said.
Interestingly, the push toward higher levels of meeting room revenue management comes at a time when many experienced meeting buyers note successes in negotiating such charges completely out of their contracts—especially of late—as hoteliers seemingly have focused on maintaining guest room rate integrity
(Meetings Today, March 29). However, Hanson noted, many corporate meeting contracts still are negotiated by nonprofessional planners, who may be less likely to negotiate that fee.
Any sort of fee increase must be implemented incrementally so as not to shock and dismay the corporate buyer, one hotelier said.
"We're not gambling with it," said Fred Shea, vice president of sales operations for Hyatt Hotels Corp. "We never took them out completely, but we did provide some freedom with meeting room rental and food and beverage attrition. We do not want to have huge swings where we charge $3,000 one day and nothing the next. We want to slowly move the margins up or down. We don't want there to be a big culture shock. It's a matter of degrees."
Some corporate meetings buyers, though, have noticed specific, large increases in meeting room rental fees.
"I'm seeing a general trend toward ancillary charges, and meeting space charges are going up," said Tony Pastor, site and contract specialist for New York-based McKinsey & Co. "It's been easier for hotels that have already charged for it to increase it than for those who have not charged at all to begin doing so. But those that have done so have some pretty significant increases, maybe 20 percent to 30 percent year over year."
Pastor said hotels still are willing to negotiate that fee, but noted that the number and amount of ancillary charges appear to be increasing across the board. He attributed the fee increases, in part, to declining revenue from particular sources, including telephone usage, and the inability of properties to consistently command higher guest room rates.
"There's major rate pressure, and they have been unable to raise the bottom line by raising guest room rates," Pastor said. "We're beginning to see other little charges creep in."