Convention hotels' revenue and rates are faring worse than those of the overall hotel industry, according to recently published data from Smith Travel Research, and reduced group booking demand in 2009 will bring further declines. This will mean better pricing for buyers, although convention hoteliers are likely to take an even more hard-line approach on such terms as cancellation clauses and food and beverage minimums.
A Smith Travel Research report released in late November showed that U.S. convention hotels—defined as properties with at least 300 rooms and at least 20,000 square feet of meeting space—are lagging behind the industry in terms of revenue per available room and the modest gains seen in rates. For the first 10 months of the year, revenue per available room dropped by 1 percent for U.S. convention hotels compared with the same period in 2007, while the U.S. lodging industry has seen a drop of only 0.3 percent. Average daily rate increased by 2.4 percent for convention hotels during the period, compared with a 3.2 percent increase for the industry overall.
Those metrics are likely to worsen in 2009. Bjorn Hanson, associate professor at New York University's Tisch Center, said there could be a 6 percent to 9 percent decline in bookings in the first quarter of 2009, representing a 10 percent to 12 percent drop in revenue.
"As unfavorable as the recent news has been, in some ways it remains a false positive," Hanson said. "Many of the meetings and conventions that have been occurring in the last quarter of 2008 or will occur in the first quarter of 2009 were booked years ago. As we go forward, the group and convention market will be among the most severely affected, as there are more opportunities to be losses in demand than the other demand segments."
Convention hotels in certain markets are being hit particularly hard, according to Smith Travel Research. In its October year-to-date performance, Las Vegas, which has the largest number of convention hotel guest rooms in the United States, has seen occupancy drop by 7.4 percent, RevPAR drop by 7.7 percent and average daily rate drop by 0.4 percent, the only key convention hotel market to see a rate decline, the report indicated. Maui, Hawaii, also has seen a 7.4 percent drop in occupancy and 7.7 percent drop in RevPAR, and Chicago has seen a 4 percent drop in occupancy and 0.8 percent drop in RevPAR.
Hoteliers are noting the slowdown, particularly as meeting planners are shortening their booking windows as they wait for rates to drop and see how the economic downturn affects their budgets. During his company's recent third-quarter earnings conference call, Marriott International CFO Arne Sorenson said the Marriott Hotels & Resorts brand—which counts about 40 percent of its business as group—saw year-over-year RevPAR flatten in the quarter, compared with a 4 percent to 5 percent increase in RevPAR in the same period in 2007.
"Group is clearly trending down," Sorenson said. "Our group customers we think are still committed to holding their events but deferring final commitment to booking it."
Andy Dolce, chairman of Dolce Hotels and Resorts, said his company has seen some slippage in this current quarter and echoed Sorenson's observation. "The pace of bookings is behind in 2009," Dolce said. "There's very little advance in the second, third and fourth quarter, but activity is still good. People are planning, but they're not going to pull the trigger until they get really close to the meeting."
Dolce Hotels also indicated that it would begin more aggressively courting the leisure travel market to diversify its revenue streams.
NYU's Hanson said there could be an increase in cancellations of convention hotel projects that are not far along, although the construction cycle for such properties is longer than those for other hotels, so projects in the early stages might still be two to four years away from opening, at which time the economic downturn could be reversed.
Still, there are signs that the slowdown in actual meetings booked might not be severe. Mary MacGregor, vice president of marketing and business development for BCD Meetings & Incentives, said that her bookings remain strong. There have been some cancellations for 2009, but companies are looking for space in 2010 and beyond, she said.
At the same time, buyers are becoming more aggressive in driving down costs, she said.
"The biggest shift for us is, on a project-by-project basis, we're sourcing many more hotels for each project, because customers are really looking for the best deal possible," MacGregor said. "For the first time in seven years, there is some buyer advantage."
While buyers will have luck in securing better rates this year than in years past, they are unlikely to see much movement when it comes to loosening meeting terms and conditions, according to MacGregor. "Even though hotels have to be competitive, they're still holding strong to those terms," she said. "When they sign a contract, they're taking the product off the shelf and don't have the ability to supplement that revenue if there's a cancellation."
Hanson said a significant portion of the revenue impact at convention hotels will come from buyers scaling back on attendees, meeting durations and food and beverage offerings, such as eliminating open bars or serving boxed lunches instead of full-service meals.
Similarly, BCD's MacGregor said buyers will apply such strategies as planning meetings in shoulder seasons, sending smaller groups to regional destinations and trading down from luxury to lower-tiered properties.
Even so, NYU's Hanson said trading down would not always be an option, depending on the size of the meeting. Smaller meeting hotels could take a hit as companies move such meetings in-house, he said.
Smith Travel Research industry research manager Chad Church in his report also said corporate buyers will be looking at smaller markets for meetings to save costs.
"Convention planners will be more sensitive to price in the current economic situation, and sales staff in smaller markets can pitch their price advantage," Church said in the report.
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