Ancillary Fees At Issue In 2001

<B>Ancillary Fees At Issue In 2001</B>

By Chris Davis

Corporate meeting buyers should expect increases in their spending in 2001 based not only on an expected room rate increase between 3 percent and 8 percent, but also because of the expanded use of more sophisticated hotel negotiating strategies that place a premium on ancillary meeting charges.

The long-standing seller's market has allowed hotels to grow revenue in areas other than room rate, including meeting and banquet hall rental fees, increased levels of food and beverage revenue guarantees and more stringent clauses regarding meeting cancellations and room block attrition. None of these trends are expected to reverse themselves in 2001, especially rising room rates (BTN, Sept. 18).

"There has been a trend for hotels to pursue adding ancillary charges, like meeting and banquet room rental and additional telephone charges," said John Luby, corporate vice president of Maritz Travel Co. of St. Louis. "It's not yet out of hand, but it's certainly a significant trend.

"Hotels are absolutely looking to tighten up contracts regarding cancellation and attrition, with stricter clauses and more enforcement," Maritz's Luby added. "They're looking for guarantees of higher rate pickup in a smaller amount of time from when the meeting is booked--120 days instead of 90, for example."

Luby attributed the trends regarding hotels and the meeting industry to a combination of the negotiating power that hotels still have, along with a desire, more actionable with that power, to limit the liability and potential revenue loss that results from a canceled meeting.

"We've heard and read some people predicting the market would soften, but we haven't seen that at all," said Christine Duffy, president and COO of Philadelphia-based McGettigan Partners. "Availability is still very tough to come by, and hotels will continue to hold the line and be firm about the business they want, and walk away from the business they don't. We're seeing about a 4 percent to 6 percent increase in room rates in the major cities."

Duffy said hotels likely will continue to seek stricter cancellation and attrition clauses in their contracts, and demand a certain level of food and beverage revenue from each event.

"They are a lot more sophisticated regarding yield management now," Duffy said. "It's not just room nights that they're worried about, and we don't see any loosening of that trend."

Buyers must take these ancillary charges into consideration when allocating resources for next year's meetings, experts said, because the trends have reached past major cities into secondary and tertiary locales.

"There was a time not too long ago when food and beverage revenue guaranteed was considered cutting edge," said Tony Pastor, site and contract specialist for New York-based McKinsey & Co. "Now everyone has it."

Hotels are focusing on cancellation and attrition clauses on two levels, Pastor said: They're looking for earlier deadlines for guarantees regarding both, and they're increasing damages for failing to meet agreements. Now that the door has been opened on these forms of tighter revenue management, many hotels have rushed through, Pastor said. "A lot of hotels were worried about angering their clients," he said. "Nobody wanted to be the first to start doing this, but now there's a willingness to be aggressive with guarantees. Meeting space charges are the norm now. It's an easy way for hotels to find revenue."

To combat these trends, Pastor said documenting and leveraging global meeting business offers the meeting buyer a better chance, given the high level of hotel consolidation that has occurred during the past five years. "Now, more than ever, the key is to leverage business," he said. "The continuing trend of big players buying key properties means it's very important to document globally."

But some buyers said the situation is not universally dire. While negotiations may be difficult and prices at a premium in traditional high-market corporate meeting locations, there are major cities where some buyers may have better luck at the negotiating table.

Carol Muldoon, director of meeting services at Montvale, N.J.-based KPMG suggested conducting site selections and negotiations on a city-by-city basis, since the buying environment can fluctuate significantly in different parts of the country.

"There are cities in which there is buying opportunity," Muldoon said. "You don't have much of a chance in New York, Chicago or San Francisco, but there are holes to fill in Dallas and Atlanta."

Muldoon pointed to divergent pricing strategies regarding new technologies as a significant issue in the effectiveness of negotiations. "We need dedicated T-1 lines for Internet access at almost all our meetings, so that pricing is a big issue for us," Muldoon said. "I know that hotels are struggling to be fair regarding pricing, but many properties only have installed those lines this year, so there's no pricing standard and it is negotiable."

However, just as hotel chains have become more sophisticated in negotiating corporate group business, so have buyers, said Kaye Mulkeen, COO of Atlanta-based WorldTravel Meetings & Incentives. "Some chains have not always recognized meetings as a revenue line, but they do now and they go after it strongly," she said. "That doesn't mean, however, that the corporate buyer is in a worse position, because a better-educated sales staff means a more professional relationship and better service. But their clients are more sophisticated at identifying and leveraging their meetings volume, instead of negotiating meeting by meeting."

Hotel charges, while often the most variable part of a meeting budget, is only one consideration for a corporate meeting buyer; airfare is yet another. While many corporations use zone fares--popular for two reasons, the lack of a Saturday-night stay requirement and the fact that 2001 pricing has been set for many months--this year's spate of fare hikes and fuel surcharges will have an effect on buyers who rely on corporate negotiated transient fares for meeting air transportation.

One of the main issues regarding group and meeting air negotiations is the record-high load factors carriers have enjoyed this year, limiting the capacity needed for meeting travel and restricting corporate buying power accordingly, said Rhonda Brewer, Maritz Travel's vice president of operations. "It's still possible to negotiate group travel and back-end discounts with airlines," she said, "but there are capacity issues.