Ancillary Outlook Brightens

<B>Ancillary Outlook Brightens</B>

By Chris Davis

As corporate cutbacks on meetings and travel significantly alter the negotiating landscape, planners are beginning to see far more flexibility in excluding some of the most reviled charges in the industry: ancillary fees, including rental charges for meeting and banquet rooms and attrition penalties applied to food and beverage consumption.

The same economic factors that have led to more leverage for transient hotel room buyers (BTN, April 9) should do the same for meeting planners, as hotel occupancy rates and revenue per available room have slipped in the first months of 2001. As such, some buyers and analysts predict hoteliers will look to de-emphasize charges specific to meetings to attract business while avoiding deep cuts in room rate.

Hoteliers disagree, noting that all revenue from a corporate meetings is viewed as a package, without any specific charge more sacrosanct than another, and negotiations will occur accordingly.

In any event, it appears that corporate buyers will enjoy at least a temporary burst of leverage throughout the summer, in one form or another.

"The market is still in the hotels' favor, but it's starting to weaken and hotels are not going out on a limb to introduce new areas of pricing expense for customers or increasing those levels of incremental revenue," said Sean Hennessey, director of hospitality consulting for PricewaterhouseCoopers. "But if there's much more of a decline in occupancy, you will see hotels backing away from those charges or using them as marketing tools. Because incremental revenues are put in place as a function of superior negotiating strength, when hotels see their performance start to drop off, they will become much more flexible in the terms offered to groups."

Hennessey warned that many hotels still find that meetings business, though softened, is still at acceptable levels, so any marketwide move to sweeter contract terms--or a shift to a true buyer's market--is not an immediate prospect.

But some buyers already have been able to negotiate better ancillary charge terms with hotels, and anticipate an even better position this summer.

"I see it already," said Tony Pastor, site and contract specialist for McKinsey & Co. of New York. "Take charges on 24-hour holds of meeting space as an example. The only reason why a hotel can justify that charge is because they anticipate a booking for an evening function or banquet. That's already falling away in some properties, because they're eager to get meetings with value that might displace speculative evening business."

Pastor said he believes the trend will continue throughout the better part of 2001, and not necessarily with ancillary charges alone, as slowing bookings leave hotels rummaging for business.

"Many corporate bookings have stopped, to avoid cancellations down the line," Pastor said. "Planners are taking a step back and reassessing the situation. This makes hotels nervous in the short term and even about meetings later in the year."

Other buyers are even more optimistic. "We will see the seller's market coming to an end, at least for a little while, because of corporate budget tightening," said Bill Wulff, president of corporate meeting management firm Above the Rim Events of Fort Lee, N.J., and formerly MetLife's director of event services. "Properties can get away with charging for function space or resort fees due to the seller's market, but there will be more on the negotiating table than in the past. However, there is a lot of business on the books now, so the turn may not be immediate."

Wulff was not ready to project a weakened seller's market as anything more than a temporary blip, because the domestic economy is not in a clear recession. "The fundamental aspects of the economy are strong, despite corporate layoffs," he said. "So the market could turn really fast or it might not."

Not surprisingly, hoteliers are not nearly as prepared to publicly announce a relaxation of ancillary charges as their counterparts on the opposite side of the negotiating table. While acknowledging that overall market softening and a spate of event cancellations has necessitated some deal-cutting to attract corporate meetings, hoteliers stressed that the actual avenue from which revenue flows is not as important as the total amount of revenue realized.

"We focus on the total value of the event, to be as flexible as possible and meet all objectives," said Steve Armitage, senior vice president of sales and marketing for Hilton Hotels Corp. "I don't see a material change in the manner of negotiations, but the rise in cancellations creates an opportunity for buying in the short term. Cancellations mean that sometimes we must offer tremendous value to find the right piece of business."

From the hotel's standpoint, the question of which particular charges may be axed can't be answered, except market to market and meeting to meeting. Each corporate meeting has its own nuances and needs and the hotel looks to match those with commensurate revenue-maximizing opportunities.

"We look at the total package--i.e., food and beverage and meeting space needs--versus the number of rooms requested, and we will continue to negotiate for group business based on these parameters," said Scott Fischburg, senior director of sales for Radisson Hotels & Resorts. "It's an interesting question, though I don't think that the current economy will change the way that our hotels evaluate and negotiate corporate meetings."

Other hoteliers, though, specifically said that meeting room rental fees, which have advanced to an industry standard in the past five years, are less likely to be negotiated out of a contract, despite the declining economy.

"How much hotels will be able to charge for that may vary by market," said David Johnson, executive vice president of sales and marketing for Wyndham International. "We yield meeting rooms to sell guest rooms, and it's a very valuable tool for that aspect. We will give our sales managers the tools to make decisions for their properties, and we want everything to be above board, with no hidden charges. We have to look market to market, and while some areas are still enjoying consistent demand, there are some that are weaker and more willing to negotiate."

Armitage, however, credits Hilton's quantity of properties at different price points as muting the effects of economic trends--even when large corporations cut meetings, he said, there's still enough business overall to not cripple the chain's revenues.

"There are certainly some areas suffering more than others and some that are doing very well," Armitage said. "There is some softening overall, and we know the technology companies are cutting back, but they still book a significant amount of business. Candidly, our booking position is stronger than it was one year ago, and our pace is significantly ahead.