Convention Hotel Money Lags
<B> Convention Hotel Money Lags</B>
By Chris Davis
Solidified corporate meetings budgets and better meetings management are two factors driving a statistical trend in the lodging industry: While occupancy at convention hotels alone is increasing, the revenue hotel chains derive from those sites lags behind other types of properties.
According to New York-based PKF Consulting, convention hotels--defined as properties with more than 500 rooms and substantial meeting space--was the only hotel segment surveyed that showed an increase in occupancy from the first half of 1998 to the first half of 1999. But average daily room rate at those properties increased 2.6 percent, lagging behind not only the industry average, but most other types of properties usually considered by corporate meeting planners.
While hotel occupancy and ADR statistics and predictions have fluctuated over the past year, it appears that corporate meetings are offering a solid and increasing base of hotel room nights nationwide.
One of the factors that caused increased convention hotel occupancy but below-average daily rate growth was the effect of the jittery stock market and weak corporate profits in the third quarter of 1998 on 1999 corporate meeting budgets (<I>Meetings Today</I>, Oct. 25).
"One of the first things axed is the travel and meeting budget," Mandelbaum said. "Planners were holding back what they were willing to pay for meetings, and hotels reacted by not as aggressively pursuing rate growth, which afforded planners more leverage in negotiation."
Though some corporate meeting budgets were slashed last year, the number of meetings wasn't, Mandelbaum said. The result was the current increase in occupancy without a hefty room rate increase. Mandelbaum defined convention hotels as those with more than 500 rooms and significant meeting space. Conference centers also are included in the category.
Additionally, there wasn't much new convention hotel construction, Mandelbaum said, curbing new competition that could have inhibited occupancy growth at existing properties.
Even though the domestic corporate economic climate is much sturdier than at this time last year, with many corporations increasing their meetings budgets, Mandelbaum thinks convention hotels won't see renewed sharp rate increases in 2000.
"There has been some curtailment in hotel development, and large convention hotels are the most expensive to build," Mandelbaum said. "There seems to be a feeling among some hotels that they've gone to the rate-growth well enough."
The statistics are an indication, at least in part, of the increased sophistication of corporate meeting management programs and site selection processes, said Steve Armitage, sales and marketing vice president and managing director of Hilton Hotels Corp.
"Many more companies are managing their travel and meetings in a more flexible manner than in previous times to take advantage of favorable pricing," Armitage said. "Companies are taking advantage of the fact that there's more value in New York in January than October, and are planning accordingly."
Off-season meetings, which don't bring hotels the top revenue that peak-season meetings do, are part of the reason that convention hotels show an occupancy gain without a huge ADR increase, Armitage said. But don't weep for the hotels, since planners are filling what could be empty holes.
"It's a result of more sophisticated revenue management on the hotels' part too," Armitage said. "We've been much more aggressive in increasing business volume over traditionally low-group periods, which maximizes the value for both the hotel and the corporate account."
Others attribute the trend to simpler factors: more supply on the market decreasing price pressure on planners.
"We have no studies that show any convention or meeting business decline," said Bob Moore, senior vice president of global sales for Starwood Hotels & Resorts. "There are always ups and downs in corporate travel policies, and there are always peaks and valleys with supply and demand. But in the last 24 months, there were less convention hotels built, compared with more limited-service hotels."
Hyatt Hotels and Resorts' internal data doesn't reflect the PKF study, said vice president of sales operations Fred Shea, though he added the hotel chain didn't use a large sample. Shea maintained some corporate meetings business slightly softened--or didn't grow as much as in previous years--particularly during the middle of the week.
Two factors, he said, are at work. Many companies set their 1999 meetings budgets during the domestic financial and stock market uneasiness of autumn 1998 and several companies are diverting meetings funds to handle the fallout over the Y2K computer bug situation. Sometimes, he said, companies looking to cut back on spending for whatever reason find it easier and cheaper to lay out the meeting cancellation fee.
"We've asked companies what the factors are behind this trend, and really the answers are different for everyone," Shea said. "Sometimes it's just that there's more supply in the market. But most of the reasons offered are temporary blips that won't sustain themselves, like the Y2K issue."
But that could be argued as the flip side of the coin: Smaller meeting budgets often must translate into more precise meeting management, leading to more planners considering price as the determining factor in their site selection strategies.