A trend that began this past summer as an isolated phenomenon—corporate meetings rates consistently higher than transient rates—has become the norm in many large cities across the nation. In fact, meeting rates may be the highest a hotel charges during a given period, even besting leisure rates, and the trend is not expected to reverse itself for the remainder of the year.
"This is a very important structural change," said Bjorn Hanson, head of PricewaterhouseCoopers hospitality and leisure practice. "Corporate transient rates are set through 2003, so this should last until 2004. In many major cities, the difference is large." He pointed to Atlanta, Boston, Chicago, Los Angeles, New Orleans, San Francisco and Seattle. New York, he said, is an exception.
PwC last month released its projections for the hotel market for 2003, which—barring additional terrorist acts against the United States or military action involving Iraq—include slight increases in occupancy rates and revenue per available room. Hanson is somewhat more optimistic regarding meeting volumes. "Meeting demand is up. It's the strongest part of the hotel business and one of the few areas of good news for hotels," PwC's Hanson said. "Corporations are retooling, repositioning and reengineering, which generates meetings."
He cited several factors as propelling the changes in the rate structure: planners seeking and receiving concessions from hotels in contractual areas other than rate, including elimination of meeting and banquet room rental fees or more complimentary rooms per booking; a propensity for groups to book at a given property's peak season or days; and, possibly, the perceived lack of desire among meeting planners to wring every cent out of their hotel partners during negotiations. There may, of course, be sound reasons for that stance, as many corporate planners seek a particular level of service from a property during events and are willing to trade off on rates to ensure that.
"To a certain extent, it is the case, but I've never subscribed to the rule that corporate group rates must be lower than corporate transient," said Knud Svendsen, Adam's Mark Hotels & Resorts director of sales. "When meetings are booked in the short term, there are other pieces of the pie already in place."
Svendsen pointed out that despite general downward trends in both corporate meeting size and volume throughout the industry, and generally underwhelming occupancy levels, many hotels aggressively have courted other types of bookings to compensate. "Corporate meetings are an important piece of the puzzle, but there are other apples in the bag," he said. "We've been after the association meeting market and other types of groups. We have a broad transient base and a variety of large accounts. We stand ready and responsive, but we are not solely reliant on corporate meetings." Still, Svendsen noted that corporate meeting buyers who have some flexibility on dates and locations hold the negotiating leverage. "Many hotels want corporate meeting business. It's still a buyer's market," he said.
"Our group rate is a good rate," said Mike Fegley, Six Continents Hotels vice president of global sales. "We give up a large part of the hotel. It's a healthy rate and it's what business hotels want." Conversely, Fegley said, the 2003 hotel bid season left many corporate transient rates flat, as compared with last year. But corporate planners, he said, have continued to focus on overall meeting value, seeking deals on many ancillary services.
"The rate is important, but audiovisual services can be a seven-digit expense for a large meeting," Fegley said. "Food and beverage can be half the bill. They are trying to find ways to deliver the experience and save money." Not every negotiating tactic on buyers' parts has succeeded. "We want to protect ourselves with attrition clauses," he said. "And our complimentary room policies have stayed pretty much the same."
Six Continents, like many hotels, is focused on capturing marketshare in a market where overall growth is scarce. "It's all about share. There's less travel and fewer meetings, and we hope by the fourth quarter, levels will return to early-2001 levels, but we don't know," Fegley said. "We just signed a deal with one of the largest corporations out there where we will double our share of their meetings," he added.
For some of its largest accounts, the chain has negotiated multi-meeting deals offering a percentage off the negotiated transient rate on exchange for right of first refusal in a given city. "We are not doing that in a widespread fashion," he said, "but some accounts are very large and buyers are sophisticated."
The trend has repercussions beyond the actual rate paid by the corporation. With the Internet growing as a distribution channel for distressed hotel inventory and lower rates, buyers have had to face the specter of attendees booking lower rates outside of the room block, setting the corporation up for potential attrition damages
(Meetings Today, Dec. 9, 2002).Key to the trend is the utter collapse in average lead time corporate planners have between the times meetings are requested and held
(Meetings Today, Oct. 14, 2002). Though hotels often are eager to fill empty space in the short term, buyers too may be less inclined to fully investigate every possible site-selection option, possibly leading to agreements to pay higher rates.
"Everything is booked so short term that we're in the same boat in 2003 that we were last year," said Carol Muldoon, director of meeting services at New York-based KPMG. "If a hotel has availability, we are in a great negotiating position. But there can be trouble in convention hotel cities in season."
KPMG, which has one of the largest centrally managed meetings programs in the country
(Meetings Today, Aug. 12, 2002), typically plans events with 30 to 45 days of lead time. The company has dedicated some planners specifically to handle meeting sourcing needs with little lead time, and has crafted a standard small-meeting contract with certain properties in some cities that allows for booking—provided the hotel meets the needed specifications and has the availability—at pre-negotiated rates. Yet, the contract also calls for the KPMG group to receive the lowest rate offered to anyone by the property for those dates, allowing the company to largely skirt the Web rate issue. Still, Muldoon has a staff member constantly trolling the Web for such rates.
Hanson agreed seasonality played a large part in the growth of the trend. "If you're trying to book New York City in the fall, expect few concessions," he said. "But in June or February, for example, you may have more concessions offered than ever before. There is less yield management. If the meeting is offpeak, the hotel really wants that business."