Meeting Cancellations Slow, But Rebound Evidence Scant

Event cancellations have slowed in recent months, though analysts caution this is more a function of a shift in meeting habits than a robust rebound of group travel. Additionally, hoteliers are pushing a harder line in negotiations, becoming less likely to give the cancellation and attrition leeway they gave last year.

A survey of 220 corporate and association planners by Business Travel News sister publication MeetingNews showed that slightly more than one-quarter had to cancel an event in the past six months. Attrition was a problem for even fewer planners, with more than 20 percent reporting that they had failed to meet contracted block agreements during that time period.

Hoteliers also have noted slowing cancellations. Starwood Hotels & Resorts, for example, reported that its cancellations in the fourth quarter of 2009 were down 50 percent compared with 2008.

"Current cancellation behavior is modest because most of the canceled meetings were canceled in the third or fourth quarter of 2008 or the first quarter of 2009," said Tim Brooks, founder and CEO of MeetingTrader, which specializes in reselling space available from canceled meeting contracts. Brooks estimated that total cancellations for groups during the downturn could be valued at about $11 billion.

The groups most prone to cancellations are incentive groups booked directly, not through a third party, which typically book 16 to 18 months in advance.

Pharmaceutical groups, which need to book in advance due to their large size and often must react quickly to marketplace conditions, also are prone to cancellations, MeetingTrader's Brooks said.

Otherwise, cancellations have dwindled largely because of the constricted booking window for meetings. Large hotels, particularly those in meetings-heavy markets like Las Vegas, Orlando or San Antonio, continue to run at low occupancies, rates remain low, meetings generally are smaller and large events canceled a year ago have left an occupancy vacuum in several dates for certain markets. These conditions make it easy for planners to wait until the last minute to book, leaving cancellation unlikely, Brooks said.

"There is a trend toward just-in-time procurement," he said. "Why should they take the risk if they can just find the space 90 days out?"

Conditions allowing for short-term bookings do not appear to be dissipating. New York University Tisch Center associate professor Bjorn Hanson said while there are signs of strengthening group demand, the recession was so severe that percentage growth can be deceiving. For example, if a hotel saw its group bookings drop from 100 to 10, an increase back up to 20 meetings would be reported as an impressive 100 percent growth, even though it's still 80 percent off the original levels.

Corporations putting tighter controls around their meetings programs also led to a decline in cancellation and attrition, said Kevin Iwamoto, vice president of enterprise strategy for meetings management technology supplier StarCite. "Canceling meetings and canceling travel has had a huge impact on their books," he said. "With demand management controls, they're starting to factor those things in."

Additionally, avoiding cancellation and attrition is becoming more critical for planners. As group travel levels plummeted last year, hotels were offering attractive attrition clauses. Omni Hotels, for example, continues to waive attrition clauses entirely for meetings booked and conducted through Dec. 31. Most hotels, however, now are moving in the other direction, NYU's Hanson said.

"Last year, there was a high degree of flexibility, but hotel executives in general have increased their enforcement of cancellation polities," Hanson said. "The movement has been back to strict enforcement of contract terms."

Hanson estimated that about 20 to 25 percent of current meeting contracts have made cancellation policies stricter. "The decline in group and convention travel was the most severe of all the segments," Hanson said. "There was an increasing pattern in not meeting block numbers, and there needs to be a message that that's behind us."

Cancellation activity from late 2008 and early 2009 also has left a bubble of credits that could present opportunities for meeting planners as well, said MeetingTrader's Brooks.

Often, cancellation agreements stipulate that a portion of the penalty paid can be credited to future meetings, he said. Those credits almost always have expiration dates, and a large number are set to expire this year. Planners who are unable to use those credits in time often are willing to sell them at a discount to other planners, he said.

"If they can't find another department in their company to use the credit, whey should they let the money go if they could recover 20 cents to 50 cents on the dollar for them?" Brooks said. "If they sell the credit, they no longer are a liability for the hotel, the customer with the credit gets something back for the money and the new customer gets a master account credit that is, in effect, the monetization of another company's credit."

Planners also can try to convince hotels to extend those credits, but hotels will resist that, he said. "If I'm a hotel owner," Brooks said, "I've got to close my books for the year, and this is an asset issue."