Metro New York Hotels Ready For Tough RFP Season

With requests for proposals from travel buyers starting to arrive in significant numbers this month, New York area hotels are bracing for another round of tough negotiations. As with 2003 rates, hoteliers expect pricing in 2004 clearly to favor buyers. Depending on buyers' willingness to shift marketshare and the presence of sufficient mandates in their corporations' travel policies to ensure projections are met, buyers can expect not only flexibility on rate but concessions on value-adds.

Occupancy and revenue results for the first half of 2003 confirmed the sense that the greater New York market, like other U.S. gateway cities, still was seriously underperforming. According to Smith Travel Research, occupancy levels in New York for the period fell 2.2 percent, compared with the first half of 2002. However, these results were not that far off occupancy levels for the top 25 U.S. markets. For the six months, occupancy nationwide slipped 1.9 percent.

More telling was the decline in New York hotels' revenue per available room, a much clearer indicator of industry profitability. RevPAR for the first six months of 2003 fell 8.6 percent, from $123 to $112. The decreases compounded an already bad situation: RevPAR for the Big Apple's 69,000 hotel rooms reached an average of $186 in 2000. Nationwide, RevPAR for the period dropped a more modest 3.2 percent.

Yet, call volume for new reservations in June and July increased over the prior year at some hotels, including the nine New York properties that comprise Affinia Hospitality. "We're hopeful the positive trend will continue through the summer and into the fall," said Rose Genovese, Affinia vice president of sales and marketing. "Strictly from a business travel point of view, many trips to New York were put on hold due to the Iraq war, as well as continuing concerns about the economy. It's possible we're beginning to see the effects of all that pent-up demand."

As corporate profits strengthen, travel budgets are beginning to be monitored a bit less closely. "It's only a small window that's opening, but it looks like companies are starting to move forward with more business objectives that entail travel," Genovese said.

With occupancy rates showing some stability, hotels are doing whatever they can to get rates moving upward. "Rates are starting to show some slow increase, although many rates are still below last year's levels," said Fumio Kanto, general manager of the 149-room Kitano on Park Avenue and 38th Street. "Business travelers have become much more price sensitive and will seek out preferred hotels in their program based on rate. So, overall, if you look at RevPAR, it is still depressed."

One solution for hotels has been to work more closely with major corporate accounts in their immediate area. "You've heard of the 80-20 rule, where 20 percent of your clients bring you 80 percent of your business?" asked Francesca Gadaleta-Giessmann, director of sales and marketing at the 200-room Muse on West 46th Street, which is part of Interstate Hotels & Resorts. "Here, it's the 95 percent-5 percent rule. These four or five accounts have the best negotiated rates, but they're loyal to us, so we know that the room night projections will be met. They provide us with a base of business we can count on in terms of forecasting, and this is especially true as we approach the 2004 bid season. Then there's the subsidiary income we derive from their travelers' use of the restaurant, room service and so on."

One segment of the market that has slowed significantly—and as yet shows no sign of returning in large numbers—is international travelers.

"These guests, who used to come to New York three times a year, now are coming twice," The Kitano's Kanto said. "Companies that used to send three people on a trip, now are sending one." At The Kitano, as many as 40 percent to 45 percent of guests were from international locations. Fears of terrorism in post-Sept. 11 New York are not the problem, according to Kanto. "Rather, their own countries' economies are doing poorly," he noted.

Local hotels must be realistic in their rate expectations, Gadaleta-Giessmann said. "For any true sense of the market, you have to take the best and worst years out of the calculation—that means forgetting 1999 and 2000, the banner years. However high rates became, there was a customer who would pay them. That clearly is no longer the case."

Yet, buyers have to keep the big picture in mind. "For many, it's only been about rate for the past year and a half. They knew they had the power to do it," she said, "but buyers didn't always get the service from their hotels they were used to, and their programs suffered."

The same occupancy-rate disparity that Manhattan hotels have experienced has occurred at properties in the larger metropolitan New York market. Similarly, hotels in suburban New Jersey and Long Island have responded by strengthening relationships with their corporate accounts.

"Primarily, we draw from a 10-mile radius and have focused on corporations with either global or regional headquarters in the area because they generate the most business travel," said Richard Verruni, general manager of the 187-room Hotel Westminster in Livingston, N.J., which opened in January.

At a time when absolute room night numbers are likely still to be down, compared with 1999-2000, hotels are seeking increases in marketshare, which, in effect, takes room nights from the competition.

"As we start preparing for requests for proposals for 2004, our account managers are hoping for increases in share, trying to find new ways to add value," said Nasser Samman, general manager of the 280-room Garden City Hotel in Garden City, Long Island. "Most of the major corporations close to us are local offices of New York-based companies. We encourage buyers to have their travelers stay locally when they have business here, rather than staying in the city and traveling to Long Island."

As a property new to the market, the Westminster had a special challenge. "Some buyers were hesitant to add a new property in their RFPs for 2003 because we were an unknown, but we still were able to prevail in certain cases. The goal going into the 2004 bid season is to be in additional programs as a preferred supplier," Verruni said. Yet, programs also tend to rank hotels within a market in the order buyers want travelers to book them. "The objective, of course, is to be the number-one choice."

A strategy Samman is using in this economy is to go after a corporate account's group business as entrée to a greater share of its transient bookings. "So much depends on building familiarity with your property, getting people to experience it," he said. "For the past six months, we've focused on the group side in the hope of building a relationship with the account that would generate individual business."

Back in Manhattan, Affinia Hospitality's Genovese is eyeing the same approach. "We're looking at maximizing the hotels' group potential right now. Not all of our hotels have meeting space, but for those that do, this is an untapped market segment for us," she said. Genovese mentioned the 209-room Benjamin on Lexington Avenue and 50th Street and the 242-suite Affinia Dumont on Third Avenue and 34th Street as the most likely candidates.