Mtg. Buyers Beginning To Push Back Against Rising Resort Room Rates

As the good times for the resort industry roll into 2007, properties have been successful using yield-management techniques to move price-sensitive corporate groups to off-peak dates and to get high-spenders to pay a little more by adding new services, consultants said. However, the rate hikes may begin to level off in some markets as buyers push back against high room rates and move their meetings to cold-weather destinations.

Buyers increasingly are asked to show a quantifiable return on their use of resorts and are selecting properties with an emphasis on education and training. To meet the growing demand for training services, some resort companies, such as the Disney Institute, are expanding their content services across the globe.

Resort properties are expected to push rates higher in 2007, said PricewaterhouseCoopers global hospitality and leisure practice leader Scott Berman.

"I only hear good news from the resort operators, and that's a universe that stretches from the Caribbean to the mainland U.S. to Mexico and Hawaii. You know it's a good year when you look at room-rate generation, which is almost unanimously above '06 rates," Berman said.

Though corporate group demand is expected to stay strong next year, some resorts may begin to feel the initial signs of pushback from buyers fed up with high rates and tight occupancy.

"It gets to the point where there will be resistance, particularly in seasonal markets that are starting group rates in excess of $400 a night," Berman said.

However, resort owners have taken a more strategic approach to price-sensitive groups, he said, and have been successful moving groups to off-peak bookings.

"The operators have gotten very smart about this. While they may not be able to accommodate the group's first or second choice of dates, they are offering flexible pricing when the demand within their resorts is low. That appears to be working," Berman said, adding that a booking in April could be 30 percent cheaper in February.

Jim Schultenover, president of Washington D.C.-based Krisam Group, a national sales company for independent hotel and resort properties, said the level of corporate group demand at resorts is better than ever.

"The health of the group business, all the factors, I don't think has been better. Is it excessive? No. It's not like some of those wild swings we saw 10 or 15 years ago. The underlying strength is there," Schultenover said.

In a Krisam member survey presented at the company's inaugural executive summit in September, 56 percent of member respondents expected group rates to rise between 1 percent and 5 percent, 29 percent of respondents predicted group rates would rise between 5 percent and 10 percent, and 13 percent of respondents expected rates to increase more than 10 percent.

However, 68 percent of buyer respondents in the same survey—available on the Krisam Web site—expected to hold more meetings next year compared with 2006 and 47 percent of buyers expected their budgets to increase.

Groups are a significant demand generator for resort properties and operators are not simply sitting on their profits, Berman said. "These have been good times for the hotel industry, and good times yield investment or reinvestment into the real estate assets. In some cases, renovations have been long overdue, and there isn't a better place you see physical obsolescence than in meeting rooms. That's where I've seen really strong increase in investment," he said.

The growing development of mixed-use resorts—properties that have converted rooms into condominiums—may affect corporate group buyers in high-demand cities where availability is already a problem.

"With fewer rooms and higher demand, the operators are less inclined to discount and will charge strong rates," Berman said.

The Vail Plaza Hotel & Club, scheduled to open in spring 2007 in Vail, Colo., encourages the private owners of its 107 timeshare condos to list their properties on the hotel inventory when they do not plan on using their allotted time, said director of sales and marketing Nicole Heim. The owners and the hotel then split the profits for bookings. The residences, with full kitchens, are ideal for high-end executive groups, she added.

"They really want that private dining experience," Heim said.

Heim expects strong corporate group demand at the property year-round, with ski activities in the winter and golf in the summer. The property is aiming for 50 percent group bookings in the winter season and 85 percent for the warmer months. Corporate events make up 80 percent of group business at the property, she said.

Leaving the word "resort" out of the Vail Plaza name was a conscious decision to accommodate image-sensitive groups. Continuing medical education events in particular are barred by pharmaceutical industry regulators from properties with a resort name, she said, and the sensitivity of those groups is also why the property is not attached to a golf course.

The property is the first brand-new development in Vail in 43 years, Heim said, and is a part of an overall facelift of the city to compete with other ski destinations in Colorado. Cold-weather destinations are seeing a flurry of new resort development, said PwC's Berman.

"In cold-weather destinations, particularly where there are winter activities, there is a lot of interest," Berman said. "There's been a lot of growth."

Working Incentives

An increasing number of corporate groups are adding educational and training content to their incentive events, and some resort destinations are expanding their services to meet that demand.

The Disney Institute, first launched in Florida, last month announced it would begin offering its professional development programs in California at the Disneyland Resort. The programs offer Disney best practices and a behind-the-scenes look to teach attendees about management and training issues.

Rack rate pricing for the three-and-one-half-day institute programs is $3,495 per attendee for groups of 10 to 19, and larger groups are negotiated individually. The price includes accommodation, park admission, the training courses, facilitators, field experiences, a "graduation ceremony" for attendees, a welcome dinner, daily breakfasts and lunches, breaks and unlimited use of the resort transportation system, according to the institute's Web site.

Florida-based programming director Bruce Jones said the combination of education with destination is a big draw for corporate incentives. "The beauty is when we can take our business audiences into the park and resort environment and show them some of these businesses practices in action," Jones said.

Meeting buyers in recent years increasingly have requested unique experiences for attendees and some sort of return on incentive trips, he said. "In many cases, they're being tasked by someone in leadership within their own organization to not just conduct a meeting but to deliver on some sort of outcome," Jones said.

Real estate investment trust Aimco, based in Denver, held two one-day events at Disney Institute facilities last October—one in Florida, the other in California—that included 71 Aimco employees. Before the event, executives held a conference call with Disney administrators to define the goals of the sessions. A post-event assessment activity was then planned to measure how well those objectives were met.

"The value received met and in many instances exceeded the expectations. There is value anytime you can provide a positive learning experience. It's just at Walt Disney World, the value and service meter rings a little higher than in other places," said vice president of learning and development Joe Berry.

The same institute facilitators were used at both events "which provided a level of consistency with their understanding of our business and delivery of the content," said Berry. "We have already contracted for another session in December 2006, and budget permitting, we are looking for possible quarterly offerings of courses throughout 2007. We are working with Disney on a large business meeting/training session early in 2007."

The institute can handle groups of up to 1,500 attendees, but the typical corporate event is between 30 and 50 attendees, Jones said, and includes a two- or three-day program. Though the resort is centered on fun, Jones said a blended incentive/training event helps accomplish serious business objectives.

"We know if we can raise the level of fun and memorable moments, the overall impact of the meeting improves," he said.

The institute also may expand to resorts in Hong Kong, Paris and Tokyo.

"That's a huge benefit to large, multinational companies: to have meetings at different times in different parts of the planet, and the ability to tap into the Disney Institute for programming at any of those locations," Jones said.

Mountain View, Calif.-based Duarte Design held its annual corporate meeting at Disney World in July. The meeting was blended with an incentive trip in which attendees were allowed to bring their families. "Our objective is to have an offsite teambuilding event or activity, but also to provide a perk to thank them for the work they've done," said Kerry Greene, vice president of human resources for the marketing and design firm.

Company executives said their expectations for the event were exceeded, and that much of the training has permeated and been retained by the staff. The phrase "bump the lamp"—to deliberately exceed customer expectations—has found its way from the event into frequent use by company executives, she said.

In addition, the company was able to incorporate its theme for the year, "The Greatest Show on Earth," into the institute sessions. "This was the first year we've been able to match up a resort with the actual corporate theme for the year," Greene said.