Negotiating Pendulum Swings Wide In Both Directions: Hotel Deals Erratic

Corporate meetings are contributing significantly to what must be termed as a hotel recovery, but that rebound is scattershot, with demand varying considerably among cities and even among properties in the same city. As a result, meetings buyers are embroiled in a mixed negotiating landscape that includes some hoteliers still eager to book any business at any cost, while others attempt to raise ancillary meeting charges.

Though the reasons for the disparate rebound are subject to debate, much of the demand spurring it is due to an influx of corporate meetings fueled by pent-up demand and improving business conditions. "It's an uneven recovery," said Bjorn Hanson, director of the hospitality and leisure practice at PricewaterhouseCoopers. "There are certain hotel companies, markets and size properties that are becoming as aggressive as they were last year as occupancy builds back and the outlook becomes positive. But other properties, in the same city, are more flexible than they were three months ago. It makes the planner work twice as hard."

Hanson attributed the irregularities in the marketplace to a quick comeback of small, corporate meetings, the booking pace of which, in some markets, has exceeded the beginning months of 2001, PwC's Hanson said. Properties that have a limited number of meeting rooms acceptable for executive or board meetings have seen them filled, he said, but others have found the market lacking.

"The market has exceeded PwC's most optimistic forecast of three months ago, because of favorable economic trends," Hanson said. "Even a 17 percent falloff in air travel has not had an effect." PwC revised its hotel forecast for 2002 subsequent to Meetings Today's interview with Hanson, raising average occupancy forecasts to 61.3 percent, from a previous forecast of 58 percent. The consultancy also changed its forecast of revenue per available room, now anticipating an increase of 3 percent over last year, as opposed to its previous forecast of a 3.7 percent decrease.

"We're starting to see corporate meetings flow again, not to the extent of 2000 or early 2001, but more so than in January or February," said Dave Scypinski, senior vice president of industry relations for Starwood Hotels & Resorts. "But not everyone is back uniformly. Some cities are getting back. New York is exceptional, but Chicago is still a little soft, as is Atlanta and Orlando, and San Francisco is exceptionally tough right now but looks better down the road. This is exactly like when we came out of the last recession in 1992 and 1993."

For veteran buyers accustomed to swings in the market, the current landscape is not necessarily easy to navigate but deals still abound.

"It's hard to get a good read and that may be because it's so scattered," said Tony Pastor, site and contract specialist for New York-based McKinsey & Co. "We've had a difficult time finding space at some properties, while others are wide open. Overall, the market is still down significantly, but there seems to have been a change in the mindset of the industry. Everyone is ready to deal and form long-term relationships. In the past, they wondered why they should cut a five-year deal."

Pastor attributed the unevenness to better sales efforts by particular properties. "There's not enough business to go around, and some hotels just do a better job of selling and relationship building," he said.

Not all buyers see the market as erratic. John Lowry, manager of meeting planning and the hotel program at New York-based Philip Morris Management Co., said most of the meetings he handles are booked with such little lead time that most properties are quick to accept the company's requests.

"My average lead time is three to four weeks," Lowry said. "All the major chains have had quicker response time and better deals upfront. Now, about 80 percent of the time the hotels we want have the space we need, where that used to be reversed. Now, hoteliers are calling to try and sell, where they used to wait for the phone to ring." He added that hotels still are negotiable on all aspects of meeting costs.

While the rebound shortly will have a direct consequence of higher room rates, Hanson said, buyers should not expect a quick rebound of ancillary meeting charges, such as high meeting room and banquet room rental rates. "They will come back in the long term, but this is not yet a time when hotels will want to take that risk," Hanson said.

That view is not necessarily shared by hoteliers, who said the demise of ancillary charges has been overstated and they will be emphasized to improve yield where feasible.

"We've been very flexible on those cost centers, but they are recovering," said Steve Armitage, senior vice president of sales and marketing at Hilton Hotels Corp. "The degree of that recovery will be directly related to the overall recovery, but a customer seeking value can always find it."

Hilton's meeting bookings have improved "tremendously," Armitage said, though actual revenue has improved at a lesser rate. "This is a very opportune marketplace," he said. "Everyone is very aggressive, because the first quarter is traditionally a value period anyway, and the economy and Sept. 11 have led to more aggressiveness. This is an opportunity to secure great value. Going forward, there will still be values, but not as many as people would like."

"It depends," Scypinski said. "In San Francisco right now, it's whatever it takes to get the business, but in New York we can be very discretionary. We've never gotten away from ancillary charges. We've never eliminated them. They're still there, but it's how you apply it. If there's no pressure, then we just try to get the cash flow. We let properties use their best judgment locally to capture as much revenue as they can without losing the business."

Hanson also said some chains have suffered from what he called buyer resentment at the chains' negotiating philosophies for both transient and meeting bookings after Sept. 11 and through the autumn negotiating season, but wouldn't elaborate further.

"I've heard that," Armitage said. "A lot of customers feel this is a buyer's market and that now is their opportunity to take advantage. Some people felt taken advantage of during high-demand cycles, and some probably were. I don't hear this about Hilton. We've always tried to be fair and develop long-term relationships."

Scypinski dismissed such talk. "If you talk to 10 planners, you'll find 10 different levels of resentment," he said. "Some couldn't wait for the seller's market to shift. Others understand that it's a delicate balance. We've tried to be understanding and fair, and last year, especially in light of Sept. 11, shows what a fragile ecosystem this is."