Gloomy Forecast … Silver Lining

Hotels are hurting, and they want your business. Pretty please?

By M.J. Blank

If you’ve ever dreamed of upgrading your venue to a three- or four-star hotel, wished for a break on attrition fees, or imagined taking your annual conference to a city that seemed out of reach, this might be the time to make dreams like these come true. The lodging industry is suffering, and hotels are seeking groups that they might not normally bother with to fill empty rooms. For hotels, it’s the perfect storm: Just as the faltering world economy has slashed demand for corporate travel, worried consumers have cut back on leisure travel and a large number of new hotels that had been under construction are opening their doors, adding to a market that is already saturated in many areas.

“The combination of a weak economy and rising levels of supply have caused one of the deepest and longest recessions in the history of the domestic lodging industry,” a study earlier this year from PKF Hospitality Research concludes. PKF expects this year’s revenue per available room—a measure of a hotel’s health—to decline 13.7 percent, making it one of the worst years since 1930. “And we’re not at the bottom yet,” says Mark Woodworth, PKF Hospitality Research president.

With revenues off, many more hotels are likely to have trouble servicing their debt, and to make matters worse, hotels have lost value along with residential real estate. Not surprisingly, lodging closures and bankruptcies are projected to rise.

For meeting planners, this scenario suggests opportunities—and caution. “This is one of the most attractive buyers’ markets that we’ve seen since 2002,” PKF’s Woodworth says. The increase in supply and the decline in demand for hotel rooms should combine to push room rates down, and hotels are likely to dangle incentives to bring the business in. And for business already on the books, hotels interested in maintaining long-term good relationships with groups are more likely to bend a bit on attrition.

One simple reason associations and faith-based groups may seem be more valuable now than ever: They’re still holding meetings. “Associations and religious groups are still signing contracts,” says Gus Vonderheide, vice president of group sales for Hyatt Hotels & Resorts. Their numbers may be down a bit, but they are still traveling. But regardless of the economy, faith-based and other non-corporate groups are valuable because they fill rooms during off-peak times such as weekends and holidays.

Sandra Schutrop, religious sales manager, worldwide accounts for Hilton, says in today’s buyer’s market convention and visitors bureaus from larger cities are wooing faith-based groups, and rates in some cases have dropped to a more affordable level.

Holiday Inns’ parent, IHG, recently reorganized and beefed up its national sales force, creating a division specifically devoted to the religious market. “We have always had a significant presence [in this market],” says Mike Fegley, IHG’s vice president for global sales for the Americas region. “But we never had someone who went to bed at night and woke up thinking about religious meetings. We’re excited about that.”

Let’s make a deal

Lodging chains and management companies with empty meeting space and guestrooms are trying a variety of techniques to get business on the books and to keep current clients happy.

First off, don’t expect to see deep discounts across the board on room rates. Given their cash-strapped situation, slashing rates is understandably not the preferred method of winning the business. These days, it’s more common to see hotels throw in freebies such as bumped-up frequent guest program rewards, coffee breaks, or a manager’s reception to sweeten the deal.

At the corporate level, some hotel companies are looking at the big picture, and they are more inclined to give planners a break when they sign contracts for multiple meetings or locations in the future.

Hyatt recently rolled out a multiple meetings program that rewards larger groups booking multiple events in some of its largest hotels. Rewards including frequent guest program points, complimentary meeting space, rebates on guestroom revenue, complimentary board meetings and more.

Similarly, Hilton has introduced a “Book Now and Save” promotion. For meetings before March 31, 2010, the company is offering a menu of incentives, including complimentary room ratio of 1 per 35 group room nights, 25 percent allowable attrition, double Hilton HHonors base points for attendees, complimentary staff meals for up to four staff members, a 2 percent rebate on guestroom revenue, and 500 Hilton HHonors Event Planner bonus points per paid group room night. Depending on the number of room nights, a planner can select up to three of those incentives.

Marriott International, meanwhile, rolled out a promotion package called Marriott Meetings Matter, valid at more than 1,200 properties worldwide. Available through March 2010, the promotion includes a 25 percent allowable attrition rate, up to 50,000 Marriott Rewards bonus points per event, one complimentary room for every 35 hotel rooms booked, and a 2 percent rebate on the master bill for meetings that have at least 100  cumulative room nights booked in the promotion period.

Gaylord Hotels offers incentives on a case-by-case basis. “Each group has its own criteria that are important. So, rather than saying we’ll give them free coffee breaks—which may not mean anything—we’ll customize our offer,” says Randy Miller, vice president of sales at the Gaylord Opryland in Nashville.

One area of special concern to faith-based groups, other than room rates, is food and beverage, and food costs have risen faster than inflation in the last year or so. Despite that increase, hotels that typically host at least some non-corporate groups understand budget-conscious groups and try to work with them. “If you come in with a budget, we’re not going to throw a menu at you and say ‘this is what we have—take it or leave it,’” Vonderheide says. “We will work with your budget.”

Damage control

During these uncertain times, attrition clauses are a source of anxiety for many meeting planners. Hotels have tightened those clauses since 2001, when attendance at many group events fell off precipitously following the September 11 terrorist attacks. “The long-term trend is that hotels know it’s a cyclical industry and they want to maintain the long-term business, so they’ll waive fees,” says Robert Mandelbaum, director of research information services for PKF Hospitality Research. In the short term, cash-strapped operators may not be so lenient. “Right now, any cash is good cash. This year, hotels might try to enforce the clauses and sacrifice the long-term business.”

Earlier this year, Omni Hotels announced that it would waive attrition fees for smaller events booked by June 30 and held this year. More commonly, hotels are dealing with attrition on a case-by-case basis. “It’s a daily conversation,” says Gaylord’s Miller. “We’ve got pretty solid contracts. Sometimes they pay, other times we’re getting their business at other times of the year.” Another common tactic is to ask groups to spend more on food and beverage to compensate for the lost guestrooms revenue, although faith-based groups are less likely to find the value in this option.

“Hotels have been a lot more flexible in 2009 and going into 2010 relative to attrition,” says IHG’s Fegley. “It is a buyer’s market for meeting planners in many markets, but not all,” he adds.

At Hilton, Schutrop says a lot of hotels are negotiating with 2009 groups and sometimes dropping room block numbers. “They understand that in times when there is hurting across the board, it’s time to make sure you don’t lose your clientele,” she notes.

Creating a win-win with hotels

There are right ways and wrong ways to approach and negotiate with hotels. Here are some tips from the front lines:

• A good request for proposal, including your group’s history (how many attendees, room rates, locations) from past conventions, will steer the hotel toward dates and rates that are more in line with your expectations.

• Take advantage of hotel chains’ help. IHD runs a 24-hour hotline for meeting planners that takes more than 100,000 calls a year, and Marriott provides “Meetings Excellence”online tutorials on its website. Marriott.com also has electronic tools such as space and budget calculators, online rooming and group lists, custom web pages for groups and step-by-step guides for everything from planning to post-meeting follow-up.

• Prioritize. What’s a deal breaker (or maker) for your group?

• These days, if you can schedule multiple meetings or conventions with one company, you are more likely to get a break.

• Finally, Hilton’s Schutrop says, remember that “no question is a dumb question.”