ConventionPlanit.com Principal & Co-Founder Katherine Markham authored the following article, which originally appeared on HotelExecutive.com.
The economy is showing signs of improvement and hotels are reporting record profits. Yet the trends that are affecting convention room blocks today as well as vexing meeting planners are rooted in the past trials of the Great Recession. ConventionPlanit.com looked to its own Advisory Council, supplier members and industry leaders for feedback on the factors that are eroding meeting and convention room blocks.
Supply & Demand
There’s no doubt we’re in a seller’s market and many say we may be headed for a ‘buyer’s market.’ Cyclical timing is critical for hotels capitalizing during gainful times while making up for previous losses from ‘buyer market’ years. Supply and demand in any given time plays a major role. In cities that refrained from hotel ‘new builds’ during the bubble years, group room availability is now in low supply. As a result, these cities are experiencing an upswing in demand and attaining higher rates with new developments on the horizon. Hotels in boomtowns often impose a 30 day convention cut-off date to sell their rooms to higher rated short term business travelers.
While in more over-developed destinations like New York City where rates are traditionally high, soft corporate demand and excessive hotel inventory have created a fierce and unprecedented competition for occupancy by lowering rates. Due to fiscal uncertainties in the recent past, booking business a few months out was the standard. Geoff Heuchling, Senior Director of e-Commerce for Marriott Hotels is reporting record high group bookings; and any anxiety a planner had over the economy has been replaced by concern over securing essential meeting space. Mr. Heuchling notes that meeting planners are now booking several years ahead. According to meeting planners, convention bureaus as well as hotels are requiring the commitment of a high ratio of hotel rooms to allocate adequate meeting space.
Sharing – Economy Influences
During the recession, shared-economy, booking sites soared offering competitive rates. Convention attendees continue to search online and compare hotel rates on 3rd party booking sites for the best deal over their convention dates. Unexpectedly, Airbnb emerged to permanently challenge the industry by appealing to a growing demographic of thrifty millennials. Planners attribute permanent erosion in their room block to shared economy booking sites, including the underestimated impact of Airbnb.
The International Association of Professional Organizers (IAPO) revealed in a 2015 study that the shared-economy is denigrating the number of hotel room nights booked by meeting planners. IACPO members planned 4,537 events in 2015, which is up by over 3,000 in the year prior. However, the number of room nights booked by their members including association, corporate and government, decreased by 2.43 million room nights.
Recent industry studies indicate that one out of three rooms are booked outside the contracted room block, and for city wide conventions, the average is about 45%. Ironically, destinations struggling with insufficient hotel rooms for city wide conventions are welcoming creative alternatives that also include cruise ships docked for overflow.
Windy Christner, Senior Director of Meetings & Expositions for the American Pharmacists Association contracts a ‘lowest rate’ confirmation over their Annual Meeting dates in order to mitigate problematic ‘wholesale’ rates through 3rd party booking sites.
This is a challenging issue for hotels that need to maintain high daily occupancies. When faced with booking rooms for a single day on which they desperately need business, they may offer competitive rates that are lower than the convention rate and cover a few days before and after the needed dates. The convention cut-off date protects the hotel by liberating them to sell last minute rooms either higher or lower than the convention rate, based upon supply and demand. To control their inventories, Hotel chains are now advertising a book direct policy to obtain the best possible rate and other incentives are slowly being included such as free Wi-Fi.
Rogue housing companies have been around for some time, but they escalated during the Great Recession to poach room night commissions and erode room block consumption. Room piracy has cost the industry millions in hotel revenue and the organization faces stiff attrition fees by the loss. Attendees also pay the price by losing deposits or imposed cancellation fees as well as access to room drops, announcements, free shuttle, food and networking events. Attempting to acquire meeting space for future conventions is also challenging when there is a record of weak room pick up. Piracy is getting easier due to mock Websites and Twitter. And because these unofficial housing companies appear authentic, a meeting’s management team may be unaware that rooms are being poached. When organizations post their member lists on their Websites, it becomes public domain and open season for fraudulent companies to contact attendees with sold out scare tactics.
Research conducted by the Convention Industry Council found that 73.1% of 655 meeting professionals who responded to their 2014 survey had conventions targeted by piracy. And yet a majority of them had not developed preventive measures. Meeting planners must make their attendees aware of this problem, since it’s not going away anytime soon.
Meeting planners who use commissionable RFP sourcing sites may not be aware of the hidden fees or mark-ups that impact their rates as it may not appear in their contract. Although hotels claim that these fees are the cost of doing business, they may increase the rate to compensate for commissions they must pay out. The rate therefore may not be the lowest intended or available for attendees.
Attrition, Attrition, Attrition
Meeting planners are frustrated by the lack of control they have over their room blocks, citing that delegates are attending the convention, even though they may not book within the room block. Leslie Zeck, CMP, CMM, Director of Meetings for the International Dental Research Association, is obtaining non-negotiable quotes that include a 5-6% increase per year on convention room rates. What happens if a few years from now the pendulum swings back to a buyer’s market? The organization will be saddled with overpriced rooms and thousands of dollars in penalties.
Planners are tentative about signing guarantees that render their organization liable for exorbitant penalties, especially when attendees today are going around the block using 3rd party booking sites. Ms. Zeck has recently contracted with a housing company that has the clout of working with several major organizations and can negotiate more effectively on behalf of IADR.
For organizations that include a rebate to pay for items like shuttle transportation, they depend upon room fulfillment to pay for these types of services. As meeting space is often tied to room night consumption, an unexpected fee for meeting space may also be incurred when anticipated fulfillment is reduced.
Dave Williams, CMP, President, Administrative Management Services, Inc. didn’t anticipate a decline in oil prices that would impact revenues by his corporate members and now he is forced to factor in attrition fees. He references his 3 considerations for every meeting includes sponsorships, registration fees and expenses which must balance out. If sponsorships are coming in low or expenses like attrition fees are high, member registration fees will go up. Somehow expenses to the organization must be covered, even when members create the problem by staying outside the room block. This is a complex problem and although he consistently communicates with his members to book early and within the block, the reality is that his attendees are price savvy. Mr. Williams suggests having good relationships with suppliers. “This is a relationship industry and having durable relationships with suppliers serves to strengthen loyalties so that attrition costs may instead be converted into a future booking commitment.”
The 2015 IACPO study revealed the average number of participants per event also fell by 9% in 2015, which was the lowest since 2010. In the wake of the Great Recession, we continue to see competition for convention attendance. Meeting planners are reducing registration fees by cutting back on meals and shuttle transportation. Attendees have choices and are favoring outlying hotels that are accessible to restaurants and activities. As a result, destinations that are walkable to eateries are preferred over convention center access, although both components help. When eateries are far from the convention center, a drop in room night fulfillment is detected.
Terrence Donnelly, Vice President for Experient references the sluggishness by attendees in booking their rooms. Exhibiting companies book rooms near the center early, because they’re sure they’re going. Attendees may not be as certain or crunched for time and often scrambling the last minute to find rooms. In higher demand cities, last minute rooms are typically not the lowest rate and this too affects attendance. Mr. Donnelly suggests that planners reserve a separate block for attendees. Corporations that block a number of rooms through their travel agencies book early, but often at lower rates and commissionable.
Although the meetings industry is showing progress and the economic impact of conventions remains strong, savvy delegates are cutting costs and seeking affordable options – a new normal in the wake of the Great Recession. All indications point to a rise of bookings outside the room block. Bank of America Merrill Lynch has recently downgraded hotel stocks in anticipation of growth by sharing-economy suppliers.
Some say that room blocks may be a thing of the past and that delegates may simply go to hotel website to obtain their 10% discount based on prevailing rates. In any case, technology may present innovative solutions in the future for hotels and meeting planners alike. To improve revenue management practices, it is likely that Hotels will gain better control over rate comparisons in the marketplace by calibrating rates based upon supply & demand, similar to the airline industry.
Obtaining hotel rooms and meeting space that will be needed for future conventions can be challenging when room block pick up is under reported. Tracking delegates via technology may be helpful in quantifying the economic impact for a destination.
Tips to Mitigate Attrition Factors:
- Avoid RFP sourcing channels that are not transparent about commissions or hidden fees. Guard against piracy.
- Review attendee history to understand their needs. Accommodate attendees with a separate room block and preferences they may have for lower priced hotel rooms or those nearest to eateries and the convention center. Promise low and deliver high by blocking less rooms and picking up more. Ask for 14 or 21 day cut-off versus 30 days where possible. Negotiate with hotels to honor the lowest rate available during the convention dates.
- Incentivize early bird reservations with 1 night room & tax deposits. Package registration discounts for staying within the room block. Communicate with members regularly to book their rooms, the importance of staying within the room block and avoiding piracy by using special housing codes. Insist that exhibitors reserve sleeping rooms within your contracted room block.
- Monitor weekly pick-up reports and reduce or move room blocks before cut off dates where attrition fees kick in. Audit your rooms. All cumulative rooms may be counted in room block fulfillment including those pre and post the official convention dates. Complimentary rooms offered to the organization based upon pick-up must be credited towards any attrition fees. Re-sold rooms by hotels should not be included for attrition fees. Good historical room pick-up will enable you to negotiate better room blocks in the future.
- Budget for possible attrition. Offer to book another meeting that may be more valuable to a hotel to offset penalties.
Meeting planners are essentially ‘feeders’ of new business for hotels and ancillary, economic impact. Given the complexities of the situation, the solutions are also multi-dimensional. Whatever the circumstances, suppliers and meeting planners have a common goal to work together to stimulate business and avoid penalties.