What’s up? Well, it may be one of the oldest smart-aleck retorts going, but the simple answer is, “prices.”
Hotels and other meeting venues are grazing on greener pastures after one of the longest, driest revenue droughts since the Great Depression, but with the new-supply pipeline drying up, now is the time for sales managers to make some bank for owners.
“The short answer is life is good,” says Jan Freitag, senior vice president of global development for leading hospitality industry consultancy Smith Travel Research (STR). “The U.S. has sold more rooms on an annualized basis through October than ever before—1.05 billion rooms sold.
“There’s three legs to the stool: unprecedented demand, unprecedented lack of supply and some recovery of ADR,” says Freitag, who by nature of his clientele—hotels—looks at things from the supplier perspective. “People just aren’t building anything, and we’re expecting that to last for the next 12 months or so. We expect room demand still to grow, but not at the pace that we’ve seen it. We’re still going to be selling more rooms, and that’s going to outpace the supply. I don’t have a general manager saying, ‘We don’t have anything on the books in August 2012, so take any group you can.’”
According to STR, room rates should increase approximately 2.7 percent in 2012. (STR expects a nearly identical increase of 2.6 percent for 2011 when all of the numbers come in.)
For the first time in years, it seems there is movement in the area of booking windows, with many suppliers not as desperate to take last-minute bookings, or willing to hold out for potentially more-lucrative business.
“Meeting planners need to be careful of two things,” Freitag says. “The short booking windows they were able to utilize in 2009 and 2010 are not going to serve them well because the absolute level of occupancy on the upper end of the market will be so high they won’t be able to get the rooms they want. Now when a meeting planner calls a hotel and says, ‘My meeting is two months from now and I need x,’ they’ll hear, ‘You may be able to book this, but here’s the rate,’ which will be pretty hefty because the hotel is full. They’re going to see that they’re being outplaced and they’re going to have to elongate the booking window again just because there’s not a lot of new hotels to choose from.”
Another factor in hotel pricing is the generally low rates that many planners locked in during the worst of the economic downturn. Because many planners had the foresight—and the ability—to book further out a couple of years ago, hotels may have a lot of low-revenue business still on the books, and hotel sales managers will feel pressure to make back some of that money with the remaining rooms.
“Know that room demand is going to go up, so your favorite hotel may not be available,” Freitag says. “So book early, book often.”
As far as what markets will be hot—from a high-occupancy standpoint—STR is especially bullish on a perennial star performer.
“New York’s on fire—always is, always will be,” Freitag says, adding that the city’s occupancy may actually be flat or drop slightly, but it will remain in relative equilibrium at a very high level.
According to Freitag, year-to-date occupancy in New York City sat at 81.2 percent near the end of 2011, while the average in the other top 25 markets hovered around 65 percent.
Bargain hunters should look for markets with a large amount of meeting space and good airlift. According to STR, the average daily rate in some key bargain markets include Phoenix ($105), Dallas ($86), Atlanta ($83) and Orlando ($104).
“If you’re looking at bargains, they’re not necessarily on the coasts,” he sums up.
The major pendulum swing back to a seller’s market was evident in the responses from planners who took the Meetings Market Trends Survey, too.
“I do believe that we are now headed toward a ‘seller’s market,’ responded Matthew Marcial, CMP, director of meetings and event services for the American Association of Clinical Endocrinologists, based in Jacksonville, Fla. “We are seeing signs that the pendulum is swinging back, and those include more limited availability in shorter booking windows, higher rates and limited flexibility with concessions.”
Even though prices may be rising and flexibility contracting, Marcial is positive in his overall outlook for 2012.
“I am more optimistic about the meetings industry and the economy than I was a year ago,” he says, “because there are many signs of improvement, such as increased attendance at our programs, and in speaking with many of our suppliers, business for them also continues to see a gradual improvement and greater demand.”
One sign that the market is swinging back to suppliers is a decided decrease in their level of desperation.
“[Attrition clauses] are being more-strictly enforced,” responded Sebrina Brown, manager of meeting experiences for Oneonta, N.Y.-based Cleinman Performance Partners, who wrote that she is also seeing booking windows getting longer and finding it increasingly harder to book rooms and meeting space in a short time frame. “I find the hotels are reluctant to give up the space to us nine months out in favor of hoping to book a group with more sleeping rooms.”
Cleinman added that by booking three years out for her three-day weekend programs she managed to have properties freeze their rates and only minimally increase F&B (by 3 percent). By offering to go year-to-year, however, she was presented with an almost 10 percent increase.
Independent planner Theadore C. Bradpiece, vice president of Los Angeles-based Two Bears Travel, is also seeing facilities get tighter with their attrition terms.
“I am finding that attrition clauses are being enforced more strictly of late,” he responded. “I think that with the weakening economy, and the loss of meeting revenue, venues are turning to attrition clauses to help offset some of the loss.”
Results from the Meetings Market Trends Survey bear out Cleinman’s and Bradpiece’s take, with 10 percent less meeting planners responding this year that the allowance for slippage has increased while nearly 3 percent more indicated that the allowance for slippage had decreased; 4.2 percent more responded that attrition clauses were enforced more frequently, which was led by 8.3 percent more corporate planners. When it comes to attrition fees being dropped altogether, 5.1 percent less meeting planners indicated as such this year, with 6.8 percent less association planners responding they were taken off the table completely.
Booking windows—the amount of time between the start of the booking process and the signing of the contract—are also lengthening.
According to survey results, the fast-turnaround time portion of responses is decreasing, with 1.3 percent less planners this year responding that their typical planning cycle is one month or less (2.9 percent less corporate planners) and 2.8 percent less planners answering that their booking window was usually two to three months.
Conversely, those who answered four to six months increased 4.3 percent over last year, and those who indicated their typical planning cycle was between seven and 12 months increased 3.6 percent. On the far end of the scale, however, those starting their booking cycle more than two years out dropped 2.1 percent from the previous survey.
The question that asked about expected budget changes in 2012 presented a mixed bag, with results that were not quite indicative of a major trend, but that in itself may be telling when it comes to corporate budgets and the general stagnation and uncertainty affecting the economy at the time of the survey.
Planners who responded that they expect their budget to decrease up to 10 percent in 2012 increased 2.6 percent from last year’s survey, led by 6.5 percent more independent planners; 7 percent more corporate planners said they expect their budget to stay the same while 4.3 percent less corporate planners were looking forward to an increase of more than 10 percent. Association planners were a little more optimistic, however, with 3.2 percent indicating they thought their budget would increase more than 10 percent.
“Our budget will increase, but not because we have the money, more because it has to increase to accommodate the services we need!” responded Elana Plotkin, meetings coordinator for the Rockville, Md.-based Biophysical Society. “Services that we paid for in 2010 have increased by up to 30 percent for our 2013 budget, somewhat due to city-by-city differences and the use of unionized areas, but some just because organizations are upping prices to cover their decrease in revenue.”
Of course, budget expectations are often tied very closely to attendance performance and estimates, so uncertainty as to how many people will be meeting next year fits into a general uncertainty about the economy. All of these factor into the number of meetings planners think they’ll be responsible for in the next year.
Results from the Meetings Market Trends Survey indicated that attendance ended up pretty flat in 2011. Although 46.8 percent of all planners noted their attendance stayed about the same between 2010 and 2011, 21.4 percent responded that attendance actually dropped by up to 10 percent. On the other side of the coin, 13.9 percent indicated that the number of people attending their meetings increased up to 10 percent over the previous year’s survey.
“Attendance increased only a small amount [in 2011],” says Dr. Bjorn Hanson, divisional dean and clinical professor of the New York University Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management. “Employees are still reluctant to lobby to attend additional meetings, and even though corporate profits are increasing, companies aren’t behaving like they are. The cost of attending meetings has increased, for hotels, care rental, air travel. Companies might be saying that the worst of the economy is getting better, but we still need to control costs because prices are increasing.
“So they send fewer people for fewer days,” Hanson continues, “and even though profits are up, no one’s complaining, with the exception of Occupy Wall Street, that corporate profits are too high yet.”
Number of Meetings
One survey question that may portend a healthier meetings market in 2012 asked how many meetings planners expected to hold the following year. The rate-of-change, especially, between responses from the 2010 survey and the 2011 survey were particularly interesting, as 18.1 percent more association planners said they expected the amount of meetings they will hold to increase up to 10 percent (12.2 percent more, total; 13.1 percent more, corporate; 2.5 percent more, government; 6.9 percent more, independent).
Government planners, as indicated throughout the survey, were decidedly less rosy about their prospects in 2012, with 10.6 percent more expecting the number of meetings they hold in 2012 to decrease by up to 10 percent; 6.8 percent more responded that they expect the total number of meetings they will hold in the following year to decrease more than 10 percent.
One interesting trend we noticed emerging just this year was declining organizational support for industry trade associations, with nearly 21.9 percent more government planners responding that their membership in meeting planning trade associations such as MPI and PCMA was not supported.
The number of association planners whose organization supported their participation in meetings industry associations was 8.2 percent less this year. Overall, 5.2 percent less planners received support for their participation in trade associations.
The 2012 Meetings Market Trends Survey is a proprietary Meetings Focus online study that was distributed to 50,260 Meetings Focus subscribers. As an incentive to complete the survey, respondents were offered a chance to win one of five $50 Visa gift cards. Conducted in October 2011, the survey generated 805 complete responses.