Meetings South, October 2008

How to Navigate Economic Purgatory

by Ruth A. Hill

Nobody seems to have a clear take on the economy. Many may be hesitant to use the R-word—recession—but businesses are cutting jobs because of higher energy costs, tighter credit markets and sluggish performance figures. A new federal government team is about to take power.

In a recent Associated Press report, Mark Vitner, senior economist at Wachovia Corp., offered a popular assessment.

“The economy is stuck somewhere between sluggish growth and recession,” he said. “We’re in economic purgatory.”

The hospitality and meetings industry is tied to the trends. The statisticians point to lower occupancy rates, and more than a few destination managers are nervous about what’s ahead for the remainder of 2008 and next year.

Robert Mandelbaum, director of research information for Atlanta-based PKF Hospitality Research, says hotels are performing at or near long-term averages, but the future looks mixed.

“It’s not a sellers’ market anymore, but not weak enough to be a strong buyers’ market because a lot of popular meetings destinations are still performing very well,” he says. “Cities like New York, Boston, Philadelphia, San Francisco and Los Angeles remain at high levels of occupancy.”

Hotels aren’t yet discounting in most destinations, he points out, at least not like they did in the post-9/11 period or in 1991. Yet occupancies are soft to the extent that airlines have cut their lift into many cities. Markets that are dependent on visitors who arrive via air—like Denver, Orlando and Albuquerque, N.M.—are most vulnerable, he contends.

“If the airlines cut back this fall as they have said they will, some markets will be hurting,” Mandelbaum says.

If airline capacity is reduced by 10 percent, PKF predicts lodging demand will fall off 3.9 percent. The national decline in lodging demand in late 2001 was just 3.3 percent.

In late August, Hendersonville, Tenn.-based Smith Travel Research (STR) reported U.S. lodging occupancy had fallen around 4.5 percent from the same period in 2007. Yet Jan D. Freitag, STR’s vice president for global development, says hotel rates are holding and even increasing in some markets.

“The past couple of years have been extremely good for hotel operators,” Freitag says, “and they have seen strong occupancy rates and ADR growth that has attracted capital, so there has been a strong influx of hotel rooms into the U.S. market. But given the current economic headwind, occupancy demand is flat and declining. We are hearing about some contraction in meeting room blocks—people aren’t staying as long as they might have—but it looks as if this fall is in the bag for meetings; events will take place because of established cancelation or attrition fees.”


What’s Ahead for 2009

The big question on the minds of industry denizens and consultants concerns what’s in store after the turn of the calendar. Will room rates be more attractive for groups? Can planners wheel and deal with hotels in a manner they haven’t seen in recent years?

Freitag says room rates are on the increase for transient travelers but group room rates are falling. Hotels are shifting their mix, he says, by taking the lower-rated group business that he believes will remain in place despite increasing airfares and other factors, “because there’s still a lot of value in meeting together for dinner after the meeting.”

“We are suggesting group travelers look more closely at their total cost of travel,” Freitag says. “They need to have a budget in mind for the overall trip. The larger portion may be eaten up by airfare, so they will have less to spend on F&B and hotel rooms. They may have to trade down on their lodging choices. It might also be that group travelers will pay the rates for their rooms but they will demand more value for it, like free Internet and gym access.”

Bren Clevenger-Ori, CAE, CMP, chief operating officer for MPI, says its research shows companies are still booking business during the uncertain economic times because they see the value of meetings as sales, product development and communication tools.

“We are advising people to leverage their spend—work with national sales managers to partner with hotel companies if they have a number of meetings to book,” Clevenger-Ori says. “We have found that if you approach a supplier with the idea of creating a partnership, explaining to them what you want to accomplish and what your budget is, they will work with you. But you must be willing to be forthcoming with information.”

Gary Sain, president of the Orlando CVB, is one destination executive who hopes his market will hold its own in 2009 because of demand from international visitors and meetings industry segments such as associations that are dependable customers no matter what the economy.

“We still have good airlift and so many hotel price points that can match up with anyone’s budget,” Sain says. “But there’s no question that corporate America is under pressure these days, and they are cutting travel budgets. This reduces meetings attendance. The biggest challenge hotels here and elsewhere face for the near future is how to book new business and make sure they are protected from cancelations and attrition. Hoteliers are skeptical about numbers they can’t relate to history.”

StarCite, one of the industry’s leading suppliers of Web-based solutions for booking meetings and events, collects data on the top 25 U.S. meetings cities. Alison Galik, StarCite’s vice president of shared services, says buyers can expect 2009 to be a good year to negotiate, and running RFPs through a service like StarCite can enable customers to know whether the rate quote they receive is compelling or even in the acceptable range.

“From what we are seeing, buyers will have more negotiating power in a lot of markets,” Galik says. “The top 10 markets—like L.A., New York and Chicago—don’t change that much. But others—especially second-tier cities, like Albuquerque, Pittsburgh, Columbus [Ohio] and Salt Lake City—are getting more bids these days. Some customers are trying to keep meetings closer to home and some are going with less high-end properties. And they are being aggressive in their negotiations.”


E-Solutions

Some organizations are eliminating a portion of meetings expense by putting meetings content online. Virtual meetings save time and money, get the “green” nod and increase productivity. Those who use and implement e-conferencing say demand is way up. Yet for many planners and their constituents, it’s a new world that is unfamiliar and even overwhelming.

While nobody expects face meetings to become obsolete, costs, time and travel pressures are prompting organizations to look for more options that are now available in today’s sophisticated technology array.

The Institute for Corporate Productivity in Seattle recently reported that 82 percent of about 800 organizations that responded to its survey have concerns about rising travel costs. To offset expense, 33 percent of the polled companies said they are stepping up use of technology in lieu of physical travel. Larger companies especially report an increased use of webconferencing, videoconferencing and teleconferencing.

Meeting professionals who understand how online solutions such as webinars, webcasts, podcasts and virtual world platforms fit into today’s meetings scene are out in front, says industry veteran Debi Scholar, CMM, CMP, CTE, hospitality and leisure director for PricewaterhouseCoopers, and the National Business Travel Association’s (NBTA) outgoing co-chair of its groups and meetings committee.

“Virtual meetings have increased by 100 percent or more in the past couple of years,” Scholar says. “What’s driving this is 24/7 globalization, the need to know immediately and the increased difficulty and cost of travel.

“Also, technology has increased dramatically in terms of capabilities and functionality,” she continues, “so it’s now so much easier to set up virtual meetings and to really use technologies to the max.”

So in some instances, she continues, virtual meetings are the answer to cost containment.

“Management is realizing how many traditional travel and entertainment costs are associated with meetings,” Scholar says, “and they are looking at opportunities to drive those costs down. Sometimes this means travel restrictions, so it’s important for planners to know how to achieve objectives yet stay within budget. With virtual meetings in the mix, it’s possible to reduce costs between 10 and 25 percent.”

But medium can affect message, Scholar warns, and some meetings should not go virtual. Long and complex meetings, training sessions that include role playing, and those where sensitive information or training is conducted are typically not ideal candidates for online implementation. Those with content that can be archived for anytime retrieval and referral are often good candidates for online delivery.

For expert assistance with e-solutions, planners can turn to a lineup of providers and consultants.

Ken Molay, president of Webinar Success, a consultancy in Cary, N.C., is also seeing an uptick in the use of online meeting solutions, along with planner calls for help.

“A good, well-run virtual meeting needs planning and people with expertise to understand the critical concerns as much as face meetings require,” Molay says. “It’s difficult to gain understanding of all options. There are similar issues with Web solutions just as there is for face meetings. In the same way you hang branding banners about a meeting room, there is branding on the website, making sure deadlines are met, and being certain that presenters are rehearsed and have materials ready. The whole idea of a virtual meeting can be overwhelming.”


Containing Costs Now

So whether it’s the choice to go virtual, or a new approach to selecting sites and negotiating with suppliers, the uncertain economy and attached meetings market presents both opportunities and challenges, the experts say.

“This market is different for the reason that C-level managers are taking notice of costs as never before. They see meetings as the last frontier of spend that has not been captured, along with that for sporting and event tickets,” Scholar says. “Ethical behavior across the enterprise is also in focus, so stricter policies and compliance measurements need to be in place, along with penalties for those who don’t comply.”

Planners aren’t the only ones who are assessing strategies to navigate the murky economic depths. Their industry partners find it daunting as well.

“So much of our future rests with airlines and how they can manage the price of fuel,” Sain says. “That’s the Achilles heel in all of this—so much uncertainty, so you manage day by day. Back in the period after 9/11, you at least knew where you were—on the bottom with everyone else. But back then every day got better and after awhile optimism returned. Today, nobody can forecast the price of oil or the rate of inflation. I think this period is actually more challenging than the one we had seven years ago.”

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