Answered by Jan Frietag:
Question:
Would a planner get a better deal booking future business in 2009 with a guaranteed rate for a future-year meeting now vs. an increased percentage rate for each future year?
Answer:
That depends on your estimate of where future rates are going. It is probably fair to assume that 2009 rates will be flat or slightly down from 2008 rates. In 2010, with the economy recovering, demand for rooms will increase and hotels will reassert their pricing power. Just keep in mind to not only focus on rate negotiations but on the "total cost of stay," i.e., also pay attention to what amenities are included in the room rate.
Question:
Should meeting planners try to renegotiate contracts for 2009 signed in earlier years, when rates were strong?
Answer:
Hotels made commitments to staff and vendors based on revenues that they expected. Going back to the negotiating table will probably create ill will and is detrimental to establishing a long-term relationship.
That said, hotels are probably eager to retain your business, and I would not focus so much on the hotel rate but the "total cost of stay."
Question:
Have gaming destinations seen a bigger swing (positive or negative) in RevPAR or ADR than nongaming destinations?
Answer:
As you may know, casinos use an internal transfer rate to pay for hotel rooms they use to comp players. This rate can vary widely—from actual ADR to 75 percent of rack rate to an even more convoluted formula based on demand for the hotel that night. So casino hotel ADRs are a somewhat tricky metric to compare, because it includes rates that were paid by guests and rates that were not paid, but simply allocated.
The Las Vegas CVB has some great ADR and RevPAR info here: http://www.lvcva.com/press/statistics-facts/index.jsp.
Question:
If I am booking day-only meetings in 2009 (no rooms, just catering and audiovisual services), what advantages do I have?
Answer:
Given that the demand for hotel rooms is dropping, you may find that hotels are more willing to give you a good quote because your business is now more valuable than ever. Good luck in your negotiations.
Question:
We have consistently seen F&B minimums and room rentals increase, with occupancy being low, can we expect this to be the trend as well?
Answer:
With the demand for rooms flattening or decreasing, hotels will try to recoup some of the lost revenues through other means, which is probably no surprise to you. I would think that minimums will be somewhat relaxed in 2009 and beyond as meeting planners gain more power at the negotiating table.
Answered by Robert Mandelbaum:
Question:
I understand that now it's a buyer's market, in regards to attrition, value-adds, cancellation clauses, etc. My question is about contracts already in existence. Due to the state of the economy and the supply/demand problems hotels are experiencing many groups are/or will be experiencing attrition. What do you predict regarding these contracts? Will hotels negotiate and/or waive attrition/cancellation fees in the spirit that everyone is hurting, or will they only take their side into account due to loss of revenue and hold steadfast at the penalties as outlined in the contracts?
Part 2:
As a meeting planner, contracts for 2009 and 2010 were created and signed prior to October 2008. Are you saying that there will be a decline of rooms occupied in 2009 and 2010? What will this do to meeting planners that contracted room blocks based on prior room usage? Will the hotels work with us on this?
Answer:
First, I am not an attorney. I would consult one before considering breaking, or renegotiating, any contracts.
Following the industry downturn in 2001-2003, hotels learned that value of revenue from attrition and cancellation penalty payments. This lesson, combined with the seller's market environment that existed from 2004 through 2007, allowed hotels to write favorable cancellation and attrition clauses into their contracts. Each hotel will evaluate the economics of each contract before deciding how strict they will be in the enforcement of their contracts. I believe the natural bent of most hotel sales people is to preserve long-term relationships with meeting planners and renegotiate. However, given the poor current market conditions, short-term economics may result in strict enforcement. In turn, it may be more economical for a meeting planner to pay the penalties, rather than incur the expense of the meeting.
Question:
Per your chart, demand never fully recovers once the recession is over. Do you believe that will be the case this time around?
Answer:
Our current forecast (4Q08) calls for national lodging demand to exceed 2007 levels in 2011. For reference purposes, it took until 2004 to surpass the 2000 levels of national lodging demand.
Question:
If labor is the first to go (with the exception of sales), what can we expect service to be at the property level?
Answer:
A colleague of my in our New York office has a saying, "Give a hotel manager a dollar and they'll find a way to spend it." During the prosperous years of 2005 through 2007, hotels did add extra amenities and services. As we have seen in past industry downturns, superfluous services and amenities will be cut. Since guests at luxury hotels value the extra services and amenities, and accordingly pay higher prices for them, luxury hotel managers will attempt to preserve their levels of staffing and guest service. On a relative basis, more cuts will occur in the upper-upscale, upscale and mid-market properties.
Question:
We did not see any info about New York City and Washington, D.C. [during the webinar]. Those cities have very high ADR. Will these cities be expecting lower occupancy and hopefully moving their rates down?
Answer:
Based on feedback from our consultants in New York City and Washington, D.C., as well as our econometric forecasting model, we project the following changes in performance for these markets in 2009:
- New York City: Occupancy to decline 9.3 percent to 74.1% percent; ADR to increase 1.5 percent to $287.03; RevPAR to decline 7.9 percent to $212.64
- Washington, D.C.: Occupancy to decline 3.1 percent to 66 percent; ADR to decline 1.3 percent to $153.07; RevPAR to decline 4.3% to $101.02
As you can see, occupancy levels in New York are forecast to experience a dramatic fall-off, but still remain above 70 percent. At this high level of occupancy, hotel managers will retain some degree of pricing power.
Next year is a year of change in presidential administrations. This increase in government activity in D.C. will help to mitigate the negative impact of softening economic conditions and a 4.8 percent increase in the supply of hotel rooms.
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