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Group business demand returns
October 11 2010

The downturn hit group business particularly hard. How soon can the U.S. hotel industry expect recovery?

  • After significant declines, group demand is coming back.
  • Group ADR continues to lag.
  • Hotel sales directors and meeting planners must find common ground.

Editor's note: This is the first in a four-part series about group business.

REPORT FROM THE U.S.—For John Folks, there’s nothing unusual about planning a meeting for 10,000 attendees. As founder and president of Minding Your Business, a strategic meetings and event agency headquartered in Chicago, organizing such events is just another day at the office.

But for one particular 10,000-person meeting, the scenario couldn’t have been more different. As of a few weeks ago, Folks’ client hadn’t even started the search—for a meeting they wanted booked in the third quarter of 2011.

Two years ago, this fleeting booking window might have been dismissed by planners and hotel sales directors as unreasonable, if not impossible. It would have been as if JFK pledged to reach the surface of the moon not in a decade but in a few short years.

Today, truncated booking windows are common—a reflection of the dismal state of group business. The downturn hit the segment hard.

After the infamous AIG boondoggle that became the poster child for corporate excess during tight times, the scorn of government officials and the outraged public hit the segment even harder.

Meetings were cancelled, events were scaled back, and control shifted into the hands of planners and corporate negotiators, who suddenly encountered a vast expanse of roomnights offered at bargain-basement prices.

But as 2009 became 2010, the dial began to turn ever so slightly in the other direction.

“The corporate meetings seem to be coming back,” said Deborah Sexton, president and CEO of the Professional Convention Management Association.

The sources interviewed for this special report—sales directors, meeting planners, research firm employees and company CEOs—all expressed a similar optimism. But at the same time, each reflected on the tough road the group segment has traveled, as well as the bumpy terrain that lies ahead.

The downward plunge

Group business began to plunge during January 2009, when the segment sold more than 5.4 million roomnights less than during January 2008, according to STR data. Demand fell short in year-over-year comparisons for the rest of the year, reaching its low point during the traditionally slow month of November.

Click image to enlarge.

Average daily rate for the segment marched in near lockstep, spiraling downward as hotels began offering frantic discounts in the face of stagnant demand. By the end of the year, ADR was slashed by more than US$7 compared to 2008, according to STR.

Click image to enlarge.

But group demand shows improvement in 2010. There were nearly 5 million more roomnights sold in March than February, with promising monthly upward bumps through June and strong numbers throughout the summer, according to STR.

“Year-over-year, group is up about 12-13% in terms of roomnights for us,” said Barry Goldstein, chief revenue officer for Dolce Hotels and Resorts.

Deborah Sexton
president and CEO
Professional Convention Management Association

Other major hotel companies reported similar trends. InterContinental Hotels Group, for example, saw a strong improvement in weekday demand between the first and second quarter of 2010. Starwood Hotels & Resorts Worldwide saw a 25% jump in year-to-date bookings driven by a return of corporate meetings. Wyndham Worldwide reported improved group returns as well. 

And while hotel companies reported subtle increases in pricing power in the first half of 2010, rate continued to be the nagging issue.

Group ADR for United States hotels hit its peak during 2008 at US$105.37. The metric has slid since, reporting an annual average of US$103.93 during 2009 and US$99.41 through July of this year, according to STR. Through the second quarter of this year, group ADR is down 3.9%, according to Rubicon.

“The occupancy in a lot of major cities is improving or had improved,” the PCMA’s Sexton said. “What has not jumped back up yet is the ADR.”

Finding common ground

Hotels might be the end beneficiaries, or victims, of shifts in group performance trends, but the course ultimately is being charted at the negotiating table. On one side sits the meeting planner, aware of upticks in demand but armed nonetheless with slim resources and a recessionary mindset. On the other sits the hotel sales associate, still clamoring for business but not so desperate as to offer jaw-dropping discounts.

Greg Malark
COO of HelmsBriscoe

On one side of the table: “You’ve got organizations that think we’re still in the same situation that we were in a year ago, and their organizations are demanding that they come in at the lowest possible rates,” Sexton said.

And the other: “There’s certainly a desire form the hotel side to recapture some of the rate erosions from the last couple of years,” said Greg Malark, COO of HelmsBriscoe, a meeting procurement consultancy based in Scottsdale, Arizona.

The short-term fate of group business rests in compromise.

“The relationship and the communication between associations and their hotel partners is going to be more critical than ever before,” Sexton said.

So far, the news is good. Pricing resistance hasn’t stymied negotiations, Malark said. Hoteliers are pushing rate where appropriate: in markets with dwindling group availability and soaring transient performance.

The road ahead

Compromise and optimism sure are nice, but the industry craves results after 24 difficult months. If bookings pace is any indication—and it typically is—then those cravings might soon be satisfied.

“Group business on the books is up 6.7% year-over-year, continuing its rebound from the dramatic declines seen in early 2009,” according to a Rubicon’s North American Hospitality Review. “Group PACE increased 34.9% across the top 25 markets, driving … gains in Honolulu, Orlando and Denver.”

Mark Woodworth
Colliers PKF Hospitality Research

At Minding Your Business, Folks sees similar upticks.

“Group business is definitely picking up in 2011,” he said, before planning that 10,000-person meeting. “We’re about 50% ahead of where we were this time last year. … That to me is an indication that there has been some pent up demand in the last … two years, where everyone just shut down.”

Not all demand is created equal, said Mark Woodworth, president of Colliers PKF Hospitality Research.

“The group meeting booking pace has continued to accelerate, albeit at a rather tepid pace relative to what we have seen during past periods of recovery,” he said. “Clients continue to tell us that spending, while up, remains price-conscious. Budgets are tight.”

Sources agreed meetings booked during the past few months are, on average, shorter, smaller and with fewer frills.

“Value continues to be a mantra that we’re hearing from our planners,” Malark said.

A return to peak performance

Will group business ever return to previous highs? It depends on who you ask.

According to the North American Meetings Market Outlook for 2010/2011, 25% of meeting planners expect the number of meetings they book during 2010 to increase compared to 2009. Three in 10 expect this trend to continue into 2011.

Additionally, one-third (34%) of meeting planners expect meeting attendance to increase during 2010, while more than four in 10 (44%) expect this trend to continue into 2011. The findings comprised responses from 505 professional planners.

The sources interviewed for this report were mixed in their assessments.

“It will return to 2007 levels; it’s going to take some time,” Malark said. “We anticipate it getting back to those levels of programs and roomnights probably in late ’11.”

Said Folks: “I think the hotel community would be disappointed to think that we will ever have another 2006 and 2007 with the volume of business and the huge ADRs they were seeing. Business is definitely coming back. By 2012 we’re going to see a much better economy. I think ’11 is going to be much better than 2010, and I think ’12 is going to continue that trend.”

“There’s cautious optimism that things are improving,” Sexton said. “Do I think we’re going to be back to the numbers in 2008 or 2007? Not necessarily. But the value of face-to-face meetings for specific purposes is absolutely critical.”

And the big picture is positive.

Overall U.S. hotel demand has never been better—total roomnights sold in July was the highest ever recorded by STR at 102,307,179 nights—which bodes well for everyone.

Editor's note: This is the first in a four-part series about group business. Tomorrow's installment provides an in-depth look at group data and performance trends.

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