GLOBAL REPORT—Although transient travel is showing signs of a sustained recovery, group business is lagging significantly behind.
For luxury, upper-upscale and upper-tier independent properties, year-over-year transient occupancy increased 4.5% in March, while group occupancy rose just 2.1%, according to data from STR, parent company of HotelNewsNow.com. Transient average daily rate grew 4%, while group ADR increased 2.3%.
Key factors in the relative sluggishness of group travel: Many organizations are still holding fewer meetings. Fewer attendees are being hosted at the events that are happening, as planners face tighter, more scrutinized budgets. And food-and-beverage and entertainment expenditures are being cut sharply in the wake of the “AIG effect” market scandal of 2009.
“The number of meetings has declined, but not as much as attendance has declined,” said Robert Mandelbaum, director of research information services at PKF Hospitality Research. “Organizations are cutting costs by sending fewer people. And one of the things we hear from hotels is roomnights are back, but the total spend per attendee is down or at least is not growing as fast as occupancy rates. And if the roomnights are back, but planners aren’t spending as much on F&B or entertainment, then the hotel’s total revenue or revenue per attendee will be down.”
“What we’re hearing is that meeting planners are not going back to the lavish times of the past, said Joseph Bates, senior director of research at the Global Business Travel Association, “They are being very careful. The two words we hear most often now are value and productivity.”
Given such caution from buyers, GBTA projects growth in group travel spending will increase 3.3% this year, after rising 7.2% last year. And the growth rate is fueled more by rising airfares than hotel costs.
Economic uncertainty in Europe and higher energy prices are contributing to the caution, Bates said.
As a result of such prevailing factors, meeting business remains a buyer’s market.
“There still are a lot of great deals out there for meeting planners,” said Paul Wood, VP of revenue management at Denver-based Greenwood Hospitality Group, especially because more than 40% of total business comes from meetings. “And I think some hotels are still in that [AIG era] panic mode,” he added. “So, it’s definitely still a buyer’s market.”
Jan Freitag, senior VP of global development at STR, agreed with that assessment. “That very much jives with what we’ve seen recently,” he said.
Rate resistance remains strong across all meeting segments, including corporate and association, Wood said.
“And planners are becoming more and more educated about what they’re doing,” he said. “So, fighting your way over the hurdle of price is definitely still a challenge.”
Lori Kolker, founder and president of Rockville, Maryland-based site selection company Elle K Associates, which books hotels for more than 1,000 worldwide meetings a year, said she has never seen concessions like those that still linger from the market meltdown of 2008-2009.
“Hotels are hungry for the business, so it’s a bidding war out there,” she said. “It’s a rate war. It’s a question of which hotel can top another hotel’s concessions. They’re all trying to outdo each other.”
And that rate-and-concession war cuts across all market segments, Kolker said. Rates are soft, concessions are easy to come by and attrition and cancellation clauses are easy to overcome, she said.
“With some groups, you don’t even have to sign a contract today,” she said. “For some government meetings, for example, there are no contracts and no attrition or cancellation provisions. There’s just a letter of intent that is not even a binding agreement. And many hotels are willing to accept that now. It’s really incredible. And it’s true all over the world at the moment. All the hotels care about right now is one question: ‘What will it take to get the business?’”
Turning the corner
Despite such buyer leverage, Mandelbaum said he expects the tide to turn starting later this year.
“It’s all about room rates at this point,” he said. “Travel is back. So now it’s just a matter of the ability to raise room rates for group business.”
Freitag cited underlying indicators that support a positive prognosis. “Number one, because transient demand is up, we would think there are now compression nights again, meaning nights where a planner with a short-term piece of business cannot get into a hotel without paying significantly more or having to book further out in the future,” he said. “The other factor is that we hope the lower room rates negotiated in 2009 and 2010 are being consumed or ‘burned off’ and then will be replaced with higher-rated group ADR business.”
Arne Sorenson, president and CEO of Marriott International, nurtured such optimistic expectations in a first-quarter conference call with investors in April when he noted that Marriott has reported an 11% increase in its meeting business so far this year over 2011. The company’s smaller properties, with between 300 and 700 rooms, have witnessed growth of as much as 17%, because smaller meetings continue their long history of market dominance.
Marriott is seeing higher headcounts at meetings and fewer cancellations this year.
When all available current market data is considered, Bates said, “the numbers are trending in the right direction to see a healthy meeting market for the rest of the year.”
And then, he added, the industry will see a return to pre-recession levels of business.