Group business stages a comeback
06 MAY 2014 6:27 AM
Seemingly from out of nowhere, group business at hotels is back, with several companies reporting spikes in bookings and revenues.
First-quarter earnings season for most public hotel companies is winding down, and this collection of earnings releases and analyst calls has shown a common theme: Group business is on its way back.
Despite the hand-wringing and pontifications last year that somehow the dynamics of the hotel industry had changed and group business would slide into the background for most properties, this quarter’s results paint a completely different picture.
Here is some data from several large public hotel companies that show the extent of the group rebound:
- Marriott International reported group revenue per available room at Marriott-branded hotels in North America rose 8% during the quarter, while group rates increased 3%. Group booking pace was up 5%.
- Host Hotels & Resorts, the large ownership company that spans several brand families and many markets, reported an 11% increase in group room revenue.
- Hyatt Hotels Corporation, which generates 45% of its room revenue in the United States from groups, said that business increased 9%, and group revenue booked during the quarter for the rest of the year was up 13%.
- Executives from MGM Resorts International told analysts its strong quarterly performance was in part a result of increased convention business, which for the full year should account for 16% of the roomnights for its Las Vegas Strip properties. To meet the increasing demand, MGM is planning to expand its meeting space at Mandalay Bay from 1.7 million square feet to 2 million square feet.
These improvements in group business help the bottom lines of hotels and hotel companies in a number of ways. Most public company executives said corporate group business is leading the way, which has led in many cases to healthy increases in banquet and other food-and-beverage business.
Marriott reported an 11% increase in group spend on catering and a 5% increase in sales and F&B outlets; at Host, catering sales rose 13.5%.
Another benefit of an upturn in group business is it gives rate managers more power and flexibility to push rates, something that’s been difficult for some hotel operators to do in recent years, despite rising occupancies.
Because it’s typically booked and confirmed months before arrivals, group business gives operators firm and certain bases of business and more confidence to boost rates for transient customers.
Not all markets and hotels will share in the uptick in group business. Washington, D.C., hotels have been grappling with softness in performance mainly due to cutbacks in government spending. And last week’s opening of a 1,175-room Marriott Marquis next to the city’s convention center could have an impact on other group houses in the area, at least until that supply shock is absorbed.
To determine why group business has seemingly returned all of a sudden, I looked at remarks from Arne Sorenson, president and CEO of Marriott and usually the smartest man in whatever room he’s in.
During the company’s analyst call last week, Sorenson identified a couple of reasons for the improvement, including more certainty in government spending and the general economic recovery that’s well under way, especially in the U.S. He also cited increased confidence by most corporate executives.
“A significant piece of it is more fundamental and it’s the view that the economic recovery is broad and steady and ought to continue,” he said. “And we see corporate customers that, while not throwing caution to the wind by any stretch, are prepared to invest in their business and do the things that can be accomplished through meetings, whether those meetings are focused on internal strategy, partners’ meetings from big services firms or customer relationships, sales conferences and the like.”
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