US government travel slowly bouncing back
21 AUGUST 2014 6:20 AM
Reduced significantly by sequestration, U.S. government travel is showing signs of a recovery. Smaller group business is leading the way.
REPORT FROM THE U.S.—Despite an ongoing resurgence of the United States hotel industry, government travel remains relatively flat, thanks to the effects of sequestration and political warfare in Washington, D.C., over federal budget deficits. But there are signs that government business is mounting a comeback.
“The government market, as a whole, is definitely improving,” said Chris Keane, director of strategic accounts at Hyatt Hotels Corporation. “We can definitely see improvements over the last year.”
However, Keane said, after experiencing cancellations from a number of large meetings and conferences in the wake of negative media coverage generated by an over-the-top General Service Administration meeting, “what we're seeing now is that a lot of those larger conferences are probably not going to be coming back, unfortunately.”
More recently, Hyatt has seen an uptick in small meetings booked within a shorter window, he said. “Government agencies are planning meetings again, even though they're not of the size we were used to in the past.”
Hilton Worldwide Holdings also is experiencing a year-over-year increase in government meeting business, said Larry Luteran, senior VP, group sales and industry relations. In the wake of the GSA debacle, he said, “perception still holds an intrinsic value in the government segment. ‘Destination cities’ are still feeling the effects of not being considered as heavily as before for government programs and training.
“At the same time, other cities are having to compete against each other for government business more than ever. For example, a conference that might have considered two to three cities for a program is now sourcing five to six cities. On some opportunities, we are seeing eight to 10 cities in contention.”
While brand-level executives are guardedly optimistic, some operators in key markets remain concerned about an anemic government travel market.
“We are trending up against 2013 by about 8 to 10%,” said Mark Carrier, president of Bethesda, Maryland-based B.F. Saul Company Hospitality Group, which owns and manages 16 properties under Marriott International, InterContinental Hotels Group, Hilton and other brands in the greater Washington, D.C., area. “That sounds like a lot, but last year our government business dropped about 35%.”
About 18% of Carrier's business in recent years has been government travel.
During 2013, he said, revenue per available room in the top 25 U.S. markets was up 6.6%. But it was down 1.7% in the Washington, D.C., market. From March to December last year, RevPAR for Arlington County, Virginia, where the Pentagon is located, was down 7.2%, while nationally it was up about 7%, he added.
“That meant we were running counter to the nation's performance by a dramatic margin,” he said.
While government group business remains stymied by a more complicated and time-consuming approval process, transient travel is showing signs of a recovery.
At Marriott, the action is primarily in the select-service and extended-stay segments, said Mark Martens, the company's chief revenue management officer for the Americas. At B.F. Saul Company, it's in mid-market and economy properties. And at Hyatt, the signs of health are in midscale, limited-service and economy hotels.
In terms of local markets, Hyatt is experiencing the greatest improvement in Washington, D.C., Atlanta and Dallas, Keane said.
“It's obvious that D.C. would start doing better because a majority of government business is in that market. We're also seeing upticks in Atlanta and Dallas, and those have always been good markets because they are hubs and there are a lot of government agency offices there,” he said.
Meanwhile, Marriott, which is also booking more government travel to Atlanta, is riding a wave of high occupancies that makes it considerably less aggressive in the pursuit of government business.
“We're in a mode of very high occupancy in most of our hotels,” Martens said. “So we're in a time when we yield manage business based on what has the highest value to the hotel. And in a lot of cases that is not true of government business because it's lower-rated due to the per-diem approach the government takes. So in many instances, we are now yielding out government business."
Marriott could do more government business today, Martens said. But based on its current strategy, it has chosen not to do so.
Yielding out government travel is not a recent phenomenon. “We do it all the time,” he said. “It's just happening more now than in the past. For the last time we were this aggressive at it, you'd have to go back to 2006-07. And our occupancies today are higher than they were in 2006-07.”
Although he remains concerned about the long-term impact of changes in government travel patterns, Carrier is optimistic that government business will continue to rebound. “We believe that through the end of this year, our trend line will return somewhat—not to past peaks, but to a more stable and predictable level,” he said.
Will government travel ever get back to its past peak?
Probably not, Carrier said.
Keane agreed with that assessment. “I think we'll start to see a steady stream of government business again,” he said. “But I don't think we're ever going to see the levels we saw before the recession again, because the large conferences are going away.”