We asked SEAN HENNESSEY, who in 2004 founded Lodging Investment Advisors LLC in New York City and now serves as its CEO, to call on his more than 20 years of experience in hotel operations and consulting and give us his perspective on what lies ahead for the meetings and hospitality industry.
There's an old blessing that doubles as a curse that says, “May you live in interesting times.” While the crystal ball wobbles daily as the stock market fluctuates, the pundits seems to agree that 2009 will be interesting times indeed for the meetings industry.
With that in mind, we asked SEAN HENNESSEY, who in 2004 founded Lodging Investment Advisors LLC in New York City and now serves as its CEO, to call on his more than 20 years of experience in hotel operations and consulting and give us his perspective on what lies ahead for the meetings and hospitality industry.
: How is the financial crisis affecting hotels?
Sean Hennessey: We will see a significant slowdown in all types of travel, but particularly in business travel and meetings. The group slowdown will take more time to filter through the system, since larger meetings have a longer planning horizon. The upshot will be that hotel occupancy across the country is likely to weaken through next year, and the attractiveness of meetings will increase substantially for most hotels.
Normally, when the economy weakens and hotels are looking for customers, there is some stimulation of demand from airlines offering discounted seats. But airlines are taking the opposite tack, decreasing availability to some markets, and increasing prices. So in terms of hotels, I think there will be a stabilizing of room rates and, in some markets, an actual decrease.
AM: Does that translate into greater negotiating clout for planners?
Hennessey: We estimate that negotiating leverage will be much more on the side of meeting planners in 2009 and 2010 than it has been in the past several years. Everything from meeting room rentals to extra folio charges will become much more negotiable. The food-and-beverage side of the equation is tricky, because the raw cost of food to the hotel has risen tremendously and their profit margins on F&B have been eroding. I don't think that hotels will be able to negotiate a huge change in pricing for F&B. They will instead be inclined to offer different menus that can decrease costs.
AM: How long do you predict a hotel sector slowdown will last?
Hennessey: This is difficult to pinpoint because the weakness is hard to forecast. Generally, the hotel industry tends to react quickly to a drop in demand.
The second half of the question is: When will the hotel industry rebound relative to a rebound in the economy? Hotels generally are the last to feel the benefits of an economic upturn. Companies change their travel policies at the start of a recession, but when the economy improves, they don't change them back right away.
AM: Are there parallels to the post-9/11 economic cycle?
Hennessey: Yes. The last time we went through this cycle, after 9/11, hotels made a substantial portion of their inventory available through third-party channels such as Expedia. That put downward pressure on room rates, but it worked to sell rooms. I think we will see the same phenomenon now, but not at the same level of discounting and not as a first line of defense when room demand weakens. Since 9/11, hotels have beefed up their own Web sites and introduced best-rate guarantees. They are also more adept at working with Web-based third parties and optimizing their pricing.
AM: Are certain markets going to be affected more than others?
Hennessey: The impact will be most pronounced in financial centers like New York, Los Angeles, and, to a lesser degree, Chicago. Those markets have the most hotel demand from the Wall Street financial sector. The impact will be felt in New York for several years. Even if other customers, such as international tourists, help with room occupancies, they will be paying lower rates and using less meeting space and fewer services.
AM: Will a hotel's revenue manager have less influence in meeting negotiations now?
Hennessey: Yes. One of the fundamental revenue management decisions that gets made as hotel management develops an operating plan (typically in the fourth quarter) is: How much group business do we want to put on the books, versus how much do we want to leave inventory available for transient customers who will pay higher rates? My instinct is that hotels will want to increase group business because the longer planning horizon gives them more opportunity to meet desired sales goals and occupancy levels.
It follows that hotels will place less reliance on revenue management models and more on good, old-fashioned group sales and marketing efforts. If you are a general manager, you may not be comfortable with a computer model telling you what demand will be next year. It feels a lot more real to have your sales manager bring you a meeting.
AM: Where are the opportunities for our readers in the changing hotel market?
Hennessey: Hotels are all reevaluating where they stand. It's a good time to take a ground-up approach to thinking about where you would want to bring your meetings. A hotel that in the past was outside your price range might be more welcoming now.
I also think that hotel destinations with the best airlift may well represent the best bargains because planners have more opportunity to manage the total trip costs. And planners can keep their options open until relatively late in the planning stages before committing to hotels. We've seen shortening of booking horizons for even large meetings.
On January 15, Kati Quigley, CMP, director,, Microsoft Corp., will take over as chairwoman of the Professional Convention Management Association.
The Convention Industry Council is accepting nominations for the 2010 Hall of Leaders. The deadline for the biannual awards is January 16, 2009, and inductees will be announced in March 2009.
A new Web site, www.bestplacestomeetgreen.com, offers a “Scorecard” tool that ranks meeting destinations on their “greenness” as well as a calculator that helps planners find a destination that will minimize air travel emissions.
The Accepted Practices Exchange, an initiative of the Convention Industry Council, has launched the APEXand Events Practices Panel with the goal of developing baseline meetings sustainability standards.
In November, Marriott officially launched its Web site for group travel intermediaries, which allows independent planners to monitor their commission payments and future meetings on the books.
Individuals or groups who purchase goods in Mexico are now able to get their Value-Added Tax (VAT) refunded by completing a form and presenting it together with an invoice at the airport.
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