When the National Association of Realtors held its 2001 annual meeting in Chicago just one month after the September 11 terrorist attacks, Vice President of Conventions Susan Gourley figured that many attendees would decide to drive to the event rather than take a plane. But she never expected to see seven attendees in a rented van roll in from Portland, Maine, 1,086 miles away.
For 2009 and beyond, however, association planners should come to expect more stories like that — not because attendees are afraid to fly, but because airlines are in the midst of making huge changes in order to stay financially viable. And while 2008 ushered in the first wave of changes, there likely will be plenty more to come.
A Fare Deal?
It was a harbinger of things to come when most domestic airlines could not make a profit, even in the robust economy of mid-2004 to mid-2007. At that time, the price of oil, which dictates jet-fuel prices, held steady between $55 and $60 per barrel. Planes were fairly full, thanks to plenty of leisure travelers sharing armrests with business travelers. What's more, discount carriers like Southwest, Frontier, Midway, AirTran, and Alaska Airlines were keeping the big carriers in check by competing aggressively in cities large and small.
Then the economic bubble deflated, leisure flyers became few and far between, and oil spiked because of rising demand in the Far East and political turmoil in the Middle East. By November 2007, oil was above $90 per barrel, briefly shot to $148 per barrel in mid-2008, and hovered between $90 and $110 per barrel before dropping back down to 2007 levels by November.
When oil prices spiked in mid-2008, airlines began raising prices accordingly, upping them 12 percent in just three months for business travelers, according to the American Express Business Travel Monitor.
Some observers say the mushrooming credit crisis that's brought on spending cuts at most organizations has killed the airlines' ability to push up prices any further. “In 2008, they [airlines] hoped to cut capacity 10 percent while raising prices 20 percent,” says Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa. “The problem is that very few people are buying at those prices. This means that the recent fare hikes are coming off the table. It also should mean that airlines will be more aggressive in going after group business.”
A study by American Express Business Travel also indicates that airfares are likely to continue to drop, though the cost of flying will remain high due to all those pesky fees — most airlines have imposed $15 to $25 fees for the first checked bag, plus fees for pre-assigned seats, snacks, and other small conveniences — which are only expected to continue. As US Airways President Scott Kirby puts it, “The industry is evolving to an a la carte model.”
You Can't Get There from Here
Even as fares start to come down, the travel landscape for meetings may never again be what it was even just a few months ago. When things started going bad for the airlines, they began using larger planes that make fewer trips to and from fewer cities, resulting in a significant loss of flights as well as overall seat inventory (see chart, page 23). And airlines have declared their intentions to cut seat inventories by another 10 percent for 2009.
Even profitable Southwest has said it will cut 196 flights from its 2009 schedule, a 6 percent reduction. “A big problem for meetings is that we don't know where more seats are going to disappear,” says Mitchell. If you are planning months or years out, “how can you be sure a destination is still going to work for you as the meeting draws closer?”
To compound the problem, several smaller carriers, including Aloha, ATA, and Skybus, could not stay in business, further narrowing flight choices, particularly to smaller cities. Various cities have varying stories — and solutions. In Providence, R.I., Martha Sheridan, president of that city's convention and visitors bureau, admits that route cuts by Southwest Airlines “will have some impact on our lift in 2009 because it is a major carrier here. But its fares and fees are staying down versus other airlines, so if an extra connection for travelers means they can still get here on Southwest, that would make a big difference in cost. If not, we are less than one hour from a major international airport in Boston.”
In Tallahassee, Fla., the picture is bleaker, with a 30 percent drop in seats to the city. “Those seats were mostly on Delta from Cincinnati, but we still have lots of flights through Atlanta and Miami,” says Katie Kole, director of sales and marketing at the CVB. Kole has shifted her sales pitch to focus on landing associations with a strong Southeastern base. “Also, we are seeing an increase in people driving here from up to five hours away. This brings big cities like Atlanta, Jacksonville, Orlando, and Mobile into play for us to draw attendees, and we will help associations do more marketing to members in those areas. And even though costs are already low here, at certain times of year many hotels will discount the third night, and offer gas cards to drive-in attendees.”
Sheridan notes that although groups that opt for a second-tier city “may not be able to draw quite as much from their traditional feeder cities, they can make up for that with a different marketing focus. And if some fly-in attendees must stay in the destination an extra day because of tight flight availability, it's imperative for the bureau to publicize the entertainment and events in a city around that time so people decide it's worthwhile to come anyway.”
The story is better in cities with a large corporate base, such as Charlotte, N.C., where seat capacity has dropped just 2.7 percent because of its concentration of Fortune 500 firms. And in St. Louis, business travel “is a greater proportion than for cities that rely heavily on leisure travel, so we will not have drastic flight cutbacks,” reports Kitty Ratcliffe, president of the city's convention and visitors commission.
Rates and Minimums
Believe it or not, the news isn't all bad. The disappearance of leisure travelers and corporate employee travel cutbacks have left cities with a glut of empty hotel rooms. Some planners say that they have been getting calls from hotels that are looking to make a deal after another group has fallen through, even in big cities like Dallas; Atlanta; and Fort Lauderdale, Fla., and on meeting space as well as guest rooms. Some report that even their chain-level contacts are offering 5 percent off the master bill, upgrades, comped breaks, and double loyalty points.
The problem, though, is that airlines have revived the three-night minimum for many routes, and are trying to revive the Saturday-night stay for others. As Ratcliffe, former chairperson of MPI, points out, “If airlines suddenly try to regulate people into staying an extra night, many may opt not to come at all if they can't drive there.”
Planners could opt to alter their event schedules so that meetings that traditionally see a significant drop-off on the final evening begin on a Saturday, to ensure lower fares without a three-night minimum. Something else to consider: It's possible that an imbalance of Thursday-to-Sunday meetings develops, which might provide a negotiating chip for groups that don't need to adhere to that pattern.
One thing seems certain, though: If airfares do become much higher for two-night stays, associations with a large fly-in contingent are going to see attendance suffer.
For the National Association of Realtors' spring 2009 event in Colorado Springs, Colo. — a destination hit hard by air cutbacks — Gourley is prepared to provide busing from the Denver airport for those who simply can't find a suitable connection to Colorado Springs. Other cities, including Tucson, Ariz.; Milwaukee; Daytona, Fla.; Providence, R.I.; Columbus, Ohio; and San Diego also have the advantage of being located within reasonable driving distance of a larger city's airport.
Though some associations might be able to break their national meeting into regional events to get more drive-in attendance, Gourley says that won't work for all. “There are state and regional associations that hold their own meetings, and our annual event brings in a lot of international people too. We have to find solutions within the existing framework.”
One option: Rather than bring the meeting to a city exclusively for its airlift, bring the meeting to a city with decent airlift but which is also located near a substantial concentration of members who can drive in. “For our future events, it bodes well for destinations that have higher realtor populations, so that we can get more drive-ins,” says Gourley. “We will also shift our marketing dollars to make a stronger pitch to members in that region.”
For Michelle Malloy, director of meetings for the National Association of Regulatory Utility Commissioners, some cities have become more attractive because of the low cost of getting from the airport to the city center, which offsets somewhat the higher fares in cities with reduced seat capacity.
If the recent past is any indicator of the near future, then planners might have little choice but to make a habit of becoming an expert in a potential destination's overall transportation situation, and then communicating options for getting to the host city to attendees as early as possible. Failing to do so can bring unpleasant surprises — notably a big slip in attendance because of potential attendees' inability to find convenient, direct flights at a reasonable cost.
Indeed, many planners simply might resort to using a small rotation of cities, as they find the ones that offer the transportation options, scheduling flexibility, and cost control their meetings need. Others are looking to hold as many meetings as they can at big, centrally located cities that will provide more drive-in options and reduce the number of potential attendees who might be daunted by the thought (and cost) of a coast-to-coast flight.
Jackie Newis, meetings manager for the American Association of Critical Care Nurses, says that her July meeting in Chicago benefited from being centrally located, perhaps pushing back the pain that could be in store in future years.
“We usually rotate between a West Coast site, a Midwestern site, and a Southern site,” she says. “But our people are very price-sensitive, so when it's time to use a particular region, we might have to account for what the airfares into that region will do to attendance. Hopefully we'll continue to not feel much negative effect, but with the way the economy is going we are not expecting that.”
Sidebar: Exhibitor Hassles
“For association events, the slowing economy and higher airfares is resulting in a reduction in total exhibitor attendance. This in turn is resulting in less exhibit space used, fewer room nights booked, and a reduction of off-site meal and entertainment spending.
“And as the hassle factor gets greater as airline seat availability shrinks, the hotels are seeing a lot more last-minute cancellations by exhibitors and attendees, which affects the liability of the group as well as their negotiating leverage in the future. As a result, I think we're going to see associations netting down their contracted room counts an awful lot. And when their conventions take place, they might actually use the total number of rooms they did in the past, but many of those rooms won't count toward the block. So these groups won't be able to prove their total value, and the CVBs won't be able to report the total value to their local constituencies. Clearly, the ripple effects of the emerging climate will be serious.”