With more than 20 years of experience in hotel operations and consulting, oft-quoted expert SEAN HENNESSEY has a keen perspective on hospitality industry trends. In 2004, he founded Lodging Investment Advisors LLC, based in New York City, and serves as CEO. Clients include Marriott International, Prudential Real Estate Investors, and JP Morgan Fleming. We caught up with him in late September, as the financial meltdown was gaining momentum, to get his perspective on what lies ahead for the hospitality and meetings industry.

Financial & Insurance Meetings: 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 of all this 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.

FIM: Does that translate into greater negotiating clout for meeting planners?

Hennessey: Our estimate is 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 a tricky one, 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.

FIM: 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.

FIM: What's the outlook for corporate travel?

Hennessey: Corporate rate negotiations for 2009 are already showing weakness. Normally, corporate travel managers would be wrapping up their negotiations for 2009 now [late September]. But it is taking longer this year for companies to make these decisions. The hotels would like to lock in the business, but companies are waiting to see what happens with the economy.

FIM: 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.

FIM: How will the weakness of financial companies affect hotels and meetings?

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.

FIM: 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.

FIM: 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.

Ticker:

• The National Business Travel Association is developing a certification program, open to members and nonmembers, to recognize expertise in strategic meetings management. NBTA plans to roll out the program at its annual meeting next summer.

• The Accepted Practices Exchange, an initiative of the Convention Industry Council, has launched the APEX Green Meetings and Events Practices Panel, with the goal of developing baseline sustainability standards for the meetings industry.

• A new trade show for the U.S. meetings and incentives market, produced by U.K.-based Reed Travel Exhibitions, will debut in Baltimore in 2010: the Americas Incentive Business Travel and Meetings Exhibition.

• With the most comprehensive seminar program in its history, EIBTM will take place December 2-4 at the Fira Gran Via in Barcelona for hosted meeting planners from around the world.