The combination of a recovering economy and cost pressures for hotels will lead to higher room rates for meeting planners, cautioned Michael Dominguez, vice president of global sales at Loews Hotels, at the Religious Conference Management Association World Conference & Exposition in Tampa, January 25–28. But planners who know the true value of their group business will have an easier time negotiating better deals.
“The light at the end of the tunnel is finally not another train coming at us,” said Dominguez, talking about how the dark days of the recession are now over. Fears of a double-dip recession have subsided and the recovery is now in gear.
After a bleak 2009, meetings started to come back in 2010 and occupancy rates came back too, jumping about 5 percent in 2010. Average daily rate, however, was slightly down as hotels were still working off short-term deals they cut in 2009 and early 2010 to fill rooms.
With occupancy projected to rise another 2 percent in 2011, demand is expected to increase. Meanwhile, new supply is slowing as the number of new hotel projects in the pipeline decreases. In 2011 and 2012, supply is expected to increase just 1 percent each year, the lowest rate in five years. Given these trends, ADR is expected to jump about 4 percent in 2011 and even higher in 2012, said Dominguez, citing data from PKF Hospitality Research. After 2012, the rate increases will probably moderate.
But there are other forces that are causing hotels to increase rates. By 2013, hotels will have billions of dollars of mortgage debt coming due, so many will be under cost pressures and will need to get margins in line to assist in refinancing, said Dominguez. Also, he added, hotels are coming off a historically bad 2009 when(revenue per available room) dropped 17 percent, farther than any year since the Great Depression. The losses essentially wiped out gains made in the boom years prior to the recession, he added.
In addition, prices are going up. For example, food prices are undergoing a significant spike right now, said Dominguez. So, given all these factors, hotels are under pressure to make profits. For planners, this means that rates will be increasing. “Every dollar hotels lose in rate, they lose a dollar in profit,” he said. “Rates have to grow to get the services you expect,” he told the audience. “You can’t get the filet mignon at a spaghetti diner price.”
While hotels will be more reluctant to budge on rates, there is always room for. It’s critical, he said, for planners to have an open dialogue so that hoteliers can work with them. Planners should come to the table knowing the value of their business and what’s most important to them.
They should also know what hoteliers want. For example, they aren’t just looking for RevPAR, they are looking for revenue per occupied group room. “That’s how we evaluate your business,” he said.
Hotels generally value each booked group room based on how much the guest is spending at the hotel—on the room, food and beverage, retail, the spa, golf, room service, and whatever other assets the hotels owns. “That’s what you need to know,” said Dominguez. Planners who have good information on how much attendees spend in hotels will have more leverage at the negotiating table, he added. Also, since labor is typically the No. 1 cost at a hotel, they should know that concessions that reduce the amount of labor (receptions/dinners held in one location, for example) would be viewed favorably by hoteliers.