“The perception among planners in 2005 and 2006 was that we were sticking it to you with rates,” said Mike Dominguez, senior vice president, MGM Resorts, during a session at the recent Financial & Insurance Conference Planners Annual Conference. Back then, hotels were still recovering from the 2001 dropoff. Inflation was increasing hotels' expenses, but rates were not keeping up. They finally strengthened in 2007, only to plunge again in 2008 and 2009. Now, as they creep back up again, the planner perception is back, too. “Rates shrank twice as fast as they are increasing now," Dominguez said. "If you think we’re getting aggressive, we’re not.” STR forecasts hotels' average daily rate will rise to $111 in 2013. To match inflation, Dominguez said, it should be $115.
“We’re at a crossroads. Your budget hasn’t moved but at the same time, airfare has increased, food-and-beverage prices have increased, and you’re facing higher hotel rates,” he continued. “I’m not defending the hotel’s position, I'm just explaining it, so you understand the why.”
In fact, that's been his goal as he's given versions of this presentation to meeting industry audiences over the past two years. If both planners and hoteliers understand the business behind the, the data behind the decisions, he believes, they will "elevate" their discussions and be better partners. Easy for him to say: In addition to being a natural teacher, Dominguez seems to be both a people person and a numbers guy (the presentation includes a slew of graphs and charts). “I like data but I believe in relationships too," he says. "You need to have both." Here are some of his session highlights:
1. We've Never Been Here Before
In 2009, hotels’ rooms revenue dropped 16.6 percent, on top of a 2 percent drop in 2008. “In two years we lost 18.6 percent—the worst loss since The Great Depression,” Dominguez said. “So, to the people who say it’s cyclical, that we’ve been here before: No, we haven’t—unless you were working in 1931 or ’32. Structurally, the hotel business has changed.” Planners need to understand the impact of those changes on hotels’ balance sheets so they know how to negotiate today. “Don’t ask the wrong questions. Nothing makes you look weaker than trying to get leverage from something that has no leverage. Owners lost $2.2 billion in profits and they want us to make it up.” So where is your leverage? Two words: Rooms and food.
2. You’ll Need to Book It or Lose It
Most meetings are booked in the luxury, upper upscale, and upscale segments. Demand in those segments is back to 2007 levels, Dominguez said. “That’s why booking windows are starting to move farther out. We’re a little more confident telling you, ‘No,’ with demand at 70 percent.” Looking at the top 25 hotel markets (“as they go, so goes the industry”), Dominguez says demand has been even with or greater than the previous year for 12 consecutive months. “I’ve never seen that trend outside 90 days,” he said. That’s the kind of data you can use with meeting sponsors who “don’t understand why you aren’t getting the same deal you got two or three years ago.”
3. Food Costs Are Up
You’re seeing higher food prices at the grocery store, you should expect higher prices at your meeting hotel. Dominguez' one F&B plea: Stop asking for an automatic 10 percent discount. The hotel will get its margin, whether you get the discount or not. Better to sit down with the chef and your budget and maximize the dollars you do have.
4. The Good News Is Coming.
There is $1.8 trillion in cash in Corporate America sitting on the sidelines. “When this starts to get spent, it will create more jobs and will move the economy,” he said. And when will that be? The election is over, but the "fiscal cliff" still threatens. “Once it’s settled, businesses will release that money.”