In boardrooms across the country, you hear the same conversation brewing: “Why are we sending our salespeople to Bermuda when we can have the meeting right here in Beloit? Just look at these numbers.” Travel and entertainment budgets are always among the first to be scrutinized in a tough economy — and this downturn has hit meetings especially hard.
“Meetings and travel are the low-hanging fruit when companies start watching their costs,” reports Jan Hennessey, director of meetings and travel management for Fireman's Fund Insurance Co., Novato, Calif. “Like all insurance companies, we've had a tough couple of years, and we're restructuring and have a new CEO, so we're really watching our costs.
“In terms of meetings, we've kept our large customer-incentive events in place, and while we haven't reduced the quality of them, we are inviting fewer people. For our internal business meetings, we're keeping closer to home and holding them in locations that are less expensive to fly to. We've learned to watch that very carefully with our travel-agent partners. And I think we'll continue to watch meetings and events cost just as carefully when the economy gets stronger.”
Terri Breining, president of Concepts Worldwide, a meeting-planning firm based in San Diego, reports, “We have seen some meetings cancel, but we're also seeing meetings being put on hold.
“It seems that companies are holding their breath and are anxious about moving forward with their plans until they have more certainty about the future of the economy.”
“Meetings and travel are the low-hanging fruit when companies start watching their costs.”
— Jan Hennessey, director of meetings and travel management, Fireman's Fund Insurance Co.
No business has felt the pinch more than high-tech. Companies such as Austin, Texas — based Dell Computer and Houston-based Compaq canceled major user conferences earlier this year (both declined requests to be interviewed for this story). And because so many tech companies are headquartered on the West Coast, the meeting business there has fallen off more than anywhere in the country.
“Our California hotels have been the hardest hit,” reports Charlotte St. Martin, executive vice president of Loews Hotels, which operates 18 hotels and resort properties in 14 cities, including San Diego and Santa Monica, Calif. “Early in the year, we experienced several cancellations of big, high-tech user meetings at the Loews Coronado Bay in San Diego. The only hotel that hasn't been affected is our convention property in Miami Beach.”
Farther up the California coast, the story is similar. Mark Theis, vice president of the San Francisco Convention & Visitors Bureau, reports that two major high-tech companies canceled user meetings set for San Francisco over the past few months. “All in all, I don't think we've had a crash landing. I think it's just that the pendulum is swinging back to balance the big ride we had last year.”
Where Do We Go from Here?
Once again, it's a buyer's market — that is, hotels looking to fill rooms left empty by business travel cutbacks are more willing to negotiate deals.
“The scenario forces everyone to sell smarter and buy smarter,” says Jonathan T. Howe, senior partner at Howe & Hutton, a Chicago-based law firm that represents meeting planners and suppliers. “The corporate planner has more bargaining power now because hotels want to put heads in beds.”
The San Francisco CVB is helping its member hotels do that by featuring a “Hot Dates” page on its Web site, www.sfvisitor.org. The link provides planners with the ability to search for short-term room availability at major San Francisco hotels and at the Moscone Center.
“We're making this information available so planners can see there are holes created because of cancellations,” Theis says. “More to the point, this helps us send a message that the slower economy is an environment where deals can be made.”
Hennessey reports that hotel salespeople have become more aggressive in asking for her business. “A few years ago, it seemed like they weren't selling at all — they didn't have to,” she says. “Now they're having to get out there and prospect.”
According to St. Martin, Loews Hotels prepared for the slowdown by implementing a proactive campaign among its hotels' sales forces. “We asked our hotels to get in touch with their meeting clients last fall,” she says. “Our theory is that we don't want to alienate our customers by having to chargeor cancellation fees, so we urged our hotels to call their meeting-planner clients 120 days in advance rather than the usual 30, as we monitored room bookings. We also asked if we could help planners promote their meetings, either by helping them with mailings or e-mail promotions or by providing special packages where attendees could extend their stays at a reduced rate.”
What about attrition?
Like many other planners, Breining has had something she hadn't dealt with in a while — attrition problems. She says that the key to overcoming them has been a solid foundation with the hotel.
“A good relationship between planner and supplier is essential, as it always has been,” she says. “For things to work for everyone, there has to be strong communication and the knowledge on both sides that you're dealing with someone who is fair and will tell the truth.
“I've had to deal with cancellation and attrition issues recently, and because of my relationships with suppliers, we've resolved potentially very expensive differences in a way that worked for everyone.”
She offers this crucial piece of advice for planners, who are aware that attrition is inevitable, who may find it necessary to cancel a meeting: Tell your suppliers as soon as possible.
“I tell people on both sides to remember this saying: ‘I can't blame you for bad news, but I can blame you for not telling me.’”
— Jonathan T. Howe, Howe & Hutton
“This is not only the honorable thing to do, but it also helps them to start the re-sell process,” she says. “This increases the chances of them filling the hole you leave with a cancellation, thereby leaving you with a smaller financial consequence. In some cases, the supplier may have another planner looking for the same dates, and your early warning can actually help them to make a sale.”
She also suggests shortening planning lead times. “Short-term scheduling seems to be the way to go right now. Also, if you book short-term, you can often fill a hole that a hotel has, either because it was never booked previously, or because of a recent cancellation.
“Because it helps the hotel to fill rooms, there is a lot of negotiating leverage for rates and other concessions.”
Again, it all comes down to the relationship you have built with the hotel. “A whole lot of problems can be avoided by keeping in touch and communicating with each other,” says Howe. “I tell people on both sides of the business to remember this saying: ‘I can't blame you for bad news, but I can blame you for not telling me about it.’”
Loews' St. Martin agrees. “With planners who keep us in the loop, even if they have to cancel or if there's attrition, we'll work out a way that penalties can be applied to future meetings. The more open a customer is with us about the problems they might be having, the more flexible we'll be with them.”
From Charlotte St. Martin, senior vice president of sales and marketing for Loews Hotels:
Develop a long-term relationship with your hotel salesperson. Everyone wants to do business with someone they know and trust.
Always give “straight” information to the hotel; conversely, hotel salespeople should provide clear, honest answers to planners.
Make sure the hotel does its homework and gets an accurate history on your meeting.
Keep the hotel up to date often and early.
Ask the hotel for help delivering your meeting on a smaller budget by being creative with pricing/menus/design/deco.
Make hotel salespeople or conference-service personnel aware of the meeting's goals so that everything possible will be done to achieve the goals.
Both parties should aim for a win-win result. Neither party truly wins if the other party loses.
From Terri Breining, president of Concepts Worldwide, San Diego:
Know the chances of your meeting being cancelled.
Be aware of whichdeadlines invoke stiffer penalties than others for cancellation.
Tell those responsible for the meeting what the cancellation penalties are before the contract is signed.
Find out where the projected attendance numbers came from, how the decision was made to include those people, and under what circumstances they might not participate.
Constantly monitor your attendance figures.
Keep management aware of these deadlines and penalties, so that if cancellation is being considered, they will know if and when to pull the plug on the meeting.
If cancellation is being considered, look at the cost of going forward with a modified program rather than an outright cancellation, since cancellation fees can sometimes be more than the program.
If cancellation looks possible, or if you're not going to be able to deliver the numbers you intended, inform your suppliers as soon as possible.
If you have to cancel and are looking at some cancellation fees, talk with the supplier about applying those fees to a future meeting.
When You Cancel…
CMI asked John S. Foster, CHME, Esq., attorney and counselor-at-law, Foster, Jensen & Gulley, LLC, Atlanta, for legal advice in handling attrition and cancellation issues in today's tumultuous economy.
CMI: Does a hotel legally have to show that it tried to re-sell guest rooms from a cancellation if a cancellation goes into litigation? Does publishing hot dates/hot rates on one of the many Web sites constitute proof that the hotel tried to re-sell the cancelled rooms?
Foster: The injured party in a contract dispute must show that it took affirmative steps to mitigate its damages when a suit is filed. The other party is entitled to make them substantiate their efforts. Publishing open dates on a hot dates/hot rates Web site certainly would qualify as mitigation, but it may not be all that is required. The hotel may have to make sales calls as well.
Timing is a factor too. Canceling a year out would require a different level of mitigation than canceling a day in advance. But even if the meeting is canceled on arrival day, the hotel still should notify its 800 number that the dates are now available for special rates.
CMI: You have said that the exception to this is if both parties agree to a reasonable liquidated damages provision. How does the inclusion of a liquidated damages clause impact mitigation efforts?
Foster: Liquidated damages can be stated as a flat fee, sliding scale, or a formula. To be “reasonable,” the provision must be a close approximation of actual damages, and it can't be a penalty. If a liquidated damage provision is held by the court to be “reasonable,” it is presumed that the parties already factored in mitigation when they negotiated the terms of the clause. All my clients use a liquidated damage clause in some form. I don't make the decision for my clients as to whether they should use a sliding scale, a formula, or a flat fee. I explain the options and it's their choice, because there is no one right answer in advance. You only know the absolute right answer after the meeting dates have come and gone to see if the hotel actually resold some or all of the canceled guest rooms, catering events, etc.
CMI: Does a meeting sponsor have the right to look at the hotel's records?
Foster: Yes, meeting sponsors have a right to independently ascertain the accuracy of the hotel's numbers regarding out-of-order rooms; rooms sold to in-house guests; and rooms billed to other groups and individuals for no-shows, attrition, and cancellation. If the parties go to court, the hotel's records are open to “discovery” by meeting sponsors as a matter of law. To protect confidentiality, the hotel can require the meeting sponsor to sign a confidentiality agreement. This is routine. Because of the large sums of money at risk with attrition and cancellation damages, smart planners should insist on an audit provision in the hotel contract so that the meeting sponsor's right to see the records is clearly understood.
CMI: Will hotels ease up on attrition and cancellation clauses because of today's unsettled economy?
Foster: Attrition clauses requiring meeting sponsors to be responsible for a certain level of performance will not go away in first-tier cities. But they may well go away in second-tier cities. With the economy the way it is, hotels see attrition and cancellation clauses as their insurance policies. Hotel owners made so much money in the past few years through these clauses that they're willing to put up with hassles to get their money. Having said that, even in first-tier cities, smart hoteliers will consider and accept contract terms proposed by meeting sponsors as long as they are fair and written to compensate the hotel if damages occur.