Through the first half of the year, group customers are paying a higher average daily rate in the top 25 markets than transient hotel guests, according to Smith Travel Research. This is the first time the ADR in the top 25 markets has been higher for groups since Smith Travel Research began tracking group market data in 2002.
“We’ve seen it in spots over the last six months, but now it’s basically happening in every city,” says Jan Freitag, vice president, Smith Travel Research, Hendersonville, Ky. With total occupancy rates down 12 percent year-to-date in the top 25 markets, hotels are lowering rates to attract leisure and business travelers. The ADR for transients in the top 25 markets through June is $150—down 16 percent from the first half of 2008. In New York City, for example, the ADR for transients is down 29 percent compared to the first six months of 2008.
For groups, the ADR in the largest 25 markets is $154, which is down just 4 percent from the same period in 2008. In many cases, these group rates were negotiated several years out—before the economic downturn.
Freitag warns hoteliers to monitor their online rate strategy in conjunction with their group business, so they don’t create ill will among meeting planners. If hotels keep group rates high and attendees find cheaper rates outside the block, a group could get slapped with an attrition penalty. On the other hand, hoteliers are simply enforcing their contracts. It creates a prickly situation for both sides, adds Freitag.
The truth is, hotels are willing to negotiate lower rates for groups on a case-by-case basis, experts say. “If you looked at this six months from now, the rates would be more closely aligned because of all the renegotiation and threats of cancellation,” says David Brudney, president, David Brudney and Associates, a hospitality marketing consultant based in Carlsbad, Calif.
To hang on to higher rates, hotels are being more flexible in other areas, Brudney adds. For instance, they are offering more comp rooms, preferred tee times, later checkouts, cocktail receptions, and other discounts and incentives in lieu of lowering the room rate.
However, hotels are not being as flexible on future bookings, Brudney says. With fewer rooms coming on the market and an expectation of an economic turnaround, hotels are holding firm on rates for 2010, 2011, 2012, and beyond. “They are getting pressure from their owners and asset managers who do not want to give away the store for the next two or three years because they know the market is going to turn,” says Brudney. This is a different approach than hoteliers took after September 11, 2001 when they offered discounted rates for future bookings just to get groups in the door, experts say.