After American International Group’s cancellation of about 160 meetings, the question on the minds of many meetings industry observers is: How much will the company pay in cancellation fees for backing out of the events—estimated by AIG to be worth about $8 million?
AIG spokesman Nicholas Ashooh declined to put a number on the bill, except to say that “it’s certainly much less than what we would have paid if we held the meetings.” AIG, which created a public relations fiasco by holding a recognition meeting at a posh resort shortly after being rescued from financial collapse by billions in federal loans, canceled the 160 meetings and agreed to account for all compensation paid to senior executives after New York Attorney General Andrew Cuomo threatened legal action if it failed to “recover improper bonuses and other payments and perks from its former executives.”
While estimating AIG’s cancellation fees is tricky, Tim Ryan, founder of the peer-to-peer hotel review site Meetings Intelligence Exchange, Pacific Grove, Calif., has tried to put the issue into context with some cancellation data from a Western region property with which he is familiar. According to Ryan, this property has lost 42 groups valued at $4.2 million over the past eight months (70 percent more cancellations, he says, than for the same eight-month period in 2007). This is what he found:
- About 30 percent of these groups contracted new dates in the future, and of those, 41 percent paid a partial cancellation fee, while 59 percent paid no cancellation fee.
- 57 percent of the groups that cancelled paid a full cancellation fee.
- 13 percent of the groups that cancelled didn’t pay a cancellation fee because they cancelled early enough that not cancellation fee was incurred.
Ryan says that the number of groups re-booking future dates is low. “Normally, these groups would try to reschedule future dates to mitigate these cancellation fees,” says Ryan. “But they seem scared about the future; they’re living quarter to quarter.”
Bill Boyd, president and CEO of Sunbelt Motivation & Travel Inc., Dallas, thinks it is possible that the rapid shift from a seller’s to a buyer’s market could lead hoteliers to “somewhat relax” theirand cancellation clauses.
“For complete program cancellations due to economic conditions, negotiations should be conducted with each hotel to see how far out a meeting may be held to mitigate the cancellation damages,” says Boyd. “For example, if I had to cancel awith the New York Sheraton for a contracted group arriving May 2009, I would try to enter into an agreement with that property to waive any cancellation charges predicated on my promise to bring that meeting/incentive to their property the following year or when the event is re-established. We have had success in doing this for clients.”
Ryan agrees that if a group that needs to cancel an event “is willing to work [with a hotel] to replace that business, then I think hotels will be flexible in order to maintain the relationship.”
But that doesn’t seem to be case with AIG, he says. “Knowing what we know about AIG,” Ryan says, “the typical, seasoned hotelier is going to make them pay the cancellation fee. AIG appears to be in no position to replace that lost business any time soon. The hotels are obviously going to get hurt, so there’s not going to be a lot of negotiating going on, letting them get off without paying a cancellation fee.”