WILLIAM YOUNGS didn't think he would have much trouble booking a relatively inexpensive meeting for his company at a nice Manhattan hotel January 3 to 4 — the first business days of 2005. “The hotels are dead after the holidays, so you would think that rates would be really good,” says Youngs, meeting planner with the Westfield Group, a Summit, N.J. — based meeting management company.

But when he called seven hotels for rates and availability, he found otherwise. “The rates were through the roof in New York City in January,” he says, averaging about $285 per night.

Ultimately, he managed to get a room rate of less than $200 per night — but it wasn't easy. “The attitude was, they felt they were going to have a banner January.”

Reasons to Be Bullish

Hoteliers may be looking not just at a banner month, but also at a banner year, as the pendulum shifts from a buyer's market to a seller's market. Driving the change is an uptick in the economy in general and in business travel in particular. “After 9/11, when things got so bad, it was just — ‘Don't travel,’” says Christie Hicks, senior vice president of global sales, North America, Starwood Hotels and Resorts, White Plains, N.Y. “Now it's, ‘Travel carefully,’ ‘Travel if you must,’ ‘Travel with appropriate expenses,’ but they're not saying, ‘Don't travel.’ So that has helped loosen things up.”

Two key statistics are pointing toward a seller's market: occupancy and average daily room rates. Both rose in 2004 and are expected to do so again in 2005 and 2006.

Occupancy climbed to an estimated 60.6 percent in 2004, up from 59.2 percent in 2003. It is projected to jump to 61.5 percent this year and 62.1 percent in 2006, according to PricewaterhouseCoopers LLP, New York. PKF Consulting, Atlanta, had slightly higher estimates for last year (65.2 percent) and 2005 (66.7 percent), with the New England/Mid-Atlantic region leading the way.

“The first sign of recovery is when occupancy goes up,” says Robert Mandelbaum, director of research information services at PKF. It's a simple case of supply and demand: Travelers return, hotel managers feel more comfortable that the economy is healthy, and they start pushing rates.

“There's a point where you reach a certain level of occupancy, then the rate is really going to move,” says Fred Shea, vice president of sales operations at Hyatt Hotels. Hotels are reaching that point of “critical mass” now, says Shea.

Larry Luteran, vice president of group sales and industry relations at Hilton Hotel Corp., Washington, D.C., agrees. “I think we are slowly seeing demand turn around, and as demand turns around, we're expecting some increases in pricing.”

The average daily rate, or ADR, also shot up between 3.2 percent and 3.7 percent last year, depending on the source. This year, the number is expected to climb from 3.5 percent to 4.2 percent, and in 2006, projections indicate a 3.4 percent jump. The National Business Travel Association forecasts an even higher 7.5 percent hike in hotel rates this year. That's a far different scenario from the previous three years, when the annual ADR was either flat (2003) or negative (2001 and 2002).

Of the three market segments — leisure, business, and group — business travel saw the greatest acceleration in 2004, says Mandelbaum. “Business travel is pretty much a direct correlation to the economy,” he says. With corporate profits up, travel budgets go up and, ultimately, rates go up.

Tough Climate for Negotiating

“As goes corporate America, so goes the group market,” says Starwood's Hicks.

Group travel is indeed bouncing back, but not at the same pace as leisure and business, says Mandelbaum. That may be due in part to the fact that advanced bookings don't show up on the balance sheet right away.

Hoteliers concur, estimating that room rates for groups will probably go up 3 percent to 5 percent this year. In large coastal cities such as New York, San Francisco, and Washington, D.C, rates may go even higher — perhaps 10 percent or more — because those cities took the biggest hit in the down market and will be looking to catch up. In some second-tier cities, or cities with more availability and healthy competition, such as Dallas or Houston, rate hikes might be lower than average and planners might still be able to negotiate lower rates. According to PKF, the South Central and the North Central regions of the country have the lowest projected occupancy rates and ADR for this year.

What's happening, says Luteran, is that rates for groups will start to equalize and perhaps sink lower than transient rates, especially for those rooms bought at the last minute. Over the past few years, that wasn't the case, as transient rates, and those for attendees booking outside the block, often undercut group rates because hotels were looking to unload rooms cheap. “Now we're starting to see where the group blocks are the foundation and the other rooms are coming at a higher price, because, ideally, your last room sold is sold at your highest price,” states Luteran.

What does this mean for meeting planners? For starters, the climate for negotiating better rates for everything from rooms to meeting space to F&B is going to be more difficult. “2005 will seem in many ways to be more of a challenge in negotiations than 2000,” predicts Bjorn Hanson, global hospitality industry managing partner, PWC.

Another change is that the “bottom rate” will get closed out, says Shea. Where hotels might have taken lower-rated business in the past to maximize occupancy, they are more willing to wait for the demand to come to them and not discount prices. Also, expect the extras — such as free meeting space, cocktail receptions, complimentary rooms, and room upgrades — to be tougher to get as demand increases.

Hoteliers are also expected to tighten the screws on performance requirements, becoming more demanding on things such as room pickup and revenue obligations, predicts Rick Binford, national director, corporate sales for Conferon, Twinsburg, Ohio.

View from the Street

What are meeting executives experiencing right now? Michele Snock, manager, global meeting services-Americas, Cisco Systems, San Jose, Calif., hasn't noticed any drastic changes in availability or pricing yet, but she has heard warnings from her preferred vendors to expect prices to rise. “They're setting those expectations,” she says.

Pamela Frana, meeting planner with Piper Jaffrey Inc., Minneapolis, has already had some trouble, particularly in New York, where she books most of her meetings.

“You used to have more options,” she says. A year ago she would have had the pick of her top three options in the Big Apple. Now there might only be one property with availability. With regard to rates, she says the increases are a little steeper for this year, but adds, “I never really felt that they went down that much.”

Get the Best Deals

While you probably won't be able to negotiate the type of rates and discounts that you have in the past few years, there are still ways to play ball in a seller's game. Here are some tips, compiled from interviews with planners, hoteliers, and other industry experts.

USE PREFERRED VENDORS

Consolidating business with a hotel chain(s) or group of properties will give planners the maximum negotiating strength with sellers, says Rick Binford, national director, corporate sales for Conferon, Twinsburg, Ohio. Michele Snock, manager, global meeting services-Americas, Cisco Systems, San Jose, Calif., works with two preferred vendors and hopes to realize discounts and concessions by driving market share to those suppliers.

DON'T WAIT

The advantage of waiting to find better deals later in the cycle may be over. With rates rising, booking as far in advance of the meeting as possible will probably yield the best rates.

BE FLEXIBLE

Rates will vary by location and date, so if planners have the flexibility to consider less expensive cities, non-prime days of the week, shoulder seasons, or are generally willing to work with hotels to fill holes in their calendar, there are deals to be had.

BUY IN BULK

Establish a system to bring multiple meetings to market at the same time instead of piecemeal. Or, for a particular meeting, book the next two or three at the same property or chain at the same time.

BLOCK SMARTER

Because hotels will likely be stepping up performance requirements, planners should be more cautious about blocking rooms (blocking only what they know they can use) and revenue performance (committing to F&B requirements they know they can meet).

LOOK AT TOTAL SPENDING

To get the most out of negotiations, planners should look at the total cost of the meeting, not just room rates. Hotels will be reluctant to move rates, but perhaps will be more willing to reach creative solutions in other areas to help keep costs down.

KNOW THE PROPERTY

Properties that do a lot of transient business are probably going to be less flexible because the transient/business travel market is heating up.

MAKE IT WIN-WIN

Markets come and go, but strong relationships endure. When both sides feel like they got a fair deal, regardless of whether it's a buyer's or seller's market, they'll be more likely to do business together in the future.

NETWORK, NETWORK, NETWORK

Joining organizations and developing relationships with hotel sales managers can create mutual respect and help with the negotiating and contracting process.

On the Rise
2004 2005 2006
EXPECTED AVERAGE DAILY RATE: $86.03 $89.26 $92.50
EXPECTED AVERAGE HOTEL OCCUPANCY: 60.6% 61.5% 62%
Source: PricewaterhouseCoopers based on Smith Travel Research data.