June 2007
Hotel Negotiation: What Works Now

As hotels focus on yield, show organizers spell flexibility by rethinking locations, shifting patterns and finding value dates. Groups that can book multiple events over multiple years will be the big winners in today’s negotiating game.

By Maxine Golding

The only act that could stop today’s strong hotel market   in its tracks is one no one wants and everyone is trying  to prevent. So barring the unforeseen, show organizers should expect:
• Guest room rates in the domestic United States to continue their steady rise, especially in the most popular destinations.
• Hotels to more carefully assess, right from the lead stage, a group’s value in maximizing their revenues.
• Overall occupancy starting to flatten in 2007, as the pipeline gets ready to deliver new inventory in 2008 and 2009 that could soften rates.

Hotel chains remain bullish on meetings and conventions because they’re “healthy in up markets and critical in down markets,” says Fred Shea, Vice President Sales, Hyatt Hotels Corp. (www.hyatt.com). “But we’re reaching the point on prime dates where there’s not a lot of growth.” That’s forcing hotels to be more careful in assessing new business since they have to live with what they put on the books.

As hotels focus more on yield than ever before, show organizers are learning new ways to spell flexibility by looking beyond traditional patterns, finding holes and value dates in hotel calendars, shifting in-and-out patterns, and rethinking locations. Groups that can book multiple events over multiple years will be big winners in the negotiating game, along with those who understand that both parties need to lower costs.

Since show organizers can no longer expect to bat a thousand on rates, dates and space, what can you achieve with your hotel partners? EXPO, with the help of some meeting and convention professionals, asks executives from the four major hotel chains — Hyatt Hotels, Hilton Hotels Corp., Starwood Hotels & Resorts Worldwide and Marriott International — these hard questions.

Brad Weaber, CMP, Executive Vice President and Chief Customer Officer, Experient: “As a hotel executive, what keeps you up at night as it pertains to your business?”
Certainly terrorism. An unexpected downturn in the economy that could cause major cancellations or change in pick up. And staying ahead of the curve on service, which leads to the critical issue of labor. It’s only getting more difficult and costly to hire, retain, train and retrain staff, hoteliers say. Every employee at Marriott, for example, has to participate in a minimum of 40 hours of training a year.

For Dave Scypinski, Senior Vice President, Industry Relations, Starwood Hotels & Resorts Worldwide (www.starwoodhotels.com), it’s looking around the corner. “If we drive too hard a bargain, we alienate customers. If we don’t, Wall Street cuts us off at the knees,” he says. “And what happens when the next malady hits — avian flu, a terrorist attack or a city down for a time?”

Shea worries that hotels are focusing too much attention on the next technology. “We still have to block and tackle — provide the basic efficiencies in running a large convention hotel and
find labor and train them to make eye contact and serve guests,” he acknowledges.

How hotels can elevate their relationships with meeting professionals to a higher level beyond transactional sales is the next challenge, says Larry Luteran, Vice President, Group Sales and Industry Relations, Hilton Hotels Corp. (www.hilton.com). “There’s a higher expectation among meeting professionals that hotels can bring better value in terms of strategy,” he says. “What can we do on our side to make meeting professionals more valuable to their organizations?”

EXPO: What effect is the seller’s market having on rate negotiation for future contracts?
Rates are based on market conditions, and they favor hotels. This year’s revenue per available room (RevPAR) forecast between 7 percent and 9 percent may not match last year’s 8.9 percent, says Richard Green, Vice President, Association Business Development and Strategic Partnerships, Marriott International (www.marriott.com), but it still will be strong. And as long as rates keep rising, escalation clauses will land on the high side. “My advice is to negotiate a fair rate today with some ability for another rate discussion a year out to align with market conditions then,” he counsels.

Hotels are watching the economy very carefully for warning signs. In March, “the stock market went up and down quickly, which we don’t like to see,” says Scypinski. “When that happens, people tend to be more careful about how they spend their nickels and dimes.”

Because hotels don’t know what problem can derail the bubbling economy at a moment’s notice, they must get what they can get when they can get it. If they quote rates that are too high, the market will force them to recalibrate.

“The hardest thing for us is apologizing to customers for being inflexible,” Scypinski adds, especially when some customers received “unbelievably” good deals in the year and a half after 9/11.

“Plenty of general managers would like to get rid of a piece of business booked five years ago, but hotels generally don’t cancel.”

EXPO: What effect will new hotel construction have on room rates?
The hotel construction pipeline is full of planned and proposed projects, yet the high cost of construction is keeping most projects from actually breaking ground, according to the 2007 edition of PKF Hospitality Research’s Hospitality Investment Survey. That’s why these four hotel executives don’t see new supply outstripping the ongoing growth in demand in the next couple of years. Most markets can absorb new supply, they maintain; room rates simply will not rise as fast.

Tight markets such as Chicago, New York and Boston, however, will remain that way. “We can’t build fast enough in tier-one cities,” Green says. So in those cities, Marriott is looking to grow through conversions of distressed hotels or apartment buildings, like The Blackstone, A Renaissance Hotel, due to come online in October in Chicago with 13,000 square feet of meeting space and 332 rooms. And where there isn’t enough meeting space to support guest room demand, hotel chains are expanding existing facilities: Marriott is adding 100,000 square feet at the Orlando World Center, and the Hyatt Regency O’Hare is spending $60 million on additional ballrooms and breakout space, as well as meeting room improvements.

The Hyatt Regency Denver at the Colorado Convention Center, which opened in December 2005, is a good example of demand outstripping supply, with 70 percent occupancy in year one. Hilton aims for the same, when it opens a major convention property connected to the San Diego Convention Center in 2009. And of the 100,000 rooms in the Marriott pipeline for 2007 to 2009, half are outside the United States, and 40 percent are full service.

Weaber: “The revenue manager seems to be the empowered source for negotiation at hotel properties. My preference is to cut to the chase with the decision-maker. Is the role of hotel sales executive changing into a business development approach?”
Ten years ago, the position of revenue manager barely existed. Now, this person, supported by highly refined systems, has become a critical right arm to executive management and the director of sales. “It keeps us from taking a group that’s not the right fit or rate for maximizing a hotel’s efficiencies,” says Shea. By focusing on better business decisions, the revenue manager gives the sales team time to negotiate with show organizers, understand their needs, and be their advocate within a property.

Hotels are both more selective and better at fitting the right meeting groups into the puzzle. “In the old days, we used to take the first group that came along to fill the meeting space and then fill in around that group,” says Shea. “Now we’re more upfront in saying, ‘You have too much meeting space for the number of
sleeping rooms.’ ”

The revenue manager, however, doesn’t retain all the authority to accept or reject a piece of business, nor is there an iron-clad formula. In almost all cases, a group of individuals at the hotel, assisted by computer modeling, makes the collective decision. The salesperson remains the point of contact. “Customers who want to cut to the chase should deal with the sales manager, who should be working seamlessly with the revenue manager,” says Luteran.

EXPO: What leverage can show organizers utilize and what concessions can be negotiated?
Hotels will give the most to show organizers who can book multi-year, multi-show deals, and the larger the show, the better the deal. Next in negotiating position is a show that can be flexible on dates and patterns to fill a hotel “valley” — perhaps back up a Monday to Thursday pattern to Sunday to Wednesday. Shows that can consider second-tier cities not usually in their rotation (such as Omaha, Baltimore or Houston, suggests Luteran) or suburban locations near a major city (like Schaumburg, IL, outside of Chicago, says Green) can gain some real negotiating advantages. And shows that can bring in more food and beverage and tighten up on meeting space will earn some concessions.

But meeting professionals who can monetize the value of their business will reap the biggest rewards. “It never ceases to amaze me how many planners don’t know what their trade show brings to a hotel in all revenue streams, so that we can have a frank evaluation,” says Green.

The reality, though, is that with demand high and third-party owners and asset managers looking closely at margins, there’s little negotiating room. Hotels are not kidding show organizers when they claim that space is tight. “People think it’s five years ago when we had to give tremendous deals,” says Scypinski. “Today, we’re jammed in with a shoe horn like a middle seat on a 757.”
Standard concessions — like comp rooms, attrition flexibility and suites — are directly contingent on the given demand around a set of dates and determined more than ever on a case-by-case basis. “If you can meet over a distress or holiday period, the hotel will be in a better position to give on some of these,” says Luteran.

Brice: ”How do hotels juggle the importance of the overall financial impact our events bring to a city vs. their own margin per room night?”
Hotel executives lay it clearly on the line: A hotel’s No. 1 objective is to maximize revenue for the hotel and its owners; the city is secondary. Yet, “it does make sense for us to pay attention to the overall value of a show or meeting to a city,” says Luteran, “since in some cities we have multiple products that can benefit from the business.”

A meeting or convention group, on average, stays longer and spends more on food and beverage and other incidentals than leisure or business travelers. That gives trade show customers a distinct negotiating advantage. Yet, the booking process for meetings and conventions is labor-intensive. And groups come…and go.

Last-minute transient business has to fill in around the groups. And leisure travel remains the most recession-proof segment. So a hotel can’t shut out any of the segments too often or the business will
go elsewhere.

Brice: ”What are the most effective strategies hoteliers have used to avoid last-minute room cancellations from convention attendees?”
Nonrefundable prepayment (in full if possible, or partial, at least one night’s deposit) is the most effective solution to attendee cancellation. “We’re our own worst enemies,” Scypinski says
about hoteliers. “We worry about losing business and customers moving elsewhere.”

At the same time, hotels don’t want to be like the airlines, says Shea, “and slap a fee on any change you make.”

The need for an attrition clause disappears when attendees pay upfront for their rooms, which makes prepayment such an easy fix. It also keeps exhibitor blocks credible. Organizations like Produce Marketing Association have learned that, “like their products, guest rooms are perishable,” says Luteran, and now use this strategy effectively. “It works great, and I don’t know why more shows don’t
do this.”

EXPO: Which applications of new technology are having the greatest impact on both front and back-of-the-house operations?
The electronic request for proposal has become the preferred way for show organizers to source cities and venues with just a couple of clicks. However, the ease of this process contributes to its overuse. The volume of lead inquiries and the need for quick response to each one threaten to overwhelm hotel sales departments. “Speed is king,” says Luteran, “and the first response often wins.” Indeed, third parties have become predominant because “they’re willing to do the grunt work, cast their net far and wide and search 47 cities,” says Scypinski. For some Starwood properties, third parties now deliver 50 percent of room nights.

To support planners, Hilton is utilizing a range of technology applications. GRIP — Group Rooms Identification Process — identifies rooms of attendees who stay in a hotel but may be circumventing the housing block. Through Personalized Online Group pages, Hilton produces a custom home landing site online so meeting professionals can steer attendees to book rooms in the block and set agendas. RAPID allows planners to automatically upload rooming lists into the hotel’s reservation system, reducing errors and improving productivity.

But the most compelling application of technology may be in customer relationship management, where the goal, says Marriott’s Green, is a more personalized experience for customers.
A common platform across all Hilton properties, called On-Q, allows the hotels to access preferences whether a customer checks in at a Hampton Inn in Skokie, IL, one night and the Waldorf-Astoria in New York City the next night. By tracking the customer experience, “we can anticipate their needs without asking,” says Luteran. “This has implications for meeting professionals, who will have a higher sense of confidence that attendees will be better taken care of.”

Similarly, new front-office systems at Hyatt that track customer history promise better results in blocking rooms and maximizing revenues, while consolidation of reservations, accounting, and purchasing functions is resulting in additional cost savings.

Hotels also are unleashing technology on their biggest cost center. Labor-saving devices such as self-check-in kiosks relieve the pressure of full-time staff to check guests in. Already, these are “huge” for Hyatt, says Shea. The interface may be less personal, but it frees front-desk staff to cross-train as concierges, notes Green, and move towards a one-stop, single-contact experience
for customers.

Weaber: ”With hotel companies owned by non-hospitality financiers, what measures are you putting in place to make certain that the ultimate consumers (your guests) have a good experience relative to the value proposition of what they’re paying?”
As room rates rise, so do expectations. In response, hotels are investing more than ever in training and retraining line employees, mid-managers and everyone with customer contact. “It used to be that we hired in the morning and put them on the desk that afternoon,” Shea says. “Now they go through two weeks of rigorous training on how to make eye contact, learn guest histories and talk to customers.” Of course, “if you hire wrongly or don’t have a service culture ingrained throughout the company, no amount of training will help,” Scypinski says.
Starwood bases staff bonuses on guest, meeting planner and associate satisfaction, and watches the indicators week to week. Alerts appear the moment a property scores low (two) on a scale of five. Similarly, Marriott relies on event and guest satisfaction scores to compensate management and measure hotel performance. A few quarters in a bad zone and Marriott can start the process of removing a hotel from its system.

Hilton, too, builds service components into incentives at the property level to maintain stringent brand standards and their consistent delivery to guests. “Getting repeat customers has a direct impact on the company’s ultimate performance,” Luteran says.

EXPO: What changes in F&B do meeting planners need to know as they plan their events?
One of the big stories in hotel F&B is branded outsourcing. With people willing to pay more for a branded product, hotels are heralding the return of in-house restaurants, many celebrity chef-branded and high-end concepts. Hotels are also making it much more inviting for customers to get beverages, salads and healthier foods with franchised operations such as Starbucks.

Meanwhile, the trend to lighter food and snacks is reflected at the banquet level, where personal preference menus — a choice of steak, fish or chicken offered for a banquet of 1,000 — are becoming popular. “It’s become easier for us to pull this off and predict what people want,” says Shea. And it’s something hotels have to do, since attendees expect hotel-catered functions and F&B options to be on par with fine restaurants. Starwood, too, is trying to combat what has been seen as an absence of creativity with new ways to capture all the F&B events produced for a show.

Some planners worry so much about their trade show budgets, Green says, they’re starting to cut back on F&B functions. Yet these are integral to any strategy to achieve community — a
primary goal of most shows. “When I see food stations with chefs doing interactive cooking, I see more conversation going on,” he says. Groups that enhance and increase F&B, which is the second most profitable area for hotels behind guest rooms, “will open the eyes of their hotel partners,” he says.

Profits, RevPAR Surge
- Profits reached record levels for the hotel industry in 2006, and the surge will continue in 2007.

- PricewaterhouseCoopers (PwC) projects industry profits will reach $29.7 billion this year, or approximately $6,005 per available room. In 2006, $5,660 in profits per available room ($25.2 billion in total for the industry) bettered the previous high of $5,353 ($22.5 billion) in 2000.

- Equally strong is RevPAR (revenue per available room): 7.9 percent in 2004, 8.5 percent in 2005, and 7.4 percent in 2006. As demand exceeded supply growth, hotels were able to significantly increase room rates. RevPAR will moderate to 5.8 percent in 2007.

- In 2005 and 2006, 24 new hotel brands launched in the United States, the largest number of brand introductions in a two-year period since 1989, according to PwC. These launches represented non-U.S. brands affiliating with hotels in the United States, new concepts targeted at Gen-Xers and Millenials, independents, brands affiliated with established lodging companies, and brands at many price levels.


3 Points of Negotiation
Don’t expect force majeure, cancellation and attrition clauses in hotel contracts to disappear anytime soon,
especially in a strong seller’s market. Still, show organizers can find points of negotiation.
1. Attrition. Hotels are clear: “We’ll deliver the best possible service, but all we ask in return is that you abide by your deal,” says Dave Scypinski, Senior Vice President Industry Relations, Starwood Hotels & Resorts World-wide. Shows with very solid history and conservative room blocks, however, will find a bit more wiggle room.
2. Force majeure. Hyatt had taken this out of contracts a number of years ago, but customers demanded its return to protect both parties if something happens out of either side’s control. However, in the past few years, force majeure has become a “dumping ground,” says Larry Luteran, Vice President, Group Sales and Industry Relations, Hilton Hotels Corp., for anything that could impact the meeting. “It wasn’t intended to include every possible reason to cancel — like a group being in a different financial position three years from now,” he says. “That just leaves the argument open should something not be covered. Simpler is better.”
3. Cancellation. Since customers determine what they spend and have the right to go elsewhere before signing a contract, hotel executives maintain that options must be outlined in writing should either side cancel.

• 17 tips for planning hotel shows, July/August 2005

• Exclusive Series: Managing Hotel Shows, March 2005