The experts in their respective fields who make up our collective crystal ball at M&C are optimistic about the coming year. It's a bruised and battered brand of optimism, to be sure, but we are, overall, looking ahead to better days in 2011. From the supplier perspective, airlines and hoteliers already have experienced huge improvements for the third quarter of 2010, and they likely will have the traction necessary to raise fares and rates in the new year. Meanwhile, the companies that are traveling and holding meetings and incentives appear ready to stretch their budgets a bit, based on survey results from the National Business Travel Association, Site and the Incentive Research Foundation, among others.
But don't expect any freewheeling spending to occur. Forecasts from American Express Business Travel and Carlson Wagonlit Travel both point to new meetings management efficiencies that will help to keep expenditures low. Likewise, the suppliers still are in recovery mode and will stick with current practices (as in ancillary fees from airlines and hotels) to boost revenues.
Plenty of wild-card variables remain, such as the state of the overall economy and the price of oil. But if all goes according to the experts' expectations, the meetings industry should see gradual improvement through next year and into 2012. Read on for a market-by-market overview.
Room Rates on the Rise
Following a very tough couple of years, the U.S. hotel industry is now in the midst of a steady recovery. Third-quarter results from Smith Travel Research reveal particularly solid growth: The year-over-year increase in occupancy was the highest ever recorded by STR, and the revenue per available room increase was the highest in more than four years. Average daily rate actually increased for the third quarter -- the first year-over-year quarterly rate growth in two years. These and other signs point to some clear trends for next year.
Room rates will rise. Raising room rates has posed a challenge to hoteliers thus far, but STR predicts that, at long last, the hikes will gain some momentum. As of September, the research company was forecasting a 3.9 percent rise in average daily rate across the U.S. for 2011 -- led by the luxury and upper-upscale chain segments, with increases of 6.7 percent and 5.4 percent, respectively.
New hotel construction will continue its decline. Consulting firm PricewaterhouseCoopers predicts even greater rate gains in its forecast, which was updated last month. The reduction in new hotel supply has contributed to demand for rooms that exceeded PwC's previous expectations. In fact, for 2010 the firm says that demand should be only 0.1 percent lower than it was in 2007. That's due, in part, to the slowdown in new hotel construction (see "The Slowing Pipeline," right chart). Lodging supply is expected to increase by 2 percent this year, and only 0.4 percent in 2011. PwC forecasts 2011 gains of 5.7 percent in occupancy and 4.8 percent in average daily rate as a result.
Ancillary fees will have an impact. We likely will continue to see various methods of revenue-enhancement initiated by hoteliers before the recovery began, according to Carlson Wagonlit Travel's 2011 Travel Forecast. (CWT predicts a 6.4 to 7.4 percent overall increase in U.S. rates in 2011.) The practice of "unbundling" the total cost of components (as airlines do) in a stay is one that likely will stick, notes Mauricio Molina, director of hotel consulting for CWT Solutions. "Charging for improved and formerly complimentary amenities has been a vehicle to keep a hotel healthy in times of crisis," explains Molina, "and it will be a form of diversification in times of economic growth as well." CWT credits these ancillary fees as one way in which hoteliers have managed to increase revenue per available room even as rates continued to drop until earlier this year.
"Increased room-service charges and fees for luggage storage and items like the minibar and wireless Internet are some of the approaches used," notes Molina. "Overall, these charges account for an average of 33 percent of the total cost of stay, and we expect this proportion to remain steady next year -- meaning that new ancillary fees will increase along with room rates over the next 18 months."
Meetings will be light on amenities. Hotel meetings likely will continue to have relatively few amenities, as companies maintain a watch on meetings spend. According to the American Express Business Travel Global 2011 Forecast, companies will increase both the spending and frequency of their meetings next year, but an increased focus on sourcing and management will remain, leading to a lower expenditure per meeting, along with the growth of smaller, regional meetings. Meanwhile, the use of audiovisual services will rise, Amex expects, particularly the technology that adds virtual elements to face-to-face gatherings.
Lead times should increase. Steadily increasing demand coupled with a reduction in hotel construction also suggests that meeting lead times will begin to grow again. While most cities were beginning to approach pre-recession occupancy levels by the third quarter of this year, some, such as Chicago, Hong Kong, London and New York, already were in very high demand, per Advito's Category-Specific Trends and 2011 Forecast. The upshot: Increasingly, companies will find it more difficult to find hotel meeting space if they wait until the last minute to book.
By Michael J. Shapiro