to see Hotel executives panel
Hoteliers have been riding high in recent years, basking in the glow of record increases in vital categories such as occupancy and revenue per available room, and with demand growth outpacing supply growth since 2010. But with a new U.S. president in office and a world in flux for myriad reasons, will the good times continue to roll?
M&C recently reached out to several luminaries in the hospitality realm to discuss their outlook for the coming year, particularly when it comes to group business and whether geopolitical and/or economic factors will bring major changes to the industry.
Sources project that supply will outpace demand in 2017 for the first time in eight years. Will this affect the meetings market?
Chris Cahill: The supply side in the luxury and upper upscale in the U.S. and Canada is not really robust. Even if you look at New York City, with the amount of growth there, not that much is at the luxury tier, or even the upper-upscale tier; it's mostly limited-service or boutique product.
Michael Dominguez: Yeah, there is more supply, which is going to help in certain markets, but for meeting planners looking for space? There's just no space available in the U.S., because we haven't built anything significant on an average year-over-year basis since we were back in the peak of 2007. So it's great that we have some extra guest rooms, but that's not going to help if we can't have a meeting.
Frank Passanante: Meeting space actually has seen a continual decline over the last several years. Based on data we have from 2000 to 2009, the hotels that are being built now have 24 percent less meeting space per room. While room supply is catching up with the demand, we're building hotels with less meeting space. As we talk to customers, a common concern that they share is the lack of ability. So we're working to find solutions with our customers, taking a broader look at bundling their meetings business over the next 12 to 18 months or more.
Michael Massari: We've enjoyed somewhere between three and five years of an expansion market, depending on your segment. And it appears that 2017 will add a year to that, and 2018-'19 might add two more. So that would be six to eight years -- one of the longest, if not the longest, expansionary markets seen in the hospitality business. I've been doing this long enough to know that it's not normal. But the indications we have today are that the next three years are going to be quite good.
Peter Strebel: Group business is strong, but we're seeing some challenges in some markets -- it's really specific to the new supply. For example, in Texas, growth is happening in Austin, Houston and Dallas, so we're seeing some more competition in those markets. The same thing goes for a market like Nashville; we've been open there for three years, and it seems like every day there's a new hotel opening there, so that market is under a little pressure now as well. Where we see some pressure on group demand, though, we're able to replace that with surging leisure business. The outlook is still very strong.
Let's Stop Talking About Millennials
"I really think that this notion of Millennials as we've come to describe them doesn't actually exist," says Michael Massari, chief sales officer for Las Vegas-based Caesars Entertainment. "At some point soon, that's going to become a massive story. Every generation says these things about the next generation. What we're really talking about are marginal changes from generation to generation. And we're acting as if they're a different species."
He adds, "I find that most of what we say about Millennials is either patently untrue or true of only a portion but not the entire population, or they are characteristics that are just true of every generation at that age, at that part of their lives. I think they're getting pigeonholed into stuff that's really normal. It befuddles me."
Are Trump-administration actions affecting your business?
Strebel: We haven't seen anything positive or negative yet. I think what could be affected is the relationship we have with key inbound countries. I think the rhetoric has a psychological impact on people wanting to travel here. People in many places around the world have in some ways been fascinated with the U.S., and I hope that still remains true.
Massari: International travel is down, so we need to figure out why it's down and how we're going to get it back up, because it was a run of 12 to 15 straight years' worth of increases. We need to continue on our path of 100 million visitors to this country.
With respect to President Trump's executive orders on travel and immigration, we're concerned that the conversation doesn't have enough balance to it. You have to think about what people are hearing. We need to figure out a way to add balance, to be both secure and welcoming.
One thing that gives me promise is that we've got a president who's still doing rallies -- he clearly understands the value of face-to-face meetings. Another thing is that without international travel, our trade deficit would be 20 percent larger; I think a president who is borderline obsessed with exports is going to come around.
I'd be shocked if the president didn't also want there to be 100 million international travelers to the United States. That's good for employment, businesses, tax income and the U.S. trade balance. It's good for everybody. And if you can do it in a safe and secure manner, it's nearly perfect.
Dominguez: There's a lot of confusion out there about the executive orders, and the government has been doing a poor job of communicating them effectively around the world. But international travel started to dip last year, long before the executive orders were issued. I personally think that eventually this will be a small blip in terms of the overall effect on travel, but there's a lot of uncertainty around the world, and uncertainty is never good for travel.
The industry is going to make sure the administration is well-educated about travel, just as we did many times during the Obama administration. But there's a lot of noise in Washington right now, and we want to make sure we're approaching the administration while they don't have several different fires going on.
Passanante: I'm based in Washington, D.C., and I've been around Washington for 25 years. The reality is that with every new administration comes a level of change, and we're obligated to look at all the potential effects of the legislative agendas, and we watch it just like everybody else. Do we expect some things to change as a result of that new agenda? Yeah, probably. Have we seen any impact thus far? No, not really -- not more or less than we would expect to have seen with any other change of administration in the past.
Cahill: People keep thinking this volatility -- on a global basis -- is going to stabilize somehow. But there's a fundamental paradigm shift. I believe there will be increasingly dramatic swings in that volatility, whether because of geopolitical or financial issues, or the threat of terrorism. I don't think our abilities to predict will be as reliable as they were before. People need to be agile, to be able to shift with the changing issues.
Have you seen any change in the approach to booking room blocks for large events?
Passanante: What we've seen is a more conservative and realistic view, and a stronger partnership with the hotel community to make sure that there's a balanced approach to fulfilling group needs and the hotel's needs. That's been going on for several years, though, and I don't suspect it will change.
Strebel: We are seeing a change in cities where there's a very strong Airbnb presence -- in cities like New York, San Francisco, New Orleans and Orlando. Sometimes planners are seeing their blocks not pick up because people are straying off and staying at Airbnb-type alternatives. Over the past several years, we have seen some of those blocks reduced; I would say that we are inclined to be more realistic now. Instead of blocking, say, 1,000 rooms on peak, we're blocking 850. We're still seeing repeat peak periods like Mardi Gras, and New York City's Macy's Parade and U.N. General Assembly continue to sell out because there's enough demand. However, the pressure to maximize rates is not happening, and I believe that's also because of the elastic availability of the Airbnb product.
Dominguez: We're not seeing the approach change. The thing we're discussing more than anything with room blocks is what we've been discussing for the last couple of years, that we're spending much more time and effort measuring rooms that are being booked outside the blocks for a variety of reasons -- through different channels, through business travel programs. That seems to have a bigger impact for us than reducing blocks. But we're working to make sure clients get credit for rooms booked via different channels. It's become more complicated, and I think hotels need to have a better understanding of that.
Massari: People are very thoughtful about how they're calculating blocks, and they're often conservative -- but no, I wouldn't say that room blocks are getting smaller. And I certainly wouldn't say I'm seeing any indication that people will go without them.
Virgin Hotels, now with just one property open in Chicago, has an eye on the meetings industry -- and a robust development pipeline.
With seven hotels due to open in major markets through 2019, Virgin vice president of marketing Doug Carrillo (above) has high hopes for group business. "We are already seeing a slowdown in supply after 2019 in the markets we are going into," he says. "If the economy improves, there will be more of an appetite for companies to plan more meetings."
Plans call for grand openings in San Francisco this year, Dallas next year, and New York City; Nashville; New Orleans; Palm Springs, Calif.; and Silicon Valley in 2019.
"Virgin Hotels is being deliberate in creating hotels with proper meeting areas to compete with the larger brands but not lose its lifestyle identity," says Carrillo, who notes that a unique "chamber" guest-room design offers a suite-style experience: The dressing room (hallway, closet and bathroom) is separated from the sleeping lounge by a sliding set of privacy doors.
The brand promises "no nickel-and-diming." Among standards are free and unrestricted WiFi, no cancellation fees, a free daily social hour and minibars stocked with "healthy and naughty drinks and snacks" at street prices.
-- Loren G. Edelstein
Do you expect to see any changes in the near future with respect to hotel commissions and who earns them?
Massari: We are in a very profitable business. The margins in the hotel and catering business are very high. So if someone has a relationship with a customer and brings us an opportunity to do business, I am glad to pay them a commission. I don't see that ever changing. I know there are people in my industry that say 10 percent of this is a lot of money. And I say, so is 90. We make a lot of money off that, and I'm glad to share that with the person who brought me the opportunity.
Passanante: We value those partnerships, and we work with them and find ways together to mutually enhance our value proposition to our shared customer -- because ultimately we share an end-user customer, and that's what we're focused on -- adding more value together. We expect the relationships to continue to strengthen and grow.
Strebel: There's a very strong pressure to reduce commissions, but more on the transient side -- and we have seen those commissions go down from what we were paying four or five years ago. I think there's going to be continued pressure on commission. I also think that because of industry consolidation, we might see pressure on that. However, it's still a very fragmented business. The airlines were able to lower commissions dramatically, but there are only five or six major airlines that control 75 percent of the business. There will be downward pressure, but because our business is so decentralized, I don't expect it to go down dramatically.
Dominguez: People are making assumptions about changes in the industry that could be coming. I haven't heard or seen anything concrete. In today's world, many corporations have moved away from in-house corporate planners and toward third-party planners. We have great relationships with our third parties. The benefits more than outweigh the costs in our case.
What other topics do you expect will be major concerns or trends in the next couple of years?
Dominguez: Safety and security are the biggest and foremost conversations we're having -- for any event or meeting. Whether it's safety issues or cyber security, we need to know how to protect ourselves. And on top of that, the one thing that keeps me up at night is Europe. I'm highly concerned with Europe -- the huge populist movement, the French and Netherlands elections, movements that encourage their countries to leave the euro. If another country leaves the European Union, the EU will fall apart. In the short term, that'll create major problems in the global economy. In the long term it will level itself out, but in the short term it wouldn't be good for travel.
Cahill: I think the geopolitical rhetoric will cause travel to shift. If you stand back and look at it big picture, travel endures and has been growing by 4.5 percent per year for 20, 25 years, and it's predicted to grow by a similar number in the future. If you look at the rising middle class in emerging markets, combined with what technology has done to make people more aware, people are going to continue to travel.
Will they travel regionally instead of globally? That will depend on political issues and security. But people will likely just travel to a different locale. We saw part of that last year with Europe. The Americans went south, into Spain and Italy. France got hammered, and Belgium had a really difficult time. Many Chinese went to Australia. People will move around to different destinations, but I'm not sure that overall demand will change.
Strebel: There has been such an increase in the amount of technology that's available for your meeting programs and your shows, and for training. I think we as hoteliers have to spend time understanding that trend, to be in front of it as opposed to waiting for clients to ask for it. And of course you have to have major bandwidth going into the hotel, and we're increasing that every year.
Passanante: Everyone is looking for ways to create more unique, authentic experiences. There's a huge emphasis on the experiential aspect of a meeting, and it's one of the trends we will absolutely continue to hear a lot about in 2017 and beyond. We're seeing it in real time as our customers are challenging what they do and how they do it.
Chris Cahill, chief executive officer of luxury brands for Paris-based AccorHotels
Michael Dominguez, senior vice president/chief sales officer for Las Vegas-based MGM Resorts International
Michael Massari, chief sales officer for Las Vegas-based Caesars Entertainment
Frank Passanante, senior vice president of group sales for McLean, Va.-based Hilton Hotels & Resorts
Peter Strebel, chief marketing officer and senior vice president of sales for Dallas-based Omni Hotels & Resorts