Despite the formidable challenges of the past few years,
the hotel/travel industry has proved a gritty survivor bloodied,
perhaps, but remarkably resilient.
Consider the events of 2003. Hot on the heels of war in Iraq,
which kept much of corporate America’s purse strings tightly
knotted, came the SARS epidemic in Asia, a crisis that
singlehandedly crippled travel to that region. Even more vexing,
for much of the year the U.S. economy remained mired in a
slump.
But by October, the numbers began to tell a different story.
Corporate meetings, sidelined for much of the year, crept back into
boardrooms and ballrooms. Hotel occupancy levels started to inch
up, and advance meeting bookings, relatively rare during the past
two years, showed signs of resurgence. Some analysts were even
buzzing about the possibility of rising room rates.
While 2004 likely will not be a boom year for meetings, the
signs are encouraging. For a glimpse of the key issues facing the
industry in the next 12 months, M&C asked leading hoteliers,
airline and lodging analysts, and association heads for their
insights into the challenges, trends and critical developments that
lie ahead.
On the hotel front
The hotel industry spent much of 2003 cleaning house.
Noncore properties were purged from portfolios, and millions of
dollars were invested to bring other holdings in line with stricter
brand standards and operational requirements. The upshot: Many
hotels are entering 2004 fine-tuned, well-prepared and unabashedly
aggressive when it comes to courting group business.
" Teaming up to tame attrition. The instances
of attendees circumventing traditional registration to book through
online third-party providers has avalanched, leaving planners
increasingly frustrated and making attrition a major issue for
associations.
In 2004, a number of hotels will team up with planners to fight
the problem on a united front. “Hotel companies traditionally have
stayed on the sidelines and said, ‘We are protected by a contract.
It’s the customer’s problem,’” says Joel Pyser, vice president of
field sales for Bethesda, Md.-based Marriott International Inc.
“Well, we can’t afford to do that any longer. No one enjoys
presenting a customer with an attrition bill. We have to partner
with them to solve it.”
" Online control. Web surfing for the lowest
rate has become a consumer sport. It also is a major thorn for
planners managing room blocks. The Alexandria, Va.-based
International Society of Hospitality Consultants estimates online
bookings accounted for 30 to 40 percent of all reservations booked
within a four-week arrival window in 2003 up 20 percent over
pre-9/11 numbers.
Hotels are attempting to corral the chaos. “We have put a lot of
effort and capital into developing electronic tools to drive
customers to our own sites,” says Steve Armitage, senior vice
president of sales for Beverly Hills, Calif.-based Hilton Hotels
Corp. “In 2003, we increased electronic requests for proposal by 38
percent over 2002. I can honestly say to our meeting clients that
no matter where their attendees look, whether for a Hilton or
Hampton Inn, we have brand integrity.”
As of Jan. 1 this year, planners meeting at Marriott or
Renaissance properties in the United States can take advantage of a
deal Marriott forged with Quincy, Mass.-based Passkey International
Inc. last October. Attendees can register and book online, and
planners can access their group’s booking records 24/7 at no extra
charge.
“We made a significant investment on behalf of our clients to
give them the tools they need,” says Marriott’s Joel Pyser. “We
haven’t had time to see all the success yet, but I think when
customers see what we are doing on their behalf, that we are
willing to take some of the risk, it will pay off.”
"
New tracking tools. In November 2003, Hilton
announced it would implement revolutionary new registration audit
software at 30 of its largest convention hotels. When a meeting
planner’s registration list is downloaded into the Hilton system,
the program highlights any attendee name appearing twice. The new
software gives planners a significant edge in an attrition battle
waged over room-block pickup.
“We are very excited about this capability, because for the
first time our meeting clients will be able to fully capture
attendee bookings,” says Joyce Inderbitzi, CMP, Hilton vice
president of meeting and convention services, special events.
"
Tangible incentives. Marriott will continue
its planner focus groups, which tapped 500 meetings professionals
in 2003 for suggestions on how the hotel chain can help them
motivate attendees to book within their block. The results of those
sessions have been compiled into a best-practices strategy for all
Marriott properties, which will offer a number of enticements in
2004, including food and beverage discounts, reduced rates for
upgrades, complimentary transportation to and from the convention
center and help with event marketing.
For its part, Hilton has begun to work with clients on packaging
registration with room rates to make booking within the block more
attractive. Across the chain, general managers at the various
brands are taking an active on-site role in group business.
“We have come to a place where we believe the issue has to be
handled as a partnership,” says Hilton’s Armitage. “You don’t want
a situation where an association gets taken down.”
These moves come at a time when some industry insiders worry an
unchecked attrition problem could drive planners to avoid
contracting room blocks altogether for meetings where attendance is
voluntary, and instead negotiate solely for meeting space, F&B
and A/V. Armitage warns the impact would be disastrous for the
meetings industry. “Dropping room blocks is a shortsighted
approach, because there’s so much more at stake than room rate,” he
says. “The next time the group comes to rebook an event with the
city, they won’t get any concessions, because the city can show
there was less business on the books. And the planner can’t show
what the event really generated.”
"
Sticking to strategy. Stevan Porter,
president of Atlanta-based InterContinental Hotels Group, Americas
division, says despite signs of improvement in group business, the
chain has no plans to drop the year-old policy of charging no
cancellation or attrition fees for groups. “Our meeting planner
advisory board felt it was a good idea, and it was,” says Porter.
“It really helped drive business to us.”
"
Significant hotel renovation and development.
New development will focus more on upscale and full-service
convention hotels, rather than the limited-service properties that
have flooded the market over the past five years, according to
Hendersonville, Tenn.-based Smith Travel Research.
“Lodging is always planning for the next recovery cycle,” says
Mark Lomanno, president of the hospitality research firm. “Cities
with solid development in the pipeline include Houston and San
Diego.”
InterContinental, which bought the midpriced extended-stay brand
Candlewood Suites this past November, has just begun a two-year
program to develop 300 properties across its portfolio. “We are
going into new destinations,” says Stevan Porter. “In 2004, we will
add 100 properties to the Americas and Asia.” And in December 2005,
the chain will open its first resort property in the United States,
the 500-room InterContinental Wildflower in Grand Prairie,
Texas.
According to New York City-based PricewaterhouseCoopers, 89,000
new guest rooms will come into play during 2004, and hotels will
spend an estimated $3 billion on renovations. Most of that spend
will be in improvements visible to the guest, “such as guest rooms,
public spaces and function rooms,” says Bjorn Hanson, Ph.D., global
hospitality industry managing partner for PWC.
"
Rising rates in ’05. Room rates are expected
to hold steady in 2004, despite predictions of a robust demand,
notes Hanson. “New lodging supply this year will temper the
increased consumer demand,” he says. “But I believe occupancies
will rise throughout 2004, which will lead to increased room rates
by 2005. And that is what you need to have a sustained
recovery.”
In the meantime, Roger Helms, president of Scottsdale,
Ariz.-based HelmsBriscoe, a site selection firm, says clients have
begun to make advance bookings in key markets. “People are saying,
‘This is probably the last year we can afford to go to a city like
New York, San Francisco or Orlando,’ and they are willing to book
further out to get in,” he notes.
"
Independents gain. Four Seasons and
Ritz-Carlton, the long-established pillars of the luxury hotel
market, are going to have some serious competition from independent
properties in 2004, say the experts. “Because high-end brands like
Broadmoor, Doral and Greenbrier are geographically spread out, they
really don’t compete directly with each other in the same city,”
notes John Russell, chief executive officer of Naples, Fla.-based
Hospitality Artists, LLC, an industry consulting firm.
Russell also points out that as independent luxury properties
join forces to market themselves, their product will become more
familiar to meeting groups. “Not having the name recognition the
big luxuries have actually will work in their favor,” he adds,
“because they don’t shout ‘expensive.’”
“They will be formidable competitors,” admits Mark Ferland, vice
president of field sales for the Washington, D.C.-based
Ritz-Carlton Hotel Co. “Our brand identity is something our
organization is going to keep working at, so we can keep it strong
in the customer’s mind.”
"
Smarter sales forces. Hotels have been busy
retraining their sales teams to be more contract savvy and to
respond to demands procurement departments place on meeting
planners when they are negotiating.
“Procurement is getting more involved in the process. They want to
see all the breakdown for a meeting,” says Ferland. “We have
trained our salespeople to provide this to our meeting planner
clients. It makes our job more difficult, but you have to do it,
because you want to obtain more meetings business from them.”
Indeed, the hotel salespeople of 2004 will have a lot more
business acumen than their pre-9/11 counterparts, according to
Hilton’s Denise Lodrige-Kover, vice president, business travel
sales and strategic partnership accounts. “They will be able to
write a business plan, really understand contractual issues and
know their customers’ corporate cultures in depth when they sit
down with them,” she says.
"
Investing in technology. Hotels have invested
a significant amount of capital on outfitting properties with
high-speed Internet access, wireless options and on-site tech
support. Less apparent, but even more significant, are
back-of-the-house technology rollouts specifically designed to
address meeting group needs.
U.S. branded hotel chains will continue to invest heavily in
tech, according to the 2004 Hotel Technology Spend Survey released
last November by Ridgefield, Conn.-based The Duck, LLC, an industry
marketing and technology firm. Seventy-five percent of survey
respondents, representing 26,000 hotels, said they would spend the
same amount on technology as they did in 2003, with 80 percent
reporting equipment replacement and infrastructure as priorities.
Meeting planners will be the prime benefactors.
For example, Toronto-based Fairmont Hotels & Resorts plans
to roll out in the first quarter of this year a standardized group
management system across its portfolio, which will allow the chain
to assess all group leads on a global basis. “A centralized system
will give us a real global sales solution,” says Tom Storey,
Fairmont executive vice president, business development and
strategy. “It will allow us to get back to the customer within a
24-hour window.”
"
Growth in online bookings. According to
Sherman, Conn.-based PhoCusWright, a research and forecasting firm
for the travel industry, nine out of 10 companies with managed
travel programs currently are using an online booking tool. And of
that number, more than 40 percent are using it to book their
meetings and group travel.
“I think one of the big stories going into 2004 is that online
corporate travel management is going to spill over into meetings,”
says Kevin Mitchell, chairman of the Radnor, Pa.-based Business
Travel Coalition. “By 2005, it will have made significant inroads.”
Airlines shape up
The airline industry has been in a state of turbulence for
the past two years. This year, competition among the major carriers
for business travel dollars will be fiercer than ever, especially
as low-cost carriers continue to gain market share and attract
corporate travelers.
" Low-cost fleet expansion. As the popularity
of low-cost carriers grows, they are adding more planes on
established routes and gearing up to enter new markets. According
to New Haven, Conn.-based Back Aviation Solutions, an industry
consulting firm, such airlines accounted for 61 percent of all
aircraft orders in July 2003, compared to only 15 percent in
2001.
Jamie Baker, an airline analyst with New York City-based J.P.
Morgan, estimates low-cost carriers will have at least 1,030
aircraft in operation by year-end 2006, up from fewer than 800 in
2003.
“As low-cost carriers gain critical mass, their market share
will grow, and that will push fares down,” says Vaughn Cordle,
president of Airlineforecasts.com, a research firm in Washington,
D.C. He adds, “When the fares go down, volume will go up.”
" Low-cost catches on overseas. The appeal of
low-cost carriers as an alternative to the majors is not just an
American phenomenon. The United Kingdom’s EasyJet, Irish discounter
Ryanair and Australia’s Virgin Blue all have been gaining market
share. Asia, too, is gearing up to launch its own low-cost
entrants, which would go head-to-head with major carriers such as
Malaysian Airlines, Singapore Airlines and Thai Airways.
AirAsia, Malaysia’s budget carrier, is looking to establish a
low-cost airline in Singapore on the lucrative shuttle route from
Singapore to Kuala Lumpur. In December, Singapore Airlines
announced the 2004 debut of its budget offshoot, Tiger Airways,
even as former executives of the carrier were finalizing plans for
ValueAir, a new low-cost entry tentatively scheduled to launch
midyear. And last November, Thai Airways International announced
plans to launch a low-cost airline by April 2004 but supplied few
details on routes or capacity.
“The international low-cost carriers are burgeoning and will
become significant players,” says Cordle. “These new airlines have
younger employers who are paid less, and they don’t have benefit
plans. That’s why they can offer such discounted rates.”
" Courting meetings. The major carriers will
likely still seek meetings business in 2004, says BTC chairman
Kevin Mitchell. “They remain in the recovery mode, and there is a
lot of competition,” he notes. “When capacity exceeds supply, the
airlines can get very creative.”
As for budget carriers, last November, Southwest discontinued
its meetings program to concentrate on its core business, low-cost
fares (deals made for meeting business through Dec. 31, 2004, will
be honored). Other such carriers, including America West, ATA,
Frontier, Midwest, Song and Spirit, still continue to offer meeting
rates. But that could change.
“I suspect that, because Southwest is the leader, the other
airlines are watching closely what they do,” says Cordle. “It is
quite likely the other low-cost carriers will follow their
lead.”
On the other hand, according to Kevin Mitchell, “Unlike the
major carriers, the low-cost airlines do not compete industrywide
with each other. What might make perfect sense for Southwest might
be completely at odds with, say, AirTran. I would be surprised if
the budget carriers followed suit.”
Meanwhile, the BTC’s U.S. Business Travel Survey, released last
October, found 76 percent of corporations increased their use of
low-far airlines in 2003; of that number, 65 percent expect to
increase their use even more in 2004.
" Alliances to strengthen. Growing competition
will force the major carriers to strengthen and form new alliances,
say analysts. “Alliances are a way to get around higher cost
structure and drive cost savings,” says Cordle. “The U.S. carriers
have 35 percent of their market overseas, so global alliances are
going to get much stronger.”
In the first half of 2004, Swiss International Air Lines will
become Oneworld Alliance’s ninth member. US Airways is scheduled to
join the Star Alliance this year, while Mexicana Airlines will end
its membership with Star as of March 31.
How Planners View
2004
To find out what meeting planners
predict for 2004, M&C and NTM Research conducted an online poll
in November. Most of the 574 respondents (57 percent) say their
2004 budgets will remain the same when compared to 2003;
one-quarter (25 percent) expect their budgets to increase, while 18
percent think a decrease is likely.
More than two-thirds (68 percent) are considering new domestic
destinations in 2004, and another one in five (21 percent) are
thinking about new international destinations. Of those considering
new places, almost half (47 percent) cite a supervisor or a
client’s preference, 34 percent say the proximity of the
destination is a driving force.
Location (85 percent) and rate (80 percent) are the top two most
important factors in choosing hotels for 2004.
The Game Plan for
Hotels
To gauge how hotels will meet the challenges of the new year,
M&C surveyed nearly 600 hotel sales professionals for their
take on changes in room rates, security, tech offerings and more.
The responses reveal a hospitality industry aggressively striving
to attract more meetings business.
